Subscriptions Are Dead: Bad News for Substack and Its Truck Load of Competitors
February 3, 2021
I know. I know. I know that “Subscription-Based Pricing Is Dead: Smart SaaS Companies Are Shifting to Usage-Based Models” is talking about cloud service providers. These are the small, emotionally sensitive firms like Amazon, Google, Microsoft, and others who struggle to make ends meet each month. The basic idea is that the taxi meter approach to pricing is the future. Hop in the cab, tell the head in the clouds driver your destination, and pay what the meter shows upon arrival. Did your driver crash? Did your driver take you to Sonic Drive In before reversing course and delivering you near your destination? Did your driver like some gig workers driving vehicles for money pull a gun and rob you? No? Lucky you.
The write up states:
Some fear that investors will hate usage-based pricing because customers aren’t locked into a subscription. But, investors actually see it as a sign that customers are seeing value from a product and there’s no shelf-ware. In fact, investors are increasingly rewarding usage-based companies in the market. Usage-based companies are trading at a 50% revenue multiple premium over their peers. Investors especially love how the usage-based pricing model pairs with the land-and-expand business model. And of the IPOs over the last three years, seven of the nine that had the best net dollar retention all have a usage-based model.
To read this article, guess what? You have to pay a subscription fee. I know. I know. Silicon Valley “real” news outfits just emit parental and oracular, consult like statements.
A couple of observations may be warranted:
First, many customers dislike usage based pricing because of surprises when the bill is presented. And, believe me, when the bill is submitted, getting a sensitive firm to alter it can be a time sink hole.
Second, the usage based model was one that was popular among some timesharing companies. Example: The much loved Dialcom or the European Space Agency’s operation decades ago. Why? Surprise fees.
Third, usage based pricing demands convoluted price lists. I assume that you, gentle reader, remember the wonderful days of IBM’s J1, J2, and J3 fee schedules. AT&T had some excellent methods as well. After Judge Green’s break up of Ma Bell, even Baby Bells howled when Bellcore fired off an invoice. Those were the days.
Now, if the write up is correct, the good old days have returned, except at the “real” news outfit making this profound statement.
Stephen E Arnold, February 3, 2021
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Suddenly I’m remembering LexisNexis’ charging by CPU usage and Dialog’s DialUnits debacle. Everything old is new again?