Why subscription software?

As many have noticed, and blogged about, NewsGator’s individual products (meaning everything except NewsGator Enterprise Server) are now all sold on a subscription basis. This includes Outlook edition 2.5, and the upcoming FeedDemon 1.6. Actually Outlook edition 2.0 was sold on a subscription basis starting earlier this year, but we didn’t make a big point about talking about it.

Lots of existing customers have asked why we did this…so let me talk a bit about it. Contrary to popular belief, we didn’t have a secret meeting where we tried to figure out how to squeeze every last dollar or euro out of our customers. :-)

So why, then?

Well, here’s the thing. Back in January of 2004, NewsGator Outlook edition 2.0 was launched, along with NewsGator Online (formerly NewsGator Online Services). Outlook edition had a license fee (it was $29), and if you wanted to use sync or any of our online features, the online subscription started at $5.95/mo.

Later, in October of 2004, we made parts of NewsGator Online (most notably the web edition and media center edition) available for free. Other services (smart feeds, premium content, mobile edition, etc) were still available on a subscription basis.

So far, so good, we thought. We were selling stuff the way people were used to paying for it – that is, some stuff for free, a license fee for software, and a recurring cost for services. Right?

Wrong, as it turns out. Problem is, customers were confused. As we started to build more cool services in NewsGator Online, and as we started making more direct enterprise sales, we realized that everyone was confused. As customers learned what was available with the online system, they wanted it…but the whole license + subscription thing was too complicated.

And when we add new products like FeedDemon in the mix, it gets even more complicated, since FeedDemon will also rely on NewsGator Online features.

So what to do. We could just have a license fee, and eat the service cost. That’s what Intuit does with Quicken, as I recall…but they shut off the services after some period of time for each software release, and they piss off a bunch of customers every time they do it. Also, this doesn’t solve the problem for a user who doesn’t want the Outlook client – we’d be back to a subscription for them.

So we went the other way. Get rid of the license fees, and go with _only_ subscription pricing. Include all of the products in the subscription bundles – including Outlook edition, and FeedDemon (real soon now). And at the same time, we dropped the pricing. Outlook edition comes as part of the cheapest business subscription plan, which starts at $1.95/mo or $19.95/year. This is $10 cheaper than the old license fee.

And, we’re constantly adding value to the subscription bundles. For example – subscribers will get FeedDemon 1.6 as part of their subscription.  No extra license fee, no nothing. So for as low as $1.95/mo or $19.95/yr, you get both Outlook edition and FeedDemon.

“But wait,” you say. “I don’t care about the online system – I just want the products.” Ok – let’s do a quick analysis over 2 years to get both products:

Old pricing: $29 (Outlook) + $29.95 (FeedDemon) = $58.95 (plus upgrade fees)

New pricing: $19.95/yr x 2 years = $39.90

Cheaper after 2 years, and at the end of 3 years, you’d be roughly money-equivalent.

But maybe you didn’t want both products, but really only one of them. The free upgrades are really the advantage then. Another example:

Old pricing:
– initial fee $29
– major upgrade in 1 year $20
total – $49 for two years

New pricing: $19.95/yr x 2 years = $39.90

With the subscription plans, you get free upgrades, new products, and access to the ever-growing services available on the online site. And we’re committed to adding cool new stuff all the time to these plans – witness what we’re doing with FeedDemon. And hey – tell us what YOU want in these subscription plans…we love suggestions.

But what happens when your subscription expires? Well, the products will no longer activate. But you’re not going to be locked out of your data or anything…you just won’t be able to retrieve new content until you re-activate. You’ll have full access to your data even after your subscription expires.
So anyway, that was a bit long-winded. But we really feel like this was the way to go, given the challenges we were facing selling into consumer, business, and enterprise markets all at once.

And I know we’ve probably already lost some existing customers over this. But we’ve tried hard to make this work for you – so riddle me this. For those who purchased Outlook edition 2.0 prior to the subscription change, we’ve offered you 2 years of free service. Try it out – use it for those 2 years. And then come back at the end of that, when your subscription is up for renewal, and tell me honestly if you feel like you’ve gotten your $29 worth – and tell me if you feel like it’s worth $19.95 for one more year.

We’ll listen – I promise.

19 thoughts on “Why subscription software?

  1. Subscription Pricing

    Greg Reinacker has a comprehensive post up about why NewsGator has shifted to subscription pricing for all of their products (except the soon to be released NewsGator Enterprise Server.)  If you are a software entrepreneur thinking about “subscription” vs. “perpetual” pricing, it’s worth reading this post.  I’ve watched a number of my companies work through this – most end up either with subscription (e.g. Commerce5, Oxlo, Quova, Rally) or perpetual (Klocwork, Newmerix) but some end up with both (StillSecure). Make sure you separate concept of the way you sell your software (subscription vs. perpetual) from the way you deliver your software…[more]

  2. Michael Arrington

    Let me follow up on the previous comment – I understand that you are offering a client v. a web app, but what I’m really wondering is what else is better about it? For instance, bloglines is updating feeds erratically. Does newsgator/feeddemon do better? What else?

