What it is: The makers of Ulysses, a popular writing word processor, recently switched to a monthly subscription model.
Here’s how software used to work. Companies developed software and charged $495 or more. In return for this cost, you got a disk, printed manual, and technical support over the telephone. Then rivals started offering similar products at lower and lower costs, often breaking below the $100 level.
Other companies bundled related programs together such as Microsoft Office that included Word, Excel, Access, and PowerPoint. the goal was no longer to make money selling individual programs but to lock people into particular products (and lock rivals out).
Unfortunately, the lower cost of software meant that developers had a harder time making money. that’s why big companies like Adobe and Microsoft decided to switch to software as a service. That means paying a lower upfront cost and getting regular updates. In return, you have to pay a monthly or annual subscription fee. In the long run, this subscription fee will cost more than the regular price of the software.
For software publishers, subscriptions create a reliable and predictable form or revenue. For users, subscriptions are cheaper initially, but more expensive in the long run. The big question is whether software as a service will be a fad, limited to a handful of big companies or the newest trend.
Most likely the answer is that software as service will work for major software, but not for minor ones. People will pay for Microsoft Office 365 or Adobe Creative Suite, but they probably won’t want to pay a subscription fee for a specialized tool. The problem is that paying for a handful of subscription services is reasonable, but paying ten or twenty subscriptions quickly becomes unwieldy.
That means big companies like Microsoft and Adobe will likely get away with subscription services, but smaller publishers will not. Big companies can be depended on offering regular updates for the price of your subscription, but smaller companies may not be as dependable.
For critical software, software as a service will work. For less critical software, software as a service probably will not work. As an alternative, expect ad-based software to become popular, especially on smartphone and tablet apps.
What’s unlikely to ever happen is that software will go back to $495 prices, except for niche software like CAD. Software as a subscription will around, but it probably won’t be adopted widely. That means some people will still want to buy software instead of renting it as a subscription. Just look at the handful of people balking at the subscription price of Adobe software and using alternatives like Affinity Designer or Affinity Photo instead.
As a general rule, big companies and specialized software can use the software as service model, but for everyone else, look for the traditional selling business model to work better instead.
Then again, who knows? The world of computers keeps changing so the only certainty is that today’s business model will be obsolete tomorrow.