October 29, 2018

Subscriptions Are Not the Magic Bullet

The Way ForwardThe Way Forward

This is the original article which revealed Apple’s interactions with app developers: Why Apple had a secret meeting with app developers in New York to discuss the App Store - INSIDER

These are some of the reactions to the news:

Apple reportedly pushing developers to move to subscriptions | iLounge News

Apple is secretly encouraging paid app developers to switch to subscription – ldstephens

Apple Privately Advocates for Developer Adoption of Subscriptions – MacStories

Gruber living up to his growing reputation as a stenographer for Apple PR, posits in Daring Fireball that,

Up front paid apps are going the way of the dodo. Whether you think that’s good or bad, it doesn’t matter. That’s where things are going.

No editorial. No comment. Only the assertion that you plebs should mindlessly follow what your corporate overlords are setting out for you. That is Gruber now. I remember when he had a spine and insight.

These are examples of companies who are doing fine without resorting to subscriptions:

  1. OmniGroup with products OmniFocus, OmniOutliner, OmniGraffle and OmniPlan. These products are icons in the professional category of software on the macOS. No subscriptions. One time payment with upgrade revenue on new versions.
  2. Bare Bones Software and their product BBEdit 12. One time purchase, with upgrade revenue.
  3. Things. Again, one time purchase with upgrade revenue.
  4. Highland 2. One time purchase with upgrade revenue.
  5. Utilities like Hazel, Keyboard Maestro, Alfred, LaunchBar, and so on.

I could go on. In fact, I will:

  1. ScreenFlow
  2. Fantastical and Cardhop for Mac
  3. Scrivener
  4. Final Draft
  5. iA Writer
  6. Pixelmator Pro
  7. Acorn

The irony is that Apple is not following its own advice:

  1. Logic Pro X - Apple
  2. Final Cut Pro X - Apple
  3. Pages, Numbers and Keynote are free.

Are subscriptions the only way to go?

Hell no.

What Does a Developer Do?

The carrot is increased revenue. Is that always a by-product of a subscription? The answer is the usual difficult fence-sitting one, “It depends.”

You have to consider a mixture of factors, and they act in concert:

  1. The goals for the product.
  2. The nature of the product.
  3. The nature of the market.

Growing income stream. Increasing market share. Retaining market share. Provision of enough income to support the creation of a software company. These are all goals which are relevant to my discussion.

You are trying to price a viable product. Viable in the sense that it is going to provide enough income to justify its development. That is a function of the size of the market it serves, the market penetration you can achieve and the price you are willing to charge for it.

Viability is a function of the nature of the product. For instance, a utility which performs a singular task required by the consumer sporadically is not going to be enough to build a software company around. Yet, it can be a part of a mix of solutions which together provide the foundations of a software company. Pricing for such products can be a mix of both subscription pricing and full version pricing. For instance, Gemini 2 is a product which finds duplicate files on hard drives and gives you the option of deleting these duplicates to increase hard drive space and reduce clutter from hard drives. Not a product which you are going to be using too many times. I can envisage a dual pricing strategy for such a product. A monthly subscription price and a full version price. The full version price is going to be something some consumers who need this feature on a consistent basis will prefer. The monthly subscription will be preferred by consumers who want the product for a few uses at a particular time but are turned off by the full version price. This ensures that you are segmenting the marketplace through your pricing strategy. The heavy users pay a different price from the occasional user.

Products can be classified on the basis of how critical they are to the workflow of the consumer. Alfred is one of the apps which I consider to be essential to the use of my macOS devices. It is one of the first apps I install on a new Mac. They have an interesting pricing strategy. A free version which does the basics of file launching, file finding, and basic web searching. The product comes into its own with a Powerpack purchase. They price it at £19. They have a Mega Supporter license which entitles the consumer to free lifetime upgrades for £35. They periodically will introduce a new version requiring the regular users to pay a reduced upgrade price. This does not happen often. I have been using the product for almost six years now and they are at version 3.7. The paying upgrades are few and far between for the regular consumer. I am a Mega Supporter and that is the best money I have spent on software.

The marketplace for a product like Alfred has a couple of competitors. A product called Quicksilver is a free app which had a fanatical fan base for a while. Development has been sporadic on the product. The other competitor is LaunchBar 6. This is a commercial product which has a dedicated group of users whose fingers have become infused with LaunchBar mojo. It is priced at $29 with $19 as the upgrade price from previous versions.

