It’s simple—I don’t like recurring payments.
And I don’t know about you, but with most recurring payments, I feel anxiety around this need to “get my money’s worth.” In other words, I often feel like I under-utilize the product and thus overpay to some extent.
So why do I sell my software under a recurring payment model? Seems a bit hypocritical…
Here’s the deal:
A recurring payment model better describes the actual experience of delivering software, which requires constant input over time—compatibility updates, new features, bug fixes, etc.[You’re reading this. You’re nodding along. You’re still salty about recurring payments. I get it!]
Let’s look at this through a different lens: Video games.
Most games have had a one-time payment model since the 1980s. Heck, this was the only way they could sell games back then; automatic updates didn’t even become a thing until the late 90s.
But by that time, the gaming public was already accustomed to the one-time payment model.
And game studios grew into big businesses under that model. Everything they did—seasonal releases, development cycles, you name it—was built around the yearly cash injection they’d receive from releasing a hot new game.
Note: For you OGs out there, the Madden NFL franchise was one of the first games to really develop its entire identity around these yearly releases.
But these yearly development/release cycles are unnatural, especially as games grow more and more complex.
Instead of simply shipping when a game is truly finished, development studios do everything they can to shoehorn their efforts into the thirsty trap of the annual release cycle.
And this is where things get interesting:
Over the past 20 years, various game studios have rolled out recurring payment models, but almost every one of them has ultimately abandoned the practice in favor of one-time payments.
Why? Was the consumer conditioning from the previous era just too strong? Were customers unwilling to accept this new paradigm?
No. Not even close.
Like most other things in business, it was all about the bottom line.
You see, recurring payment models suffer from a phenomenon known as churn rate, where customers stop making payments and drop out over time.
After bumping into this reality, game studios learned they could generate a lot more revenue if they stuck to a one-time payment model paired with annual releases.
But this isn’t a free tradeoff. It costs a hell of a lot more to manage annual marketing and release cycles, and when things get rough, the first thing companies are willing to sacrifice ain’t revenue—it’s product quality.
Let’s look at an example.
One video game franchise that has resisted the recurring payment model—with occasionally disgusting results—is Call of Duty.
Given the way the gameplay engine works, there is absolutely no reason why Call of Duty couldn’t charge customers something like $70/yr and roll out incremental updates—new game maps, new modes of play, weapon upgrades, etc.
But they know their retention rate wouldn’t be as potent as the sales that come from cranking out an “all-new” game every year.
And thus, in order to maximize profit, they slave away on the yearly release cycle to ensure they capture an average of $70 per customer per year.
The downside? Some years, their games are trash. Other years, due to extreme marketing pressures, they re-use parts from older games and try to pass them off as new (or “remixed”).
In other words, when a game studio lives and dies by the annual release cycle, you start to see a lot of cheap shortcuts over time.
If the Call of Duty franchise switched to a recurring revenue model, they could focus on incremental improvements. This would massively increase the quality of their games, but of course, they would lose out on that predictable injection of revenue that comes with highly-anticipated annual releases.
So it’s a tough call!
- Maximize revenue with one-time payments, but lock yourself in the soul-sucking hamster wheel of new releases on a consistent schedule, or
- Maximize quality and sustainability through a recurring payment model, but sacrifice the huge cash injection and sexy hype that only accompany new releases.
I’m not sure there’s a right or wrong answer here, as it depends on how you’re wired.
If I were to switch to a one-time payment model with my software, I would end up right back in the place that made me lose enthusiasm for my projects—needing to release “new stuff” just to capture attention and revenue.
But I don’t want to release new stuff. I want to refine my work and continue to build on top of the leverage I’ve already created. My goal is to develop the most useful software on the planet.
This is a DEEP venture, not a shallow one based on capturing profits. The pricing structure for my products now better reflects this type of input.
It is what it is.