Some Thoughts on Subscription-Based Software

Last week, I shared my review of Jesse Mecham’s excellent book You Need a Budget. In the review, I lauded the You Need a Budget system and discussed how I was an avid user of early versions of the software but haven’t subscribed since YNAB switched to a subscription-based model. I wanted to delve into the ins and outs of subscription-based software a little because it’s a model that many software companies use today, from Microsoft with their Office 365 system, Adobe with their Creative Cloud software, and many other companies that offer “free” and “pro” versions of their software where the “pro” version requires a subscription.

So, let’s start from the beginning.

What Is Subscription-Based Software?

In the past, most software was purchased with a single up-front price. You’d often go down to your local store and purchase it on discs or, in recent years, you might buy it from an online software shop like the App Store. After that, you’d own the software forever, as long as it continued to run on your computer.

In recent years, the internet has opened the door to many other models of buying software, and one fairly popular model is subscription based software.

With a subscription based model, you never actually own the software. Instead, you pay a regular fee – often monthly, but sometimes quarterly or annually – and this gives you access to the most current version of that software package that runs on your computer. The software is regularly updated and you can use it freely as long as you keep your subscription up to date. However, when you stop paying, the software no longer functions.

Usually, the annual price of the software is significantly lower than what similar software would have cost prior to the subscription model, and you do always have the latest version of the software to use. However, if you stop paying, you can’t just keep using whatever version you happen to have until it’s no longer supported (usually many years) – it’s just gone.

What Are You Really Getting By Paying Up?

It’s important to note that there are some advantages to the subscription model that don’t exist with the pay-once model.

For starters, you’re basically ensuring you’ll always have security patches and software updates. If you buy software up front, they might patch it for a while but eventually they’ll move on to new versions and you’re hung out to dry. You’re stuck with software that gradually becomes less and less secure and then eventually doesn’t run at all, as updates to the underlying operating system cause the software to break.

You’re providing financial motivation to keep adding features. With a one-time purchase, there’s no real motivation for the software maker to continue to improve your version. They’re going to add features to the next version. With subscription software, they’re motivated to continue to add features to the version you’re using.

You’re providing financial motivation to continue providing back-end resources. If the software you want to use is web-based or stores data in the cloud, those resources have an ongoing cost, and with up-front software purchases, there’s no continual income once the software sales start to slow. With subscription software, the makers have a continual financial motivation to keep the back end running.

These things are particularly true for companies outside of the “big five” (Microsoft, Google, Facebook, Amazon, and Apple). Often, smaller companies don’t have enormous staff or a wide array of software projects, so declining revenue from a particular piece of software often results in a quick end to support for that software. Subscriptions get around that.

Is It a Good Deal?

So, is this a good model for users compared to just buying a one-time software package up front?

Well, it depends on the exact pricing, but my opinion is that software you use daily (or at least several times a week) that uses a reasonably priced subscription model is generally worth it. This needs to be software that’s very important to the work you do or to some other aspect of your life.

On the other hand, software you use less frequently or is less critical to the things you do isn’t worth the subscription fee. If you only use a particular piece of software every week or two or less frequently than that, you should either look for a one-time cost solution or a free/open source solution to the problem you’re trying to solve.

For me, virtually every piece of software I use fits into one of those two categories.

Do I Use Subscription-Based Software?

Yes, I do, but it’s only for stuff I use basically every day.

The two pieces of subscription software I use are Dropbox and Evernote. I use Dropbox to keep my writing files (and a lot of personal files) organized and synchronized across several devices, and I use Evernote to store and organize ideas. They’re both reasonably priced and they’re both things I use literally every day, often several times a day.

There are many other software packages that currently exist as subscription software that I don’t use every day and I don’t rely on, so for those I’ve found other solutions that work for me.

For example, I love You Need a Budget, but it’s not currently an “everyday” piece of software for me, so I’m still using the old non-subscription version that they phased out a couple of years ago (it happens to still work).

Another example: I prefer Microsoft Office to other office software solutions, but I don’t want to subscribe to Office 365, so I use Google Docs, Google Sheets, and Keynote for the things I’d otherwise use Office for. If Office were the ONLY source for word processing, spreadsheet, and presentation software, I’d probably subscribe, but the other free solutions out there are good enough to meet my needs, so I don’t subscribe.

Yet another example is Adobe’s Creative Cloud software. I know how to use several pieces of Adobe software reasonably well and I have somewhat regular need to do minor photo editing, but the need is irregular and I just use the one-time purchase and much less expensive Photoshop Elements to take care of what I need to do. So, I don’t subscribe to Creative Cloud, even though I might actually use it.

It’s simple: if I rely on a specific piece of software every day, I’m likely to subscribe to it for the reasons listed above, mostly that it ensures the long term health of the software. If I don’t rely on it, I’m generally not willing to subscribe.

Final Thoughts

I don’t think subscription-based software is inherently a rip-off or inherently a bad thing for consumers. However, I think it’s only a good deal when you’re subscribing to software you use extremely frequently. Otherwise, you’re probably better off looking for other solutions.

This is similar to how I feel about a gym membership. If you go to the gym like clockwork several times a week, it’s probably worth it. If you buy a gym membership and rarely go, it’s not worth it and you’d save a bunch of money by just buying a day pass whenever you get up the initiative (or exercise elsewhere). The only time you should “subscribe” to the gym is if the cost of your day passes regularly exceeds a monthly pass, or if the cost of your monthly passes begins to exceed an annual pass.

In the software world, there are generally lots of options out there that can solve the problem you’re trying to tackle. Subscriptions only make sense if there is a particular piece of software that solves a problem for you that’s so important that you rely on it daily. In that situation, you want that software to exist for a long time and you want it to be constantly updated with new features and security patches. Subscriptions give that to you. If you’re not that reliant on one particular piece of software, explore other options and see if something else works for you. I look into alternatives to Dropbox and Evernote frequently, but I never find a solution that just effortlessly nails what I want like those two do.

Good luck!

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.