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The problem with Software as a Service subscriptions

We are, without question, in the Software as a Service (SaaS) era. Perhaps just at the start of it, but we’re in it for sure. There’s a new economy emerging and it’s one that has considerable pluses and minuses for all parties involved. This is the era of software subscriptions and it’s an ever-expanding era.

To be sure, SaaS doesn’t AUTOMATICALLY mean subscriptions. You can certainly offer SaaS without the need to subscribe to it. But that’s not what we’re here to talk about today. We’re discussing the subscriptions aspect of SaaS specifically, so when I say SaaS going forward understand that I’m talking about subscriptions.

I don’t know who actually started it, but everyone is doing it nowadays: Adobe, Microsoft, Jetbrains, IDM, the list goes on and on. As a customer you are now frequently asked to not actually purchase a piece of software outright but instead to purchase the RIGHT to use it for some period of time. Some will argue that software has ALWAYS been that way: EULAs for a long time have basically been grants to use software, not a transfer of ownership. However, that’s largely a matter of semantics. The fact is that when you purchase a boxed piece of software (or download it) and you aren’t paying a subscription then you do, for all practical purposes, “own” that software regardless of what the EULA says.

It’s quite easy to understand why subscriptions are a Very Good Thing™ from the vendor’s point of view: this is guaranteed income! It’s a roughly static revenue stream (well, you HOPE it’s NOT static and always grows, but it’s static in that once someone signs up you know how much income you’re getting from them and for what period of time). It also has the benefit that they can support a single version of an application. That reduces their effort and cost thereby increasing their income even further. They can also shut you off at any time if the need should arise for any reason and makes software piracy much easier to stop (theoretically impossible). In other words: it makes tremendous sense for a vendor in many ways.

But does it make as much sense for consumers?

Well, there’s some clear benefits of course. First, you always have the latest and (in theory at least) greatest version of an application. We all love hitting that update button on our phones and seeing new features in apps we use and the same is generally true for the software we use on our PCs, MACs and other desktops too. It’s also less effort: updates are either pushed to us transparently or we’re alerted to an update and encouraged to accept it. It’s all very convenient and kinda fun to get the New Hotness every so often!

We also know what our expense is up-front. There’s no more deciding whether to purchase a new version, whose price may have increased, because you’ve already essentially paid for it with the subscription and you knew up-front how much the cost was. And, because you’re paying at some regular interval, the cost is spread out and well-defined each time. It’s almost like paying for your software on credit in a sense and that ability to “budget” the cost is attractive to a lot of people, more so than a large lump sum payment is (hey, I’m generally in that boat for sure!)

But, there’s also significant down sides.

Perhaps the biggest is the potential for breaking changes. If the vendor pushes an update that breaks something, especially if it’s something you use all the time, that’s a bad day for you. And, when those updates aren’t by choice and you can’t roll back, you’re in an even worse situation. This is of course the big complaint against Microsoft’s policy with Windows 10, and it’s starting to look like they may acquiesce just a little on this point. Also, as is the case with Windows 10 updates, the vendor is under no obligation to even communicate to you what the changes are! You just have to trust that they (a) are delivering things properly and (b) are delivering things you actually WANT.
It’s not just about breakages either: a vendor can arbitrarily make changes - just because! Remember with Microsoft introduced the Ribbon to Office? Many people positively HATED it. So, what was the alternative? Simple: don’t buy the newer version that has it and continue to use the version you’ve already paid for. If you have a more or less steady base of subscribers then you don’t have the benefit of tracking sales over time to determine if the changes you made were well-received or not. Sure, there’s other ways to illicit feedback from customers, but why would you bother? You already KNOW what’s best for them or you wouldn’t have put the change in there to begin with! The only feedback that really matters in such case is lost sales, and that doesn’t happen with subscriptions.

If that had happened during this SaaS era though, you’d have had no choice. It would have been Ribbons for everyone, like it or lump it!

Another problem is around connectivity, though I personally consider this to be smaller issue. SaaS of course requires some sort of connectivity to work in nearly all cases. Sometimes it’s not bad at all: the software may ping back to the Mother Ship every few days, weeks or even months to confirm it’s still okay to run. That’s probably not too big a deal. But if the software runs in the cloud of course then you need a constant connection. In either case though, the issue is that there’s a potential that your software will just not work one day. If you have a report to write for work and all of a sudden Word won’t run because it can’t validate your subscription due to a network outage down the road, well, that’s just too bad for you. As I said though, I view this issue as somewhat of a minor one though because vendors usually have some allowances for this sort of thing that will avoid such nasty scenarios most of the time. Still, the fact that they’re even possible is something to think about.

There’s also a problem of rising costs. While it’s certainly true that a vendor can raise the price of their products at any time regardless of how they’re delivered, there’s a fundamental difference with a subscription in that it’s almost like an addiction: you’re accustomed to having the latest version, you’re work DEPENDS on having the latest version maybe (think of things like file format changes) so you almost have no choice but to just pay the new higher price. Remember too: if you decide not to pay, you can’t just freeze on a current version and continue using it. No, you’re cut off entirely. You either pay or you do without. If it was straight-up purchased software then your choice is simple: don’t buy the new version at the higher price and continue to use what you’ve ALREADY purchased outright. No such choice (usually) exists with a SaaS though.

