Core Intuition 293 transcript

Daniel and I talked mostly about subscriptions on this week’s episode, and then closed with a wrap-up of our projects as summer winds down. Here’s a transcript of the first part of the show, lightly edited.

Manton:

Hi Daniel. You know a topic that we’ve had on the show a few times over this last year is subscriptions and pricing and revenue, especially in the context of Micro.blog and the new MarsEdit release. We’ve talked about in-app purchase and different revenue models for MarsEdit. And developers keep trying things. The big news in the last week was Ulysses has switched to a subscription model.

I find this interesting, and I know we chatted in the Core Intuition Slack a little bit about this as kind of a preview of the show. I’m not sure how to feel about this in general because Ulysses is the first app I’ve seen — the first big app — that is doing subscriptions without changing their app. What I mean is a lot of apps that do subscriptions, they have subscriptions because they’ve done something significant like add their own syncing backend, or publishing service, or there’s some service-oriented aspect to the app that justifies subscriptions. And Ulysses is just saying — they had a big post saying — “You know what? This business is going to work better for us. We think it’s going to be better for users too. We’re just switching; the app’s not changing. We’re just going to start charging per month.”

Daniel:

Right. And they have their typical making the case for it blog post: Ulysses switches to subscription. And as you said it’s very straightforward; they’re not doing this halfway. And their basic points are things we’ve heard from other developers and I think you and I, Manton, we appreciate this as well, even if we’re not convinced that subscriptions are the right choice necessarily for all of our products.

But you know there are some really compelling things. One of the things that rings truest for me is getting away from that whole major upgrade cycle. And especially when you’re looking at someone like me who has been now seven years since the last major update, whenever a developer makes that argument, “Oh, now I can just work on features and add them to the app and release them when I feel like it, or as soon as the feature’s done users can start benefiting from it.” All of that sounds so good to me.

There’re a lot of great arguments to be made. I don’t necessarily share your feeling that customers expect something service-oriented. I can definitely see that argument in it. I know it’s made often. But I am going to be watching Ulysses closely because I think a lot of customers are starting to understand that it’s sort of just like… Maintenance is a service. Maintenance of the software is a service and that’s something that a lot of people can justify paying for. You know especially with an app like this where it gets at sort of people’s… This is one of those part of people’s identity type of apps, where it’s like: you use this because you are a writer.

You can also say a big risk here is that there are a lot of different ways to write and there are a lot of different apps you can use. Somebody who uses Photoshop for a living… Historically it’s been harder to justify using other tools because it’s just such an industry standard, so I guess something like Ulysses is going to be like: is what they provide to people unique enough and something that people like enough and identify enough with that they’re willing to say, “Okay, part of my identity is I’m a writer with Ulysses and I’m going to pay $40 a year for that privilege?”

Manton:

Yeah, I think there’re a couple of things to go through with this, and your comment on maintenance is a service… That’s true, but nothing has changed with software in that regard, right? Software has always been work: supporting customers, doing new versions doing bug fixes, having compatibility updates for new versions of the OS. The difference with software as a service like web apps and subscriptions is: there is a real cost. If you’re running Dropbox or something you can’t do that for free.

And users I think get that there is a hosting cost, there is a bigger cost to running those services, and that’s why they are charged by the month usually, because it’s not free to run them. Whereas an iPhone app that you ship, it’s not free to support, of course. And Ulysses has a medium-sized team. They have an actual team behind this, and they probably have potentially multiple engineers and multiple support people. That’s not free, but it’s different than thousands of dollars a month in hosting costs that have to be offset or there’s no business whatsoever.

That’s how I draw the line usually, where there are some types of businesses that they have to be charged per month. They cannot be done any other way. You could support them by ads, potentially, if you’re big like Facebook and Twitter, but otherwise you have to charge users per month because you just can’t run the service otherwise.

And apps aren’t like that. Apps, there’s choice. There’re different ways you can make a business out of selling an app.

Daniel:

It’s true, but I really don’t think most users think about it that much. People who click the button or tap the button in an iPhone game to get like 100 emeralds or whatever, they’re not thinking through, “Well it costs cost money to make virtual emeralds.”

Manton:

That’s a unique case.

