On Subscription Pricing

Michael Tsai:

My hunch is that, for an app under ongoing development, many people would be fine paying a subscription that averages out to about the same amount they had previously been paying per year (initial purchase plus occasional upgrades). […]

But that doesn’t seem to be what’s been happening. Instead, we’ve seen subscriptions combined with price increases, customers balking, and insinuations that people just don’t want to pay for anything anymore. With more than one variable changing at once, I don’t think we can conclude that people hate subscriptions.

I’ve spent a lot of money on software during the App Store era, it’s not uncommon for me to spend ten or twenty dollars on random apps that I don’t even use a few weeks later. I’m not one to hesitate if an application seems like it will be useful to me. But I’ve been uneasy about subscription pricing since the day it was made available for non-media apps.

I understand that the current state of software economics is a bit broken and that the race to the bottom has made it incredibly difficult for indie app developers to make a living. But it seems like every single application that transitions to a subscription model is pricing their software much higher than what I would be willing to pay.

1Password is the perfect example of this. I rely on 1Password to keep my login credentials secure and in-sync across all of my devices. My password vault lives in iCloud and I don’t need any of their premium subscription features. But I would still be willing to pay for a subscription to 1Password to help support the developers and on the off-chance that I find one of their premium features to be useful. I’m not willing to pay $36 each year for it, though.

Maybe 1Password is just giving too much away for free right now and, as a result, the app’s perceived value is lower than it should be. Or maybe any transition to a new business model would make me feel uncomfortable, regardless of what the new model is. But the thought of paying $36 every single year for an application that, to my eyes, is feature complete seems ludicrous to me.

If the 1Password subscription was half the price, though, I’d pay for it in a heart beat. Granted, everyone’s threshold is different, but I think developers are pricing their subscriptions too high. I can’t exactly blame them, this is mostly uncharted territory and it may take some experimentation before the market finds comfortable price points. From what I’ve seen so far, though, prices need to come down before customers are willing to jump in.

Nick Heer points out that there’s an additional wrinkle in this new model that developers need to keep in mind when they’re pricing their subscriptions:

But I think one thing a lot of developers might forget is that their subscription is not the only one a user has to make a decision on: as more apps adopt this model, users have to make more decisions about which software they can really afford.

Assuming the prices are fair, the first few subscriptions are much easier to sign up for than the fourth and fifth. Subscription pricing just doesn’t scale well. If I had to pay a monthly fee for all of the apps I use regularly, I’d go bankrupt.

Maybe the solution to this whole mess is a multi-tiered pricing model similar to what Plex has done with it’s Plex Pass. They offer three pricing options for customers — $5 each month, $40 each year, or you can purchase a lifetime pass for $150 (currently discounted to $120). This gives each customer the option to pay what they feel comfortable with and, if it’s priced right, the majority of customers will choose the option that’s most lucrative for the developer. If I was developing an app with subscription pricing, this is what I’d want to be doing.