I’ve touched upon it a couple of times already but now let’s talk directly about a more fundamental problem lurking in this model: for nearly all SaaS subscriptions, if you no longer pay, you no longer have software to use. Period! This is vastly different than purchasing software directly. On the shelf in my office I have a disc with Microsoft Office 2000 on it. Sure, it’s a very old version now, but you know what? It still works! I could load that up and use it right now without any problem because I purchased it outright. I may not WANT to use such an old version, but I at least have that option.

Not so with SaaS. You either pay to use the current version, which is usually the only version you CAN use, or you don’t get access to anything at all (there may be a few subscriptions that DO in fact allow you to use older versions, perhaps even after your subscription has lapsed, but they would certainly be the exception that proves the rule).

But, the problems I’ve described thus far as the pretty obvious ones that everyone realizes. I’m not breaking any new ground here. But, there’s another somewhat more insidious and less obvious problem with SaaS and it may just be the biggest: the vendor no longer has any real reason to innovate. There’s far less incentive for them to improve the product at all.

Think about it: when you have a subscription, you’re in a sense paying for what you already have. Sure, Photoshop may get some new features, but it’s the same essential product. What might Adobe do? Well, they may think: “Gee, people are paying for Photoshop regardless of what we actually do with it… that’s guaranteed income… why don’t we re-allocate our Photoshop development resources to a new product that we can later get people hooked with a subscription on? That’s increased revenue!” You really only have the good will of the vendor to improve the product because there’s no longer a financial incentive to do so and there may in fact be MORE incentive to NOT do so.

All a vendor really has to do is put out a small handful of bug fixes every so often and that’s enough for them to be able to claim that they’re upholding their end of the subscription bargain.

When you purchase a software subscription, you’re basically paying for something sight unseen. You don’t know what’s going to come down the pipe later, but you’re sure as hell paying for it either way. There’s no real obligation on the part of the vendor to even deliver anything more. Oh, you might get a new killer feature that becomes a truly must-have sometimes, but you don’t KNOW that when you click the “Pay Now” button. That’s the gamble you make with SaaS.

And yes, before anyone brings it up: you can usually cancel a subscription any time you want. Except, that misses two truths. One is that in at least some cases you really can’t… if you’re paying monthly then you can maybe argue it’s true, but if you paid yearly? Do you know many SaaS vendors who will refund you the portion of the fee you paid for the nine months you’re now cancelling? That’s true even on a monthly basis, but the damage is considerably less, so people tend not to notice as much. I’m sure there are some cool vendors out there that WILL do that, but again, they’re exceptions. Second, there’s that whole “addicted” aspect of this that is no small matter. Do you really want to go cold turkey and not have access to the software anymore? CAN you do that? If your daily work depends on Office 365 then cancelling, no matter how cool the vendor is about it, isn’t going to fly because you won’t have access to ANY version of the software anymore. That makes cancelling pretty much a non-starter.

So, what’s the bottom line here? Well, if vendors do the right thing then it’s probably that all the positives outweigh the negatives. If they are quality-oriented then they won’t deliver broken updates. If they care about the customers and their products then they’ll deliver new features that people actually want. If they listen to their customers and illicit feedback regularly then they’ll be able to accomplish those goals. As customers, we’ll have the benefit of the latest and greatest at a known and essentially fixed cost. That’s all good stuff.
If they’re bad vendors though? Ugh, we may be in for very hard times.

People need software to work whether professionally or just as a hobby. There’s not really an option of NOT getting into subscriptions at some point. Eventually, that old version of Office 2010 simply won’t run anymore, and I won’t want to be bothered getting an old Windows license to run in a virtual machine. And when I go to buy a new version that will work? Well, SaaS will be my only choice. Subscriptions are only increasing and it probably won’t be long before they are the norm in the software world. Open-source will still be a choice of course, that seems unlikely to ever go full-blown SaaS, and maybe at some point we’ll see a spike in its usage beyond the techie crowd (and beyond a few more mainstream apps). Frankly though, if that hasn’t really happened yet I doubt SaaS is going to change that.

The more likely scenario is people will just get used to the SaaS model. They’ll deal with the headaches because they’ll be sold on the benefits, whether they ACTUALLY outweigh the negatives or not. It all comes down to marketing, doesn’t it?

But, there’s no question in my mind that we’re starting down a path of leaving behind a model that worked for many years. Maybe this is just changing times and we’ll all have to adapt, or maybe it’s a mistake. It’s certainly not a mistake for the vendors, that much is clear. Do customers lose out as a result? There’s certainly cause for concern I’d say.

Now, if you’ll excuse me, I have to go renew my Office 365 subscription 🙂

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