Daniel:

Well, it’s a unique case but it reflects the fact that I think in the vast majority of cases it’s far simpler: users recognize and accept that software is either available to them or not available to them based on whether they pay, and they choose whether to pay not based on some intricate analysis of the market viability or the business sustenance. They just think, “Do I want this, and am I willing to click this button to say yes, pay?”

That’s one thing. I do agree that there’s a challenge in marketing subscriptions in general. I just don’t think that you know the arguments about whether the developers need to pay for keeping servers running or not really comes into it as much. It’s more just about a pure value proposition to people.

Manton:

I don’t think so, though. I really think users… They don’t think about it in the terms that I just outlined, but their gut feeling is, “I’m paying for this because this is the kind of service that needs to be paid per month.”

If you ask someone will they be shocked if they go to WordPress.com and it charges them per month, of course they won’t. Yes, it’s a web site hosting service, it charges per month. But then if you ask them if the text editor should charge per month. Most people will say no, it should be a one-time… And this is not because they know the business models perfectly, but it’s just this is the accepted way this software has been done. And software as a service — subscriptions, traditionally — it’s a mature market, 15, 20 years. People are used to subscribing to these things, and so they understand it. And a text editor is not the same thing. I think users get that.

I mean it’s still too early to know how well this is going to work. I have a feeling, since Ulysses is really well loved… (I use it. I use it on the Mac and on the iPhone. I love the app; it’s really well done.) I have a feeling it’ll work out fine. But you just take a quick look in the App Store and you see the reaction is not kind. One-star reviews. “Loved this app, now I hate it because it’s subscriptions.” So that reaction shouldn’t shock anyone, because this is kind of a big switch and people are not used to paying per month for this type of app.

Daniel:

It doesn’t shock me, the reaction, but I also think that this is a classic example where a very angry, loud minority, probably, is going to get the attention. They’re going to make a stink about it. We saw this happen with TextExpander a year ago when they switched to a subscription model. As far as I can tell, TextExpander is doing very well, and it’s because, again… I mean you can argue and probably will that they have a service component…

Manton:

I will, yeah. [laughter]

Daniel:

But I honestly I don’t think that that plays into it. I don’t think typical users are thinking through the mechanics of how software works. I suppose at one point you know somebody could have made an argument that people aren’t going to pay money for software anymore because you don’t get a box and it doesn’t come with a CD-ROM and there’s no physical thing there. But we made that leap and we got to the point where it was like, okay, now people are paying $600 for an Adobe download.

This is always going to be changing. How software is marketed, how it’s priced, what people are willing to pay for it, how they get it. And I don’t think the technicalities of whether there’s a running server process on a web host somewhere has as much to do with it as you think it does. I think it’s just, point blank, does this do things I want and am I willing to pay for it.

You and I, we do customer support for our customers. A lot of them don’t understand the intricacies of how software is delivered and how it’s installed. They just know that it gets on their device somehow and then they use it. All of your arguments are totally valid about this sort of mindset of this classic traditional, savvy computer user. And I think we have to keep in mind, more and more, these ideas about how we think software is supposed to be sold and delivered. You know every year there’s a whole new class of adults who comes into purchasing power who has never known some of these old ways of selling software.

I think there’re problems with subscription pricing, but I don’t think if you took an average sampling of people, I don’t think that… I guess I have to admit I would be really curious to know what an average sampling of people would think about it. But I just don’t think that they would be going to the sophisticated analysis that you are, as much as you think.

Manton:

I agree they wouldn’t have that analysis exactly, but again their instinct — their first reaction — would be this app is good for subscriptions and this app is not. Again, no one is shocked if they go to Spotify that it’s a subscription. No one would say this should be a flat one dollar forever charge. It’s just accepted that, yes, this type of app is a subscription product. And the opposite is true for a text editor. The default assumption for people is that it’s a one-time fee and maybe they have to pay again later at some point, but they get to keep using that app.

And that’s another distinction that’s worth pointing out: there’re a lot of different ways to do subscriptions. Right now we’re talking about automatically recurring subscriptions where you pay per month or per year and at the end of that period it renews and you can’t use the app after it expires. That’s what we’re talking about. There’re other kinds that people have experimented with too, though.