  3. Zaine Ridling

    Greg, this is such depressing and predicted news. All of us FeedDemon users knew this was bad news and now we lose our favorite software. When the Bradsoft acquisition was made, you promised we would love the changes, but instead, I’m crushed.

    The reason? I don’t pay for feeds NOW, so why should I pay you for them? RSS is not about paying some AOL-like entity a subscription fee to get its information. So despite its advantages, it’s off to RSS Bandit. All we FeedDemon users ever wanted was for it to remain a standalone client, but that’s gone. (Insert favorite curse word here.)

  4. Dan

    Your logic is flawed in several ways…

    1. A lot of folks don’t care about having the “latest and greatest” as soon as it comes out. That is why your model about upgrading as soon as the new product is released is flawed. As an example, care to guess how many people that use your outlook client are using the latest version? Or even the latest version of Windows? Some users of NewsGator 2.0 may not have interest in the new features of version 2.5. If 2.0 works, why change by “force”? I understand your need to have users upgrade to be profitable, but I think the best way to do it is to include new features that make us want to upgrade.

    2. The whole thing about the new pricing being confusing to customers makes no sense whatsoever. That’s like saying, “Our customers don’t understand how our Outlook client works so we have decided to get rid of it and develop something new.” If we are confused, alleviate that by explaining how things work better.

    I really do like your product. I don’t mind upgrading when I want to upgrade. Being forced into a yearly subscription for services that I don’t plan to use is not very appealing to me.

  5. FeedDemon by Subscription?

    Shortly after I was acquired by NewsGator, customers started asking whether FeedDemon would switch to a subscription model. At the time we were still ironing out the details, but we’ve decided now: FeedDemon (but not TopStyle) will become subscription-based software….[more]

  6. Philip Rieck

    Okay, so I have one copy of NewsGator running. I don’t use the online sync or reader at all. What service is being provided for me? Not the content. Not the cpu time or network bandwidth. Not the disk space.

    I have no opposition to subscribing to a service, but not to a product already delivered and paid for.

    So, how about upgrades?

    Software has long settled into the stable model of “drive upgrades with demand” – not “force upgrades with subscriptions”.

    Adding a (mythical) feature that lets you transform the post with a .net filter instead of xsl would be great for some, but not for my wife. She doesn’t want to pay for that “upgrade”, and won’t.

    With a subscription model, you’re saying “you’ll pay less for the upgrades, but you *will* pay for them, even if you don’t want them and never install them”. Sounds a bit harsh when put that way, doesn’t it?

    And to me, the real draconian bit is the expiration. You take a functioning bit of software (Newsgator just pulling RSS feeds and shoving them into outlook, not using the online services) and make it stop working when people stop paying. Not “you don’t get upgrades anymore”. Not “you don’t get upgrades or services or tech support”… but “your software quits pulling feeds even though it requires nothing from us and the content is provided by others”. Wow, now that’s a business model!

    However, you’re not IBM, you don’t have vendor lock-in, and I’ll keep my or go to RSSBandit and be happy, thanks!

  7. Roy

    There is already a NewsGator competitor on the horizon: Attensa for Outlook (http://www.attensa.com). I love FeedDemon and NewsGator Online is slowly growing on me so stay sharp and keep your ear to the ground about this subscription model.

  8. Dirk Rombauts

    I think subscriptions is a valid business model. I realize I may not be making myself popular here, but take a moment to think about antivirus software. You buy a box for, say, 50 EUR, and you get one year of updates. If you want another year of updates, you have to pay another 50 EUR. This doesn’t stop people from buying anti-virus software. So why not take this business model to RSS?

    Because anti-virus is essential for the health of a pc, but rss is not? Well, many of us use rss for work, so in a sense, rss is essential too.

    I feel that as long as the newsgator service delivers, it is worth 20 USD a year. I can read RSS for free, yes – I can use and have used SharpReader, but I can’t get synchronize between home and work with it.

  9. Philip Rieck

    Dirk, The problem with that comparison is that with anti-virus software you receive a service – updated virus definitions. When the subscription runs out, the software still performs it’s functions, just withoutdated definitions.

    With the new newsgator model (assuming you use the online services), once the subscription runs out you lose both the service and the software.

  10. Ted Tschopp

    You know the final deciding reason I ended up purchasing Feedemon over NewsGator was that NewsGator was a subscription model, and Feeddemon wasn’t. I tried using both pieces of software, and ended up taking the one I knew wouldn’t expire.

    I have purchased (and sold) software on a subscription model, and never felt good about it, and after several years of re-newing I found that I would always migrate off the ‘rental’ model onto a piece of software I owned.

  11. More Fun With Subscription-Based Pricing

    Nick Bradbury put up a post earlier this week about FeedDemon going to a subscription model.  FeedDemon was acquired by NewsGator several months ago and – as part of NewsGator’s effort to “normalize” (and simplify) our product sales approach, we started the process of shifting FeedDemon to subscription pricing to match up with NewsGator’s pricing model.  This was in advance of a point release of FeedDemon (1.6) which will have the NewsGator synchronization engine fully integrated along with a other features.  None of us expected 100 comments within 48 hours.  A few clear themes emerged from the comments.  A group of us, including me, Nick,…[more]


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