How do subscriptions fare in a recession?

App Annie Report on Subscription Economy

Source: App Annie, State of Mobile 2020

The subscription model (‘subscription economy’ was a term apparently coined at least four years ago) is becoming de rigeur in many zones. App Annie’s recent State of Mobile report found that In App subscriptions contributed to 96% of spend in the top non-gaming apps. As an overall proportion of spend they rose from 18% in 2016 to 28% in 2019 (games, of course, still dominate.) It concluded in a recent post: “Clearly companies across industries need to not only be thinking about their mobile strategy, but also their subscription strategy, if they want to succeed in 2020.”

But is this a wise move?

The attention economy, as folk call it, depends on competing for a limited resource — our attention. But it will always be trumped by a resource that determines what can be done with that attention — money. If we have no job, then our attention tends to be focused elsewhere. If we have a job but not much money, or are afraid of losing that job, then our attention to other non-job issues is probably limited.

The other thing the attention economy relies on increasingly is the subscription model. Recurring fees are much more appealing to a company than a one-time cost, which is why everyone is heading that way. But the subscription model has an achilles heel: most services that used the subscription model in the old days were because of the way they were produced and delivered — electricity, water, telephone, gas, newspapers, cable. And most involved some lock-in: an annual or quarterly contract etc, which hid the overhead costs of connecting, delivering and disconnecting in the subscription. But to disrupt these entrenched subscription services OTT upstarts which didn’t have those costs like Netflix made it real easy to subscribe — and unsubscribe.

And here’s the rub. When subscription becomes a discretionary spend — something you can shed like a skin when the rain comes, then you find the weakness of the subscription model. This is why old guard subscription model players like the New York Times have transferred their approach to digital, knowing it’s better to alienate a few users by making unsubscribing disproportionately harder than subscribing, absorbing the hit of a few angry folk like me in order to keep the bulk of subscribers who couldn’t be bothered to jump through the hoops.

So when the Coronavirus Recession hits you, what are you going to shed? Discretionary spend is the first one to go, and that usual means monthly outgoings that just don’t seem to be as important as they were when you were coasting. Indeed, a lot subscription economy players, like Statista and others, only offer an annual subscription, although they price it per month to make it sound less. It’s cheaper, and more predictable, to charge per year.

I’m not convinced that software is a good candidate for subscription models. I understand its appeal, and I am as frustrated as them how the mobile appstore has reduced the amount that people are willing to pay for good software.

When Fantastical, a calendar on steroids for macOS and iOS from Flexibits, went from a one-time fee to a subscription model it split the community — especially those on iOS who suddenly had to pay 10 times what they were paying before. John Gruber argued $40 a year for a professional task app on all Mac platforms was a decent deal, arguing that those who don’t want to upgrade can still use the old version, and he’s probably right. But I haven’t upgraded and have instead shifted over to another calendar app, BusyCal, that is included in Setapp, another subscription model which bundles together multiple apps for $10 a month. In part that was because of the annoyance of finding certain features still available as menu items in Fantastical but blocked by popups:

Not the kind of productive experience I am looking for. Hobbling or crippling, as it’s sometimes called, is never a pretty look. You either have the functionality or you hide it.

A better route is to be flexible. Of course, there’s an upside to monthly subscriptions that are real easy to start and stop — when the sun shines, you can easily resubscribe. Indeed, the smartest subscription model in my book is the freemium one — where you can easily move between subscription levels depending on usage and how empty your pockets are. I recently canceled my paid Calendly subscription, downgrading to the free model and was told by a helpful customer service person that “you can certainly choose the monthly plan on your billing page and pay for only the months you need it for! That might work better for you.”

