How much does Microsoft Word cost? That question isn’t so easy to answer anymore, thanks to a new business model that is becoming ever more popular in the software world. Before we look at this new business model, let’s look at how software was purchased in the days of yore.
Back in the day, software was purchased once from a software vendor and then that software would be yours to own forever. Usually some level of future updates would be included in the price of the software, but major new versions would mean you’d have to buy the software again once the new hotness came out. Software piracy was also an issue with this model, as once software was purchased it was static; the piracy protection part of the software code could be cracked, tricked, and fooled into thinking it was a legitimate copy of the software and then distributed online. Lastly, software was expensive! Microsoft Word, for example, cost hundreds of dollars to purchase because Microsoft had to make up all of the development money they sunk into the software all at once in one purchase.
Thus here comes in the subscription model to the rescue of the software industry! With a subscription model instead of purchasing the software upfront, customers pay a recurring fee (usually monthly or annually) for the continued privilege of using the software. This model is much more beneficial to software companies as they are able to get a predictable recurring revenue stream instead of random and unpredictable spikes and lulls of sales. It’s better for the consumer, because the high price of software can be amortized over the course of a longer period of time. This both serves to lower the overall cost paid by the consumer, and remove the unappealing initial sticker shock of buying software. The subscription model also gives the user better software since the user will get new updates for the software, as long as they continue to pay their subscription fee. The subscription model also helps curb piracy, as only someone with an active and paid user account can use the software – you won’t give out your personal account info as readily as you’d hand someone a copy of the software.
While the subscription model is most popular in the world of complex, expensive software such as Microsoft Office and Adobe Photoshop, it is also becoming more popular in the world of the bite-sized (no pun intended) pieces of software that we use every day in the form of apps on our phones and tablets. For many of the same reasons as massive, expensive software suites, app developers are seeing the benefit of the subscription model, especially in a market where even getting someone to commit $0.99 upfront is a huge challenge. The subscription model in the mobile app world often takes the form of “freemium” software, where one can use a basic version of the product for free, but must pay a subscription fee (or sometimes a one-time fee) to unlock advanced functionality. Two examples of the “freemium” model are Evernote and Spotify. Evernote offers their basic service for free, but for $4.99 a month you can unlock extra features. Likewise Spotify offers a free ad-supported version of their service with the option to pay $9.99 a month for unlimited, ad-free music.
With business-essential and massively popular software in various fields all turning to the subscription model, it is clear that the subscription model is here to stay. With enterprise software such as Microsoft Office, Adobe Photoshop, Autodesk’s AutoCAD, and consumer apps such as Evernote and Spotify all turning to the subscription model, the idea of paying a single upfront cost for software is fast disappearing.