For example, Sketch — great vector drawing app that I love — that is kind of subscriptions, but not really. It’s more like a support contract where you pay for a year and you get updates. After that year, you don’t get updates anymore. But the app doesn’t stop working. You can still keep using it.

And that’s kind of a middle-ground that I know a couple developers have experimented with, and I think for certain types of apps that works really well. I think for Sketch that works really well, especially because their competition is in the fully recurring — you know I’m talking about Adobe — fully recurring, automatic renewal subscriptions. They are almost there but not quite. Their app is less expensive. It’s better for some people. And so I think that fits that market really well. But there’re a couple different ways to do this and traditionally the recurring subscriptions has not been used for apps like Ulysses. It’s just rare to see an app like that have that kind of business model.

Again, with TextExpander, like you hinted at, my argument there would be: first of all, they still have the standalone version that you can buy; and second of all, when they introduced subscriptions they have a team version that syncs your snippets to all your computers. Same thing for just you using it solo or with a couple of people. And so they introduced the business model change with the addition of new features that were enabled by subscriptions. And that’s the distinction of where I draw the line there.

Daniel:

Yeah. Obviously there’s been more apps doing this kind of subscription, or like you said with Sketch, kind of a semi-subscription approach. And I guess I’m just not going to be too surprised if after a few years, whatever this sort of hunch that you think people have that something is or isn’t suitable for subscriptions, that they’ll just kind of get over it. I guess that’s the bottom line. Does this reflect a sort of market necessity, or is it just kind of like a whim.

I guess we’ll be able to watch a dueling example of this playing out because one of the competitors to Ulysses is Scrivener. And as I was reading the responses to Ulysses going subscription, I saw at least one customer saying this kind of snarky comment like, “Thanks for making my decision to switch to Scrivener.” And in fact if you go to the Scrivener forums, one of their customers asks point blank, “Are you switching to…” Or they said, “Please don’t switch to a subscription model.” And the Scrivener developers, they answered very bluntly saying, “We don’t want to switch to a subscription model.” They put a flag in the ground for traditional purchase one version, pay for upgrades, etc… So I guess we’ll be able to see as time goes forward which one of these models works best, or if they both work, and how it affects customers’ happiness.

Manton:

Right. And this is a really neat example that we have because there’s this contrast. Both those apps are different, certainly, but they both appeal to writers, and so there’s certainly overlap. Some people love both apps and use them for different purposes. The business model is now very different. And with Scrivener I think it’s $45 for the Mac version. Add on some more for the iOS version. But that’s a one-time fee. So if someone uses that app for five years, let’s say, they’re going to be paying much, much less than Ulysses. Probably roughly one-fifth the price.

Doesn’t matter in the short term so much. And subscriptions are also nice because you can start using an app with a very low investment of just the monthly fee. But in the long run if that continues, people will notice the price difference and they’ll think about it.

And the reason I’m coming from this side of things is that I am a little concerned that… This subscription fatigue thing. I really do think it’s real. I think people will be burned out on subscriptions if all apps are subscription-based. I think that will be a big problem for the market and just the industry in general. And as someone who is trying to build a business that can only work with subscriptions, I have no choice. It has to be subscription-based because of the hosting costs of running a social network and a blogging platform.

I’m a little concerned that people will be burned out and I don’t want them to drop my service. I want them to drop something else if they decide they have to cut their monthly expenses.

We’ll see how it plays out; it’s super early. I was just listening to the Accidental Tech Podcast, and they briefly addressed this in one of their Q&A episodes. The consensus on the show was the market will sort of out, don’t worry. If too many people charge for subscriptions and users are burned out, they’ll stop buying those apps and those apps will have to die or change their business model.

They weren’t worried. I am more worried than that. I think there is a concern. We’ll just have to see if that is valid. I know developers right now are looking at Ulysses, and if it works for them, they will copy it. That’s going to work for some people and not for others.

Daniel:

You know when it comes down to it, part of this subscription thing is developers, actually starting to demand payment for what they do.

Manton:

[laughter] Yeah.

Daniel:

And you know, when you look at people like me… It’s funny, the Scrivener folks say in their post as well that it’s been seven years since they had a major upgrade. And I look at that and I think, Ulysses can switch to subscription pricing and they can charge $40 a year. If you compare that with Scrivener, they can have seven times fewer users and still make the same amount of money.

