Dear startups: I hate subscription services

I am not a fan of subscription services from a consumer perspective, and try to avoid introducing them into my products unless they make sense (so far, they mostly haven't).

However, I recently discovered an unexpected positive effect of the prevalence of spurious subscription models in terms of one of my own apps' pricing.

Until last year I charged an up-front purchase of around $5.99. Then I added a sort of non-renewing subscription model for "premium updates" to try to fund adding additional updates to the app. I had a 3 month, 6 month and 12 month option.

Then I simplified my pricing by changing to a free download, a one-off "Basic" purchase to mirror the original up-front price, and a single 12 month premium updates non-renewing subscription for $12.99.

I was then reminded about some pricing psychology and realised I didn't have a "middle" price, so I added a "Lifetime" tier for $35.99.

Now most of my revenue is coming from lifetime subscriptions!

The ubiquity of apps with unwanted subscription models means that many of my users would now prefer to pay a one-off lifetime purchase, at a much higher price than I could have charged for an up-front download, instead of adding yet another monthly or yearly payment to their crowded roster of outgoing payments.

One aspect the post doesn't discuss, is that larger businesses - with accounting/purchase departments - typically prefer the subscription-based approach
over pay-as-you-go because it's predictable. Dealing with variable invoices has a certain amount of "organisational overhead", for better or worse.

Plus you have the "huge AWS bill problem" - what if someone makes a mistake and you get a huge bill at the end of the month? In some sense subscription-based transfers risk from the customer to the service provider.

All that said, the post makes some pretty good points. And the advantages of subscriptions over pay as you go apply equally to a one-shot lifetime license.

He says subscriptions leads to high churn rate - but if you are selling one off, that is an instant churn! It makes sense that certain business models shouldn't do this, if it inhibits some network effect or if you need more cash up front to finance things, but this specific comparison doesn't make a lot of sense.

Couldn't agree more on the "useless" weekly box of random junk most consumers will ever use!

The largest impact on monthly subscriptions vs purchase permanently pricing models is a shift in consumer behavior, very correlated to the "purchase now pay later" trend we have seen recent implosions. Large majority of consumers have a difficult time amortizing the cost of a purchase permanently vs monthly subscription. Example being Adobe Creative cloud offers some products for $30-40/month vs if my memory serves me right $1k for perpetual license. The $40 per month might FEEL easier for the consumer to pay even if they spend $1,500 using the product for 3 years. To put that in perspective 44% of American unable to pay $1k for necessary purchases (https://thehill.com/changing-america/respect/poverty/590453-survey-finds-over-half-of-americans-cant-afford-a-1000/)

TLDR; Growth in subscription services aligns with larger shift in consumer purchasing behavior.

You made some good points. However, it would have been great if you could talk a little more about how the nature of products (other than B2B or B2C) would impact the choice. I mean if the product requires active post-sales support, or if the product is undergoing significant revisions (with new features being added regularly), it would be impractical to offer a one-time payment model.

I think the important sentence for the IH audience is near the end:

SaaS models work wonderfully for B2B and many industries

The writer makes a good case but it's very much a rejection of the 'subscriptions for everything' trend the last few years, rather than a critique of subscriptions as a model for SaaS pricing :)

Same here. I hope one-time payments will become more common like in the good old days

I agree with you on a few points in your blog. But subscriptions are not as bad as you picture. And they aren't always linked to satisfying VCs.

We had an automated transcription software where we charged only on the # of hours used (e.g. as if you could buy 10 hours of Netflix stream) Worst idea ever! We wanted to be super user friendly but it resulted in a lot of uncertainty in our revenue model.

We're building a new product now that visualizes note taking over an infinite canvas. We'll surely go with a subscription model to avoid the same mistake but offer people certain benefits as a gratitude to their support and trust – lifetime price fix etc..

People tend to assume subscriptions are expensive but in fact you'd have to pay a lot more if you were to purchase those products (if the business wants to survive). Take Volvo for instance, it is offering a car subscription that allows you to drive a car without worrying about anything.

(https://www.volvocars.com/us/care-by-volvo/)

If you would have liked to buy the same car, well you'd probably pay a lot more. You get my point!

I understand the point with subscription fatigue but if you feel that way, then cancel it.

I haven't seen anyone mention residual income. Isn't that the entire purpose of a subscription based service?

Many times I've noticed that when I need to buy one service, they want to transfer me to a monthly subscription. But it's not always profitable

That's a really good reminder. For SaaS business models, I've seen an increase in lifelong access, which offers immense value to initial buyers over the time of the product's serviceable life.

Чудове зручне програмне забезпечення. Це дуже потрібно та корисно для транзакцій, таких як оплата чи чекова книжка. Швидкі та безпечні послуги. Дякую

I think free, tier 1 sub, tier 2 sub (with monthly/yearly switches) one time payment is a nice mix and works to maximise your potential customer base.

Most people are already conditioned to pay the monthly sub price. Show an ad for $15 monthly or $180 one time, I would assume most people would take the $15 because it's cheaper for them to start using the product.

I do see some startups, when they launch offer a 'lifetime' price, which I feel like is used to generate some runway and FOMO (customers don't want to miss out on that 'Deal'.. )

Plus, recurring model provides steady cash flow month to month etc.

This is something weighing on me a lot (we're building a product that automatically designs presentations). Originally we were very set on free tier with a clear feature-based progression to paid subscription but have considered adding to the mix a pay-as-you-go tier for people that only occasionally need to use.

I recommend checking the videos from Caya at Slidebean out: https://www.youtube.com/watch?v=bDKJOdyOUsE he makes very compelling arguments for/against the different models (including how freemium was killing their company).

I've conducted a survey recently among all the customers:

• What is the best pricing model for a Web Scraping API such as Page2API?

Curious about the results?

Here we go:

• Pay-as-you-go (as it is at the moment) - 45.45%
• Tiered subscriptions - 9.09%
• Tiered subscriptions + Pay-as-you-go - 45.45%

You make some very valid points. It does depend on the product/service you're selling as to whether a subscription service works, but you're right it does seem to be the default pricing model for a lot of startups, especially SaaS.

I run the wbe space on a subscription model and I could not be happier. It gives me a certain predictability that I really enjoy

Agree!
Interesting tweet about this