I would recommend any company moving to the subscription model to do this. Or to pursue the bundling model. Not to lock people in — where one subscription depends on another — but to make what might have been discretionary spend something that becomes necessary spend through a compelling use case. Setapp is that model (though sometimes I baulk and wonder if I’m paying over the odds). A lot of the apps I use on Setapp are ones that I would have not otherwise found — and I’m an inveterate hunter of new apps. By making the marginal cost of using them zero, I find they worm their way into my workflow. Setapp helps this by taking  an interesting route, in that its appstore-like mothership is so baked into macOS that searching for an app installed on my computer via Spotlight or Alfred will include in the results apps that haven’t been installed but are part of Setapp. So if I’m looking for a photo editor, or screenshot taker, or calendar app, on my Mac the results will include those in Setapp that I haven’t installed.

This shoehorns productivity into the subscription model. It’s helping to make Setapp more useful by introducing me to new apps it is has in its portfolio — thus making all the apps in Setapp more recession-proof because the more Setapp apps I use, the less likely I’m going to cancel the subscription overall. (Yes, those apps I don’t install or use won’t get a cut, or will get a smaller cut, but the overall rising tide will help keep all the boats afloat. Or in a tweak of the analogy: all the apps in the Setapp boat, amid the buffeting recessional sea, rely on the size of the boat to keep them all afloat. Only if the boat sinks will they sink).

Bundling makes a lot of sense in disparate fields — I’ve been advising media clients to seek out bundling options with other subscription model companies which previously might have been regarded as competitors. Bundling should not be the cable TV model of putting the good stuff and crap together and forcing subscribers to pay for both, but to try to anticipate — if your customer data is good enough you shouldn’t have to guess — what else of value is in your customer’s discretionary bucket, and try to move both yours and those into a necessary one. A tech news site coupling with a tech research service, say. 

In the meantime, expect a lot of subscription-based approaches to suffer in the recession. I expect by the end of it the subscription model won’t be so appealing, or will require more creative thought processes to evolve. The key is in not treating the consumer as either stupid (that we don’t realise $5 a month adds up over a year) or lazy (that we won’t do what is necessary to cancel a subscription if we have to), but to take the freemium model seriously: make it really easy to reduce our payment when we need to, and really easy to go back when we’re feeling flush again. Just don’t cripple the quality of the service you have committed to deliver, even if it’s free, by ads beseeching us to pony up or by drawing arbitrary and punitive lines which make the free version more irritating than alluring.

Then just wait out the storm, as are we all, and hopefully you’ll remain useful enough in the free version to stay on our radar when the sun returns. 

Another Business Model

My friend and fellow technology columnist Charles Wright is exploring a new business model to support his work: Support us, and get a nice reward

The beginnings of a business plan are beginning to emerge, here in the Bleeding Edge cave. We’ve decided that we’re not going to get much in the way of income, unless we can offer services or information beyond all the free stuff. So we’ll start with the digital copy of the Bleeding Edge columns. The columns will no longer appear on The Age and Sydney Morning Herald web sites. Instead, we’ll offer an entire year of them – emailed directly to subscribers – for a $15 annual fee.

They’ll include more information than appears in the print version, which is all too often cut for space reasons. And we’ll round out the offering with additional bits and pieces that we come across after the columns are printed.

It’ll be very interesting to see how it goes. Like Charles, I’m a journalist cum blogger turned independent operative with some institutional backing, so we’re there on the bleeding edge of trying to eke a reputable living on a fast changing stage. Best of luck with it, Charles.

Column: the problem with online music

Loose Wire: On-Line Music’s Jarring Notes

By Jeremy Wagstaff
from the 14 November 2002 edition of the Far Eastern Economic Review, (c) 2003, Dow Jones & Company, Inc.

Big media’s flirtation with the Internet may be over soon after it began. At least that’s how it looks to a bunch of music enthusiasts who have been subscribing to an on-line service called EMusic (www.EMusic.com), which allows users to download songs in the compressed MP3 format for a flat monthly subscription fee (a princely $10 for most). The four-year-old service was going fine — about 65,000 users, 230,000 tracks available, revenues rising 30% in the first half of the year — until late October when several subscribers were told their accounts had been terminated, due, EMusic said, to “unusually excessive download activity.” In a nutshell, they got bumped because they downloaded more music than EMusic reckoned was fair. One or two have since been reinstated, but most haven’t, leaving a very sour taste in the mouth of EMusic’s once loyal fans.