A lot of us who are amateur at business, we have this problem: we neglect to ask and demand payment for the true value of our work. Part of the problem when you go indie, and you go from having a well-paid job to maybe making half of that and hopefully trying to get back up to where you’re making the same amount of money you were for the big job. Part of that disparity of income is I think a failure to demand payment for what what your work is worth.

And so I think it may be an extreme that going to this $40 a year might be an extreme counterbalance to that, but I think it’s an example of pushing back in the other direction. I think it’s fair to say people who have been using Scrivener for seven years, having paid for it once for $40… Whatever that amount per year is is not a fair compensation for the work. So somewhere in the middle maybe. If it’s going to come down to a test of whether a business model that asks for $40 a year wins or a business model that asks $40 every seven years wins, the subscription pricing is going to win. That’s ultimately going to keep the product better maintained and better developed. It’s going to cause users to like it more.

And I don’t know the subscription fatigue thing, I agree, but most users don’t need like 20 apps — 20 paid apps, anyway. I have some subscription fatigue for things like Netflix. I only have Netflix and then I added HBO. And I have my Apple Music subscription. I’m not going to go subscribe to all of Apple Music and Spotify and whatever else — Tital or whatever else. But I am willing to add subscriptions for things that bring me new value that I can justify.

And I think that people are going to be the same way with with apps. Maybe there’s only five apps I want to subscribe and pay for, but I’m going to pay for those. If every user out there subscribed and paid for five apps at $40 a year we would be doing pretty well as a software industry.

Manton:

So Daniel, you make some good points about subscriptions, and I also think that you’re right in a way that maybe subscriptions for these types of apps — that I personally think is pushing the limits — it is at one extreme, and maybe we’ll come back into the middle a little bit. Because of course I completely agree that apps should not go without revenue for seven years, and that’s not really the user’s fault, exactly. Developers should be more disciplined about… I’m trying to say that without insulting anyone, including my co-host.

Daniel:

Anyone on this show. [laughter]

Manton:

But that’s too long, we can all agree. If your if your model is paid upgrades, maybe you can go that long if you have a successful app, but you shouldn’t. You should go at most two or three years before doing a paid upgrade. That’s a reasonable amount of time. Especially for Mac software, you’re not going to get any one-star reviews if you do a paid upgrade after three years. People understand that there’s going to be a paid upgrade at some point, most likely.

So maybe there’s a middle ground there. Maybe this is pushing the limits. As you were talking about you just want to pay for Netflix, but not Hulu and HBO and Apple Music and all these other things, I think there’s a parallel to the app world here as well, and it’s Setapp.

We’ve talked about this a little bit on the show, but Setapp is like the cable package for people who don’t want to buy one-off subscription services. We pay for Netflix, we pay for HBO, we pay for Hulu, we pay for Playstation Vue, we pay for all these things. And at some point you kind of want to consolidate that into a cable-like package where you’re paying one company and you’re getting a lot of things. And we don’t quite have that in the streaming world and we don’t certainly have that in the developer world, but Setapp is that model where it’s a subscription but you pay for many things at once, so that you’re not burned out on paying 20 different developers $4 a month.

Daniel:

Yeah, I think it’s a great argument if you say what if you had to pay for a subscription for each of the shows that you watch on TV. There’s a logical extreme where obviously it’s not going to work, and maybe that’s an example where the ATP argument that the market will figure it out comes into play. I mean there’s just no way I would pay… Imagining that scenario is a bad scene because I think in practice what would happen is that I would just stop watching TV. So it’s bad news for the TV makers if you follow that same argument. If I have to pay for each of the shows that I relatively religiously watch now then I would find a new hobby, I guess. And maybe software buyers would likewise… I don’t know what they’d do. Maybe they’d switched to writing with a typewriter or something.

It’s going to be interesting to see because I don’t know if Setapp is exactly the right solution. I really applaud them… They’ve really tackled this experiment with gusto, and it sort of seems like it’s working for them. It doesn’t seem like it’s working nearly as well as they had anticipated, from what I’ve picked up. I saw some links talking about how much they’ve sponsored and how many big events they’ve sponsored, and you sort of start doing the math on it and it doesn’t really sound like it’s… I wish I had it all at the tip of my fingers, but some other information came out where it showed I think that they had shared their subscription count and doing the math on it it sort of seemed like, well that sounds like not a great deal.

