I was a very early user and early investor in Xero and while it took a long time for Xero to gain real traction, their early growth was still exceptional and really showed the advantages of a subscription-based license model that created a great recurring revenue stream. The â€˜disadvantageâ€™ for a business like Xero was the cash required to fuel the business while the revenue stream grew.
With our Cadimage Tools we had adopted â€“ like ArchiCAD â€“ a perpetual + upgrade license model. The trouble was that every year we had to â€˜sellâ€™ the upgrade and while this generally created a nice bump in revenue it was a lot of hard work. We had to spend considerable time making our Tools work in the latest version, even before we could consider adding new features. Customers at times became upset that they had to pay, in a sense, just for a compatible update (this is one of the downsides of being an addon developer)
On top of this while we had made tough calls and discontinued Tools that had only achieved low sales volumes, we still had around 8 Tools that we were selling.
Since going global in 2004 weâ€™d tried a number of ways of selling our Tools, either individually or in Bundles or Suites all to limited success.
Coupled with my excitement around subscription models in 2013 we decided to switch to a Subscription model. We took a very simplistic approach and brought in a couple of elements from ARCHICADselect.
We created 3 Subscriptions:
- One with Two Tools
- One with Seven Tools
- One with Seven Tools and Support
There was some thinking behind the approach. Many customers had 2-4 Tools so we priced the second Plan aggressively ($49 versus $29 from memory) and also, when there are three plans people mostly adopt the middle plan. The reason for the third plan was twofold: firstly, it meant we could have three plans with the middle one being the one most would [hopefully] adopt. And secondly, it clearly implied that there was no support unless you paid for. This was more a perception then reality â€“ we still helped all customers â€“ but it enabled us to position the level and response time of support in a way that worked better for our business.
Having decided on the plans we needed to decide on our approach. Again, we decided that we couldnâ€™t do this by hedging our bets we needed to be all in. We therefore introduced Subscription as the only way of purchasing new Tools licenses and perpetual licenses were discontinued except for customers who already owned them.
With the next ArchiCAD Upgrade we indicated it would be the last Perpetual Upgrade and showed how the subscription-based offer was more cost effective â€“ which in most cases it was. Based on the starting point and the end point there were some cases which were not as cost effective (eg someone with 3 Tools) but we countered this by indicating that they would get access to an additional 4 Tools for the price.
It wasnâ€™t an easy process, but I believe it was the right thing to do. Because we knew we would need to educate customers and that there would be resistance we took a completely fresh look at how to price to make it â€˜feelâ€™ right and to keep it simple. Having 7 Tools with a monthly price tag of $9 each could have been another approach, but different tools offered different value. $49 for the lot just made everything straight forward.