Thanks for joining the conversation Earthnail, I was hoping for a developer's insight on this.
My initial post may have been unclear, so let me state: I don't mind paying at all - be it a one-time purchase or a subscription. My real problem is seeing (almost) no progress in a vaste number of apps, in other words: the subscription fees go into the developer's pocket without him putting in the work that subscribers are entitled to expect.
While I do understand your argument about the App Store, this has little to do with the development of an app. It's a different issue that obviously takes another approach. The "freemium" model comes to mind, but again: this isn't my concern. If an app is moving forward and showing dynamics, I will gladly pay accordingly.
I believe I understood your initial post. I understand that you’re happy to pay for a subscription if the developer continues to provide updates. The reason I wrote about marketplace dynamics is that the reasoning you describe to justify subscriptions isn’t really how developers can reason about them when designing their apps.
I've been rewriting this post several times, in efforts to try to improve what to focus on. There's so much one could write on this topic. But let's talk only about two things:
1. What devs want
2. The dynamics of the App Store marketplace
Note that I'm focusing entirely on B2C software here (software sold to consumers, not software sold to other businesses).
1. What devs want
From a business point of view, cash is everything. Future revenue is nice, but especially for small companies, the only thing that really counts is money in the bank. That can be from investors, it can be from a loan that you get from the bank, it can be from your personal savings, but ideally that’s from revenue from customers.
In that sense,
a one-time $50 purchase today is much better than a $5/month sub.
But how much worth is a $5 sub to the company? There’s always a churn on subs. The percentage of churn you have in each payment interval is the percentage of users who stopped paying this time - be it from cancelling their sub or their payment method stopping to work (failed credit cards are way more common than you’d expect).
The expected lifetime value is the total amount of money than your average user will pay you over their entire time as a customer. Let’s assume a 20% churn, then the expected lifetime value of a customer is $5 (first month) + $5*0,8 (second month) + $5*0,8*0,8 (third month) + …
Or, more mathematically, on a $5 sub with 20% churn:
Now, this math may look a bit scary, but what it says is that if, on average, 20% of your users churn each month, then your average monthly sub user pays for 5 months. If on average, 10% of your users churn each month, your average monthly user pays for 10 months. If your churn rate is 30%, your average user pays for 3 1/3 months.
To get the same value from a subscription customer as you’d get from a $50 one-time purchase, you’d have to do the following math:
- 10% churn -> user stays 10 months -> $5 sub
- 20% churn -> user stays 5 months -> $10 sub
- 30% churn -> user stays 3 1/3 months -> $15 sub
But while you get the same lifetime value, your cashflow will be significantly worse. The one-time purchase users will pay you everything upfront, the subscription users pay only over time.
This, I think, is really important to understand:
In a B2C market, offering subscriptions really just boils down to "pay for my app in X monthly installments".
Because cash in the future is worth less than cash today (that's why you pay interest on your bank loans), you should price your subscription price so that the expected lifetime value is above that of a one-time purchase. How much above depends on what how much less worth future cash is for you. A rule of thumb for very large corporations is that future cash has a 20% discount. That is, $1000 in a year are only worth $800 to you today. For small companies, that discount might be a lot higher - you may not be able to pay today's rent from money you'll get in a year.
All small businesses prefer cash upfront.
2. The dynamics of the App Store marketplace
Each year, Apple updates its iOS operating system, and it has strong incentives that all users stay up to date. For developers, that's a double-edged sword: when you start development, you don't start with a lot of legacy. Unfortunately, it also means you have to keep your app up-to-date each year. Well, the business model that works well for that is: subscriptions.
The Playstation is different: If I develop a game for the PS4, I know the underlying platform doesn't change. My game will continue to run, forever. It's a fantastic marketplace for the one-time purchases.
The other model that works: paid updates. But that could lead to operating system fragmentation as users refrain from updating when developers say "our app doesn't work on iOS 16; please stay on iOS 15 instead". And Apple understandably doesn't want that.
And so Apple is keen on building an ecosystem where developers are incentivised to keep updating their apps, even if the app doesn't really need new features. Apple even does workshops with developers to teach them how to turn their business into a sub business.
Don't get me wrong, I think subs have fantastic upsides to consumers, too. My app is available as a sub (and a one-time purchase; we give users the freedom to choose). But there are other fantastic business models, such as paid major upgrades, or Jetbrain's pay-for-one-year-of-updates model, that aren't possible on the App Store.
I hope that with his post, I could explain a little bit that subscriptions aren't something that all developers look at with rosy eyes. As often in life, it's not entirely black and white. There are many upsides of subscriptions for businesses that I didn't get into. But I hope that the thoughts I shared here give a little bit of insight into how indie developers and small businesses look at this.