You actually saw some concrete evidence of how well they’re doing on Dan Counsell’s blog. It’s his Micro.blog-hosted blog as it happens, and he shared his numbers for RapidWeaver. Actually RapidWeaver and Squash, two of his apps, but I have to assume RapidWeaver is by far the greater revenue source in this case.

Both of them are in Setapp. We don’t know a ton about how Setapp developers are compensated except for it’s been shared that it’s sort of proportional to the price of the app standalone. RapidWeaver is not one of the lower-priced apps in Setapp, so I would have to assume Dan Counsell’s cut is higher than many participants in Setapp. So keep that in mind, but he shares his numbers and he points out that the numbers are actually going up. Fairly fairly quickly, really, over a few months. In May, he says he took $1446 from Setapp, and in August it’s up to $1913. Which is a great growth rate if you just look at it in isolation. However, I’m not sure that reflects a great overall business numbers from Setapp, if you consider that he’s probably being compensated better than many app developers in the program.

Let’s say generously that he can look forward to you know $30,000 a year in revenue from Setapp in the near future. And if that’s true, boy that’s really great if it’s extra money, if it’s not eating into his sales, etc. But this is being looked at as the future of software, it’s not great. $30,000 a year is not great for most developers in the U.S. at least trying to make a living off of software. And particularly for an app like RapidWeaver that I have to imagine — if not now then definitely in its heyday — was making way more than $30,000 a year. I imagine it still is making multiples of that per year.

So I don’t I don’t expect Setapp to be mature and to the point where it does fulfill this dream of keeping developers fully employed by participating in the program. But I do think this is evidence. This is middle evidence. This is evidence that there’s real money coming through Setapp, and it’s also evidence that it’s not a real great amount of money.

Manton:

Right, and I haven’t seen too many real numbers, but this is consistent with what we’ve heard — even some people in the Core Intuition Slack, who are on Setapp, have said — which is it’s some extra money. It’s not, “I can’t shut down my direct sales or my Mac App Store sales and just use Setapp”, but it’s money coming in. It’s growing. And the consensus I hear is, “I’m willing to just let it grow and see what happens”, because it’s extra money.

You’re kind of hedging your bets by being in Setapp because whether you sell directly and have paid upgrades as RapidWeaver has had for quite some time — and I know they’ve had some big successful paid upgrades that they’ve blogged about — or whether you’re taking Ulysses’s approach or TextExpander or 1Password, those kind of approaches with subscriptions. In case your primary bet doesn’t work out, if Setapp grows, that’s extra revenue that will appeal to a different set of users. If someone is burned out on subscriptions or they’re tired of paying paid upgrades or they don’t want to pay $45 at once for the app, and they go to Setapp, they are still your customers, which is nice.

I feel like Setapp, in a lot of ways I think people have been a little too negative about it, and maybe the expectations at the beginning were just too great for it. But if Setapp sticks with it, and develops stick with it, and it keeps growing, I think there’s something there. It doesn’t need to take over the world, but it could still be a nice bit of extra revenue for developers that are there.

Daniel:

It’s interesting because one of the apps in Setapp is none other than Ulysses. So you get this interesting situation where if a few more of these Setapp apps start offering subscription pricing on their own, then you get to the situation where if you’ve got three $40 a year apps then you do start to face that point. If I were subscribing to Ulysses and let’s say RapidWeaver had its own subscription, and Screens is on here. If I was subscribing to each of those independently, I would be paying more at that point than the Setapp price.

Manton:

Is the Setapp price $10 a month, or $20?

Daniel:

$10 a month.

Manton:

So it would only take a couple subscriptions individually to say, “Well, maybe I’ll just use Setapp instead.”

Daniel:

If that happens, that’s going to be an interesting example of where developers might suffer. A lot of this hinges on the Setapp model not taking money away from the developers. So if you’re in a situation where you’ve got three people paying $40 a year each for three apps that are also Setapp, if that individual gives up those subscriptions in favor of Setapp then suddenly those three developers are making a ton less money.

