Software subscription models: pros and cons
Subscription software has been around a long time, much longer than the hoo-ha about Adobe Creative Cloud earlier this year. When Adobe changed their business model, it was treated like the death of a family pet in some quarters. However, the real question isn’t why Adobe changed, but why we were surprised.
The move to software subscription models is tied inextricably to the changing culture of business and the ever-moving world of technology that surrounds it. It is inevitable.
Shortly, we’ll look at the pros and cons of subscription software, but first…
Software subscription: a brief history lesson
In 1960, subscription models looked a little different. For those businesses who had the need – mainly banks and other large companies – you could time-share an IBM mainframe, grabbing processor cycles and storage. For those who couldn’t afford a house-sized computer, it was the next best thing: the 1960s equivalent of cloud computing. And so it remained until the desktop PC era, when suddenly every business had its own computer. In this era, subscriptions were to ASPs (Application Service Providers), specialist companies that would run complex specialist business programs for you, either on premise or in a data center. Then came the leap forward with SaaS, which itself was tied to the ever more pervasive internet, delivering applications through the web browser. For the first time, a business operating in a single location could deliver applications to a business anywhere in the world without the need to install and maintain software on the local machine. The future was here.
Back to the story
Of course, the history of subscription only tells half of the story; just because something is possible, it doesn’t make it necessary. There are three underlying reasons behind the rise of the subscription model.
#1 – Cloud computing
The subscription model could not function without the basic underlying technology stack of cloud computing. Delivering applications over the cloud, with its associated fluctuations in processing and storage needs, requires the capability to scale seamlessly with demand. The introduction of virtual machines and advanced storage solutions has made this flexibility possible for every company and individual who wants it. Today’s SaaS vendors don’t even have to invest in infrastructure; they simply have to have the product. They can rent infrastructure as they need it.
#2 – Outsourcing
The day Nike turned into a marketing company (they’ve now evolved again, this time into a health-related tech and data company), instead of a company that made trainers, the business world took a big turn. Outsourcing your core business was no longer an issue. After all, Nike said, why should we invest in the cost and risk of setting up factories when we can get people doing this for us at lower cost and at their own risk? Since then, many businesses have legitimately outsourced large chunks of their work to other companies, whether it is HR services, IT support, hosting services, manufacturing or finance. It is no longer imperative for a organization to own every asset, and that runs right down to the back-office software that keeps things ticking.
#3 – iTunes
Okay, not just iTunes, but digital music. Subscription requires a change of consumer mindset, and iTunes delivered it by legitimizing digital music services. Within a few short years, the concept of ownership changed from the physical to the digital, from something you can hold to something that exists only as electronic data. It’s a massive shift in the perception of value. Today’s consumer has arguably moved on a step further, with services like Spotify and Rdio removing the requirement to even nominally own any piece of music. You can simply have all of it – for a monthly fee.
Why doesn’t everyone move to subscription now?
It would seem that there is no reason to do anything but subscribe to software, but there are a few things to bear in mind. Even if we are culturally ready, both as individuals and businesses, you need to look at all the angles. After all, the notion of subscription changes dependent on the product. A subscription to Creative Cloud is different from an MSDN subscription, which is different from licensing Salesforce.com. Here are a few things to think about when choosing to subscribe or buy.
#1 – Spreading the cost
One of the key reasons businesses move away from purchases toward rentals, be it hardware or software, is the reduction in large upfront capital expense. Replacing these payments with a steady trickle of smaller payments gives a business a more robust forecast of cashflow and allows it to scale without further large injections of capital.
#2 – Progress and innovation
Subscription software, especially that delivered over the web, has the ability to update itself much faster. Users immediately gain access to the latest product features and enhancements. Without being tied to a physical distribution structure, updates can be smaller and more frequent, with minimal or no impact on the end user. Even better, the upgrade takes place under the control of the service provider, meaning no IT worries for the business in deploying updates. Knowing this is the case means the service provider can also provide better support, as all users will be running the same version of the software.
#3 – Less IT impact
In a perfect IT world, all programs would be tested to work together or there would be only a small number of programs; it would make support and maintenance so much easier. Unfortunately, this isn’t a perfect world. Luckily, cloud-based services that run through the browser bring us a step nearer. Automated upgrades and upgrade rollouts help speed deployments while minimizing the load on IT.
#1 – Do you need to update?
When Adobe moved to the Creative Cloud, it wasn’t on a whim; it made good business sense for them. With a capable product in the market, the imperative to upgrade is reduced, and with a perpetual license model, that can hurt. It’s the same issue that is experienced by database providers, operating system publishers and others. The question to ask yourself when committing to a subscription model versus a fixed cost model is: do I need the updates?
#2 – IT governance
We’ve previously dispensed with some of the lingering myths about security and privacy concerns in the cloud. Still, if you are working in highly regulated industries, you’ll need to ensure that your cloud vendors cover all regulatory requirements, from data protection to user security and access.
#3 – Isolation
Hosting offsite can decrease the impact on internal systems, but it can also decrease the ability to integrate with other systems, something that is essential in today’s business in order to provide clear business analytics and efficient process management. This has been recognized as a weakness of these systems, which has led to a rise in APIs (Application Programming Interfaces) being created; VentureBeat reported that over 85% of large enterprises will create these APIs within the next five years, opening the way to stronger integration.
Past vs. future
It’s no surprise that Adobe went the way it did; as stated at the outset, the shift toward subscription is inevitable. Businesses should be ready to reap the benefits – and address the occasional challenges – of this new model.
Do you work in a business that has changed its offering to a subscription model? Or are you a business that has started buying these services? Are you a fan of the old licensing models? Let us know in the comments.