Subscription based software: Does it work? [closed]

Question

A while back I worked with a software company that sold a specialized software product. Ever so often they would release a patch for free and a new version that would require an upgrade fee. This is typically how the software industry works.

After some time the company decided on a new strategy, Subscription based software. This turns out to be a way for the software company to charge a small, incremental fee for each "transaction" that is performed on their software. Under this model the patches and upgrades were included in the per/transaction fee and there was a 'true up' in the number of transactions every so often in order to collect their fees.

To me this seems like a better way to develop and sell software. The software company gets continual income stream, the customer doesn't have to worry about upgrade costs and such, and if the customer gets really big then your income stream grows with their growth.

The problem (and reason for this question) is that I don't see anyone doing that anymore. Is it because this model doesn't work? Have I taken an overly simplistic view of developing and selling software without seeing some of the negative sides of this model?

[EDIT] I am interested in the developers opinion on whether writing Subscription based software is a good way to develop software.

So this question is directed towards the professional developers who have worked on commercial applications: Can anyone speak with experience on this model and why it does/doesn't work?

Answer 1

I used to work for a company which moved from product license to subscription based model. Here are some observations about that:

1. Offer both product license and subscription models
2. In product license: user buys 'n' number of seats for their use.
3. In subscription models, customer buys your software for 'x' months time and 'y' people.
4. It will help you a lot if your company also develops 'consultants' who will work with your customers to get the software implementation etc at client site (any required installation, training etc)

In fact if you see services like GMail enterprise, Fogbuz etc they give different pricing options:

• where you want the app hosted: your servers or their servers
• you will be charged $x per number of people using the software

I think a subscription model (time based) will definitely work in the current times and in fact the cloud model helps towards such freedom in revenue models: for example, you can choose to 'subscribe' to a cloud database rather than purchasing a database server.