At some point I don’t know whether this Setapp setup is going to be something these folks want to stay in. And I can see for example Ulysses being in Setapp as sort of a way to get some subscription money before they had chosen to go that route route.

I don’t know if we’ve seen an example yet — if we have, I don’t think it’s been highly publicized — but I don’t think we’ve seen an example yet of companies leaving Setapp. I wonder if some of them will be compelled to if doing the subscriptions themselves is a better deal.

Actually, Blogo is in here, which is one of my competitors, and it’s also I think exclusively a subscription app on its own. And they made the switch a year or two ago. But that’s another example where it’s like okay, get a few of these and if you’re paying for them separately of course you’re going to go switch to Setapp, save some money, but then I don’t know. There’s going to be some friction there if that happens.

Manton:

And it’s complicated because you say of course you’re going to switch, but most people don’t know about Setapp. And I think most developers are not pushing it prominently even though there’s an advantage to pushing it a little bit because there’s some some complicated math there with referral numbers but RapidWeaver as an example, it’s a $90 app. I know they have regular paid upgrades that are probably half that or less. So, pretty expensive app. But I know they have tons of users that love the app, really well respected app. When you go to RapidWeaver — RealMacSoftware.com — you buy it directly or from the Mac App Store, it’s $90. It doesn’t say, huge button that says Setapp.

Actually if you scroll way down to the bottom there is a referral link to Setapp. Buried way, way at the bottom — in the footer of the page — but I think most people are going to buy direct from the developer or through the Mac App Store and Setapp is not going to hurt the general sales. If it does, it’ll be a real small percentage of people I think.

It gets complicated though. There’s certainly the thing that we’ve talked about before which is if your competitor is in Setapp, and a potential user knows about a Setapp, they may just use your competitor’s app because it’s Setapp without having to pay extra, versus going to your site. There’s a lot of ramifications for these different models competing.

Daniel:

I wonder if there’s a rule on being in Setapp if you have to link to them. I’m looking now on Edovia’s Screens for Mac, and it’s a similar type of deal. It says download trial, buy now, and then as part of the little text underneath it says Screens is also available on the Mac App Store and Setapp. Does the Ulysses app have a link?

Manton:

That’s a good question. Let’s check. And even if it’s not a rule because of the referral money, there’s an incentive to just put a link anywhere, somewhere, even if it’s not super prominent.

Daniel:

Yeah. I don’t see anything about it on the Ulysses page, so maybe it’s not a requirement. Maybe it’s just a coincidence that both of those had it.

I think Setapp, back when they were first coming out, we had this discussion. I don’t think this is exactly the right solution what they have right now, but I think they are set up to be in a position to provide what could be the right solution. And I think it’s going to be when that friction — you know, let’s assume they get successful enough that that friction occurs, where enough people know about Setapp to know that they can go to Setapp and then that doesn’t work out as well for the developers. I think what Setapp could do is be in the business of providing basically the equivalent of cable mini-packages. If you could put together your a la carte list of apps and say, “Okay, I want these five apps let’s say, and I’m willing to pay for these five apps for $10 a month.” Obviously at that point it would have to be apps that are included in the main Setapp bundle. They would be in a really strong position then because they can capitalize on that problem we were talking about, hich is I don’t want to pay for each show separately. But at the same time they can also give their developers a more substantial cut because you’d be selling a smaller number of apps that it’s obvious the customer really wants those apps.

Manton:

Right. I think you’re right that they’re well positioned to do something and to fill whatever this hole ends up looking like in the market. The key to me is they shouldn’t give up. Developers shouldn’t give up like just see this through. Even if a developer is not making very much money, it’s probably mostly free money. It’s probably not hurting your direct sales too much, so just see it through and then six months later, 12 months later, re-evaluate and we’ll re-evaluate on the show too how we think it’s going. But this feels like it’s something, but it needs time to develop and mature.

Daniel:

Yes, I think so. I think we’re going to see a lot of stuff happening over the next year, especially. Seems like the subscription idea is percolating. Setapp is there as an example of something different that somebody is trying. Maybe we’ll see something new yet still.

I kind of wish I wasn’t due for a major upgrade, because I wish I could sit back and watch and see what works. But I think I’m just going to have to push forward and get my get my app out. Probably sell it the old-fashioned way.