Twenty five years ago, I bought the MS Office suite. Excel, Word, PowerPoint, etc. along with other software packs such as Adobe and Norton antivirus. I installed and used them until the computer gave up its ghost. There was no annual rent or, as you call it, a licence fee.
Somewhere along the way, things changed. Around 2014 or so, I was so smitten with Grammarly that I decided I had to have the paid version. They offered a 50 per cent discount and I grabbed it. For Rs 6000, the value I got was priceless.
Rs 150,000 just in subscription costs
Since then, I have shelled out Rs 150,000 for my continued dalliance. Had they wanted Rs 100,000 in 2014, maybe I wouldn’t have bought it. Today, I feel I have paid far too much. Worse still, there is no end in sight. Apps and software have adopted the model that gyms adopt. Pay the fees upfront, whether rain or shine. Ask the apps why and they will tell you about constant updates, storage space and ongoing support. While all of that is true, the real reason is that companies find renting more valuable than selling.
The Joy of Recurring Income
Adobe sort of kicked off with this. For many years, the company sold Photoshop. I paid a bomb and then quietly carried on work for 3-5 years without calling the company. In the meantime, the company released new versions, but I cared less. For us, the first purchase was good enough. One morning, Adobe moved to subscription model. The ostensible reason was that updates, storage space and maintenance cost. The real reason was that revenue came in fits and starts. It meant that while one quarter looked fabulous, the next one was dirty. Those investing in the company, including equity shareholders, did not know what the following year would look like. Uncertainty loomed large. Customers like me were furious, but Adobe did not budge. With no competition around, we took it on the chin.
The results were gold. Revenue became steady, investors could estimate future cash flows with confidence and the company’s valuation rose. Equity market gives a premium valuation to firms with predictable future cash flows. Lakhs subscribing year after year is the best visible sign of confidence.
Microsoft with its Office 365 got into the same act and the whole game changed. Free trials lasted longer and you had to search for the cancel button, like you were searching for a needle in a haystack.
Today, the situation has become absurd. Even a weather app, calendar and a habit tracker app want a subscription. I hate auto-renewal because not only does the paying never stop, but you are now a monthly source of income rather than a customer. n
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