Both Alfred and LaunchBar are leaving money on the table. They can charge more for their product. They can switch to subscription pricing for their pricing. In fact, they can do pretty much whatever they want to do with their pricing strategy. Initially when the products were launched, they faced competition from Quicksilver, a free solution, which was being developed actively and also had gathered a large user base. The conservative pricing is a legacy of those times. Quicksilver is long dead. Both Alfred and LaunchBar have managed to carve out sizable chunks of the market and are by nature products which have high switching costs. They can both switch to a subscription pricing model of something like $19 a year without seeing any large decrease in their user base.

Both companies seem to be content with the existing pricing structure though. Alfred is a single product company. Yes, they have Alfred Remote on iOS, but that seems a proof of concept product rather than a viable product. Objective Development is a three product company. They sell Little Snitch 4, Micro Snitch, and LaunchBar. Little Snitch is a crucial security product for users, and has a dedicated, loyal user base. Micro Snitch is relatively newer and I am not familiar with it. The strategies of the two companies are a tad different in that Objective Development has a focus on security and productivity, while Running with Crayons Ltd. the company behind Alfred has all its eggs in the Alfred business.

In that context, Alfred is more conservative in their approach to the pricing question than Objective Development has to be with the pricing of LaunchBar.

Take another segment in the marketplace. Writing software. This is another market where there are multiple competitors. The main players are Scrivener and Ulysses. There are a host of other competitors in the marketplace but these are the two which hold the most marketshare.

Ulysses is a product which is wedded to the Apple eco-system. They have a macOS version and an iOS version of their product and you pay a single subscription price for the product on both platforms. It is a subscription of $39.99/year.

Scrivener is a cross-platform solution. Starting life in the macOS platform. Scrivener is available on macOS, iOS and Windows. It is $45 for a full version on macOS and Windows. The iOS version is $19.99. I have been a customer for almost ten years and they have gone from version 1 to version 3 in that time. Major version upgrades come along at the rate of every three years or more. My total outlay for this piece of software has been around $90 for ten years. Say $10/year for easier comparison.

For writers, writing software is crucial to their livelihood. Aspiring writers will try out a subset of the competing offerings, or follow some recommendation from a colleague to acquire and adopt a software solution. Then comes the deep dive. Ulysses less so than Scrivener is different from other solutions available in the marketplace in both focus and implementation of its many features. Requires a deep dive into the internals to get use out of Scrivener. I have been recommending Scrivener for a long while to all my acquaintances who express an interest in writing of any form. I tell them to not get overburdened by the intricacies of the program. Start using the program and the features will be revealed when you need them and you will have to get into the manual and become familiar with the particular feature. Bite sized learning works best for a beast like Scrivener.

Ulysses is a simpler alternative. If you are familiar with any software, it will take you a few hours to know everything that Ulysses is capable of. Its simplicity is a part of its charm.

They both tackle the problem of putting words into the computer. Arranging them into a form which makes sense to you and wringing out an output which is usable for whatever purpose you have destined for them. You write. You edit. You write some more. You edit a lot more. Finally when you get tired of this cycle or think that the product is ready, you output into a word document to send to your editor, or a pdf file to print out and obsess over every word, or output an ePub to send to a digital house to put it out for sale. That is the cycle every writer is familiar with. That is the purpose of writing software. Both products fulfill these needs. Scrivener has more tools to help you with the process of writing. Ulysses takes a minimalistic approach to the problem. A blank page with your words in it. Minimal tag, keyword, comment and annotation support, writing goals, and a self-contained library of files to make the writing easy.

One other important distinction: Scrivener is a rich text environment, Ulysses is a plain text environment with minimal support of Markdown for formatting goodness.

Since these are two of the most popular products in the writing space, most writers are familiar with both products. Some writers use both. Scrivener for book-length projects, Ulysses for short projects is a common break-up of tasks. There are of course switchers, people who started with one and ended up in the other because of their own reasons. There are those who swear allegiance to one or the other. They are rabid about it sometimes. But these are the two main choices in the marketplace.

Ulysses changed from the usual pricing strategy to a subscription pricing model a little more than a year ago. I wrote Learning from Ulysses’ Struggles With the Switch to a Subscription Model.

I don’t have sales numbers on the two products. I follow the discussions on both these products on Twitter. Conversations about Scrivener outnumber Ulysses mentions two to one. A contribution to the difference is that Scrivener is cross-platform, but it also means that the number of users might be indicated by the difference in the number of mentions.

Literature and Latte, the developer of Scrivener are a two-product company. They have a basic mind-mapping application called Scapple which works well with Scrivener. Ulysses is a one-product company.

