Subscription-Based Business Models: An Overview

By Joshua John | Small Business

With the recent announcement that users of Adobe’s Creative Suite will only be able to access and update the software by subscription, businesses and consumers are asking questions about how this move to a subscription-based business model will affect them. The basic premise of the subscription model is that a user pays a recurring fee, generally monthly, to gain access to a software or service. The subscription model is familiar to anyone who has a cell phone, cable TV,or Internet service provider (ISP), and in the business world, SaaS (software as a service) and back-up technology and web hosting companies have always used it.

Variations on the Model
Different companies are implementing the subscription model in different ways. Following in the steps of Hulu and Netflix, YouTube recently announced that it will offer subscriptions for premium channels. In the hardware realm, Apple is planning to apply the subscription model to its AppleCare services. Rather than buying an extended warranty on each Apple product, consumers will pay a subscription fee to repair and service all Apple products they own. With Adobe’s move to the subscription-based Creative Cloud, customers no longer own a license but instead rent the software. There will be no more boxed software, licenses and upgrades, but there will be access to continuous new features.

Advantages of the Subscription Model
Beyond new forms of revenue (YouTube) and reduced expenses (Apple), software vendors stand to gain the most from a subscription-based delivery model. These benefits include: steady, predictable revenue; easy, less-costly delivery; the ability to continuously update outside the confines of a standard update cycle; and the ability to stay ahead of the competition. For the business customer, the subscription model of software delivery offers many cost-saving benefits. Perhaps the most important of these are that the upfront cost of purchasing software is reduced, as well as the expense of installing, maintaining and upgrading it.

While benefits to business are clear, how does the subscription model serve individual consumers? Individuals who subscribe to YouTube, Apple and Adobe will find different benefits in each implementation. With revenue from subscriptions, YouTube can offer better quality content. With a subscription-based warranty, Apple customers will no longer have to juggle a number of different warranties but can just walk into the Apple Store and get any device fixed. And, with Adobe, if an individual only uses one component of the Creative Cloud, he is free to subscribe to only that component. However, the price for the entire Creative Cloud package is quite affordable and opens up access to a completely new world of software most individuals could not previously afford.

Disadvantages of the Subscription Model
Moving to a subscription model can take control away from the purchaser. For example, if a business likes to choose when to upgrade software as a way of controlling costs, the subscription model effectively removes this option. An issue that has arisen with the Adobe’s Creative Cloud is the inclusion of online components such as a public community and cloud storage that cannot be used by certain customers such as government agencies and schools. Adobe has addressed this by offering a special license and version that still uses the online distribution mechanism, but does not include features that these customers will object to. Adobe has explicitly addressed the issues of data security, the need to be connected to the Internet to use the software, and file access in the cloud and upon cancellation. However, these are definitely questions that a customer needs to ask any vendor using the subscription model.

Does the Subscription Model Work?
As long as the purchaser pays careful attention to how the subscription model differs from the current model, evaluates the pros and cons of each, and finds ways to diminish the impact of any cons, this model has some appealing features that can benefit both businesses and individuals.

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