Subscription-Based Software
In the music industry, in part in response to piracy and the digital sharing of music, services like Pandora, Spotify, and Apple Music were created which provide consumers with periodic payment that provides access to an entire library of music. The artists are then paid a royalty based on how many people stream their music. While there are certainly issues with this model, it certainly beats the majority of people downloading music for free, while the artists enjoy no repayment for what they created.
In the software industry, over the last decade or so, it has transitioned to a more online, download-based model. This clearly resembles changes in the music industry, and the software industry faced the same issues of piracy. Companies tried putting licenses on their software that required a unique code to unlock each digital purchase, but this was easily worked around for the large majority of applications.
While not as widespread as in the music industry, companies like Adobe have switched from a single-purchase model, with no updates as the software gets developed, to a subscription-based model where users pay a monthly fee and in return get access to most up-to-date version of the software, and are not required to pay a large upfront fee. It also permits a subscription to just certain products that Adobe offers, if somebody doesn't require their entire suite which, at the time of this writing, is around $50/month.
Many people, prior to the subscription change, were content with the older version of the software that they had, and felt no need to upgrade for usually more minor updates and features. This meant that the revenue stream was not a constant flow, which a subscription model revolves around. While there was certainly some consumer discontent initially after the announcement, the model works for most people and doesn't require thinking about whether or not to upgrade anymore, since they automatically have the current version.
Sources:
https://www.adobe.com/aboutadobe/pressroom/pressreleases/201204/042312AdobeCreativeCloud.html
https://www.macworld.com/article/1166493/adobe_offers_creative_suite_creative_cloud_for_students_and_teachers.html
In the software industry, over the last decade or so, it has transitioned to a more online, download-based model. This clearly resembles changes in the music industry, and the software industry faced the same issues of piracy. Companies tried putting licenses on their software that required a unique code to unlock each digital purchase, but this was easily worked around for the large majority of applications.
While not as widespread as in the music industry, companies like Adobe have switched from a single-purchase model, with no updates as the software gets developed, to a subscription-based model where users pay a monthly fee and in return get access to most up-to-date version of the software, and are not required to pay a large upfront fee. It also permits a subscription to just certain products that Adobe offers, if somebody doesn't require their entire suite which, at the time of this writing, is around $50/month.
Many people, prior to the subscription change, were content with the older version of the software that they had, and felt no need to upgrade for usually more minor updates and features. This meant that the revenue stream was not a constant flow, which a subscription model revolves around. While there was certainly some consumer discontent initially after the announcement, the model works for most people and doesn't require thinking about whether or not to upgrade anymore, since they automatically have the current version.
Sources:
https://www.adobe.com/aboutadobe/pressroom/pressreleases/201204/042312AdobeCreativeCloud.html
https://www.macworld.com/article/1166493/adobe_offers_creative_suite_creative_cloud_for_students_and_teachers.html
This is a very relevant and well though out post! I think it's interesting to see the gradual shift of these services towards the revenue model of subscriptions. Like you pointed out, it ensures a consistent flow of revenue which is preferable for companies. In fact, I went on to do my own research on this and found an opinion or prediction that all businesses will eventually move to this revenue model. It helped Adobe recover from lower revenues, so it makes sense for future companies to move towards this. However, it did raise the potential issue with privacy because of companies' access to consumer data. Just some food for thought.
ReplyDeletehttps://www.gsb.stanford.edu/insights/why-every-business-will-soon-be-subscription-business
Interesting post, Naya! I feel that this is especially relevant given that we just watched the Napster documentary about the profitability of revenue from subscriptions, and recently with the growth of subscription-based services (like Amazon, subscription boxes, and music streaming sites). But from the perspective of the companies, it reduces the risk of maximizing their sales past the point of not being able to sell any more units. Like with Atari, who saw falling profits due to lesser sales of their new consoles, companies who follow the subscription model experience a more consistent flow of profit rather than one-time purchases. For example, with Amazon Prime, the one-time fee that users pay allow them to access fast, worry-free shipping as well as other music and video services. The annual payment that members must pay gives Amazon a stable and predictable income over time, which has now become a top contributor to Amazon's overall profits.
ReplyDeleteSource: https://fourweekmba.com/amazon-business-model/#Amazon_Prime
This is super intriguing, Naya! The more I think about it, the more I think that subscriptions to use such websites are the best middle ground for both the consumer and the producer. Consumers could go out and find "free of charge" products such as music off different websites or buy in stores, but they pay for the convenience of having everything in one space while the producer benefits from that need for convenience because they are able to generate some money although it wouldn't be as much as if the consumer bought directly from the producer. In China, Alibaba shares a similar revenue model as Amazon. Alibaba is able to generate revenue from deposits, annual user fees, and sales commissions charged to retailers utilizing the site. To combat customer concerns over the security and validity of transactions completed online, Alibaba created Alipay. As a secure payment system, Alipay protects buyers in the event sellers are unable or refuse to deliver goods sold. All of which add more convenience to the average consumer, making it more compelling to use their website.
ReplyDeletehttps://www.investopedia.com/articles/investing/061215/difference-between-amazon-and-alibabas-business-models.asp
I think this is a really interesting topic that most of us can relate to as we are subscribed to some sort of streaming whether it's music or shows. We can also look at these different companies and notice the similarities between them like Hulu and Netflix where you can stream movies and shows and they are now coming up with their own original shows. These companies are very competitive with each other and have each come up with a price they think will get the most people to use it but also to make them the most money. Hulu is also using Spotify, which is another streaming service, to incentivize people to use it because they offer free Spotify with a Hulu subscription.
ReplyDeleteThis topic is really interesting and something that we don't always notice or think about. With streaming services, other industries are becoming less and less important such as cable. Netflix, Amazon Prime, and Hulu are currently the biggest streaming services for videos, and each of these have their own films and shows that have relevant actors and conversations in them. We as consumers also like convenience, and there's nothing more convenient than being able to watch a variety of shows and movies from all these services on any device and without ads. With Amazon Prime Video, you don't even have to get an extra subscription to watch shows and movies that are included with prime, because most of us already have Amazon Prime. By having this extra perk with Amazon Prime, Amazon makes an already desired service (free two day shipping, discounts, discounts at Whole Foods, Amazon music, etc) more desirable and convenient.
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