I am sure that both companies have their own reasons behind their pricing strategies. The major difference is one is subscription based and the other is not. In fact, for Scrivener it is almost a product feature. It makes Scrivener different from Ulysses to those users who are rabid opponents of this recent trend towards subscriptions. When Ulysses made the change, the main developer of Scrivener made sure that both existing and prospective customers knew that there was no immediate intention to move to a subscription model from Literature and Latte.

Who is right? Both of them are. Ulysses decided to move to subscriptions for their own reasons. Scrivener decided to stick with their old model for their own reasons. They are both viable companies making a living in the writing space and trying to fulfill their growth goals through their pricing strategy.

It is instructive to see the different approaches from both companies to achieve viability:

  1. Ulysses moved to a subscription model.
  2. Scrivener moved to a cross-platform model with versions for iOS, macOS and Windows. There are rumors of a Linux version and an Android version.

They are the market leaders. The question is a more complicated if you choose to be a challenger to them. What do you do? Do you adopt a subscription pricing strategy and undercut the Ulysses price? Do you match their pricing and focus on a different task in the writing space? Do you build a product which is feature competitive with Scrivener and introduce subscription pricing to reduce the barriers of entry? What about a competitor to Scrivener with a subscription price of $20/year to compete? What about a competitor to Ulysses with more evolved support of Markdown with a non-subscription pricing model, like MWeb?

The choices that a product makes lets its prospective competitors position their offerings as different from them through the use of their choices. MWeb should be marketed with a focus on complete Markdown support and no subscription pricing.

Subscription pricing does build a system of lock-in. When the consumer buys the subscription to Ulysses and the time comes to renew, they already have a year invested in the product, it is easier to renew the subscription than consider the move to a competitor. There are the factors of a learning curve and the resultant aversion to change, along with the ease of the App Store, which acts together to keep consumers from switching. This applies to the full price + upgrade revenue model too, but in the case of subscription, the yearly investment through the App Store makes it a more compelling proposition. Faced with the need to make a decision, consumers choose the easiest decision which is renew the subscription.

Developers need to keep this advantage of subscriptions in mind when you decide on a pricing strategy.

As you can tell, there is no one good answer for all eventualities. When Apple tells you to move to subscriptions, tell them to go pound sand. Something that works for one developer is not necessarily the magic bullet for everyone. Circumstances define the correct choices. Don’t fall for the notion that:

Up front paid apps are going the way of the dodo. Whether you think that’s good or bad, it doesn’t matter. That’s where things are going.

Why is Apple Pushing Subscriptions?

I don’t have a good answer to this question except some speculation. They have found it difficult to implement upgrade pricing in the App stores and that might have forced this increased belief in subscriptions.

I would find this move more credible if they implemented subscription pricing for their own offerings. The absence of subscription for Final Cut Pro X and Logic Pro X gives me pause. If it is good for developers, it must be good for Apple. Why the disconnect?

How Do I Build a Software Business?

If subscription pricing is not the answer what is the answer?

Take care of the basics. The basics remain relevant today as they have been for a while.

  1. Design and develop a product which works well.
  2. Manage to differentiate your product from the competition.
  3. Churn. Improve your product.
  4. Charge a fair price.
  5. Provide support.
  6. Try to build a community around your product.

These are all factors which define whether your product is going to be successful in the marketplace. A subscription model does not make this activity redundant. In fact, a subscription model might aggravate the pain for some developers. Two examples of this are what is facing Bear and Ulysses. Both products are facing inquiries from consumers about the progress that they have made in the period where they are generating subscription revenue. This is new territory. If developers make the assertion that they need subscription revenue to justify development of the product, consumers are bound to ask for evidence of this development. Both Bear and Ulysses are struggling to justify the quantity and quality of such development.

In the old model, the expectations were different. Major version release followed by free interim bug-fix updates, followed by major version upgrades which include new features and the resultant upgrade revenue. That model is not relevant for subscriptions. Consumers demand continuous improvements, to justify their investment in the product.

The answer then is the same as it has been for a long long while. Do the basics. Do them well. Yell as loud as you can. Reach as many customers as you can. Give them a compelling reason to give you their business.

Charge your consumers a subscription price or the traditional pricing model. Do your best to justify the price you charge. Whatever price you charge, by whatever mechanism you choose, try to create customers who would be happy to pay you more. That is the secret.

macosxguru at the gmail thingie

Credits: Photo by Voicu Oara from Pexels

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