 
This is all sad, and in my view unnecessary. EMusic has done a wonderful job in bridging the gap between the illegal world of Napster file-sharing and the old world of buying expensive CDs in a shop. But it has shot itself in the foot and raised fears that the entertainment giants behind such sites are no more committed now to distributing music over the Internet than they were pre-Napster.
 
For those of you not in the know, here’s some history: A few years back pimply youths discover MP3, a computer-file format which allows them to convert a CD into a size small enough to send over the Internet. Other youths discover ways to share such files with other users, suddenly making shops and the CD somewhat redundant. Lawyers swoop and Napster, despite being bought out by one of the big media giants, is now a redundant “work in progress” (www.napster.com).
 
Into the gap, among others, leapt EMusic (which started out as GoodNoise), with a sizeable stable of music for easy download. Deciding wisely not to tamper with the MP3 format via security features that may prevent users from doing what they want with the music they buy, the service quickly grew. Last year it was bought by Universal Music Group and later folded into the new Vivendi Universal Net USA Group, Inc., along with other music-oriented sites like www.rollingstone.com and www.MP3.com. So far, so good. EMusic has proved to be an excellent source of interesting, if not mainstream, music from classical to hip hop. In the past month I’ve become a big fan too, dipping into some great ambient and electronic stuff I otherwise would never have found, finally ditching those Dolly Parton records I’ve been listening to for years.
 
However this recent move casts a heavy cloud over the service. EMusic appears caught between the scepticism of its owners and the natural desire of users to make the most of their subscription. Ahead lurk some difficult decisions: Reuters last month quoted sources in Universal as saying a verdict would soon be made on what music Web sites would be sold off and which would be kept, probably as part of some integrated Web site.
 
So what to do? I can quite understand that EMusic wants to protect its assets. EMusic public-relations chief Steve Curry says EMusic must pay royalties to both the music publisher/songwriter — via a flat-rate fee per track downloaded — and to the record label/performer — from what’s left in the pot after EMusic takes its cut. In short, he says, the business model will only work if it doesn’t spend too much on paying the former, leaving none for the latter. If one person downloads a lot of tracks, most of the money will be paid in flat-rate royalties. “That is why we’re very concerned about monitoring and preventing large-scale abuse of our service — to make sure members are keeping it to ‘personal use and enjoyment,’ not ‘I wonder how many tens of thousands of MP3s I can possibly download in a month.'”
 
Fair enough, but EMusic’s own press releases hardly discourage such practice. The most recent states that “EMusic is a revolutionary new music discovery service that allows fans to download as much MP3 music as they desire for as little as $9.99 a month.”
 
What’s unnecessary about this is that every subscriber to EMusic knows they could find the music free on file-sharing services like Grokster (www.grokster.com) and Kazaa (www.kazaa.com). But they choose to obey the law and cough up. To me this is proof positive that most Internet folk are reasonable and law-abiding and want the artists they listen to to get some money for their work. And most would probably be happy to cough up more if it meant EMusic survived.
 
If EMusic survives it’s going to be down to whether its owners reckon it’s going to make money in the long run. If it does make money it’s going to be because its fans continue to sing its praises to others, in turn feeding more subscriptions, and, most importantly, the readiness of artists and labels to contribute their catalogues to the EMusic library. None of this is going to happen if EMusic treats its users like potential shoplifters.
 
EMusic, change your subscription model (there are some excellent suggestions on the newsgroup at http://groups.yahoo.com/ group/emusic-discussion) so that heavy and light users are catered for, but don’t drive away the very people who have helped proselytize your service. Otherwise they’ll slink back to illegal file sharing and I’ll have to root around in the dumpster for my old Dolly Parton records.