Feb 282019

I’ve worked for *aaS companies for about the last 7 years. Monthly software subscriptions literally pay my mortgage, so I get the benefits of building businesses around predictable monthly payments. But that being said, not every online business lends itself to being subscription-based, and there’s a few companies out there that need to stop.

Subscription-based services work because they’re things you come back to multiple times in a month. They also generally don’t have a standard unit of consumption after which you could be considered “done.” In theory, you could take advantage of a month-to-month payment option where you buy a month, do what you need to do, and then stop paying by the second month, but that’s just awkward.

That’s why subscription models work for companies like Netflix, Spotify, and even World of Warcraft back in the day. That’s also why the subscription model seems so weird and overpriced for Cousera and Rosetta Stone. Those aren’t services that scream “come back again and again.” They’re more designed for “I’m here to do (well, in these cases, learn) a thing and then I’m done for a while.” That’s why their original business plans of “pay for the course you want right now” made sense.

I understand the appeal of making the change – a monthly subscription is generally more stable, predictable, and (most importantly) recurring revenue. All of which is an improvement over the “whenever people happen to need us” business model. Given a choice, everyone would pick the former over the latter.

The problem is that a recurring revenue model only works when there’s regular, recurring use of the service. For e-learning services, the question is are people really coming back month after month to keep taking classes. Sure, people may come back to them whenever they need to brush up on something or pick up a new skill, but I just don’‘t see happening month after month.

What worries me is that the change to subscriptions is an attempt to create that predictable, recurring revenue, because it’s not going to work. If these companies really need to figure out better ways of making money, then it implies that the online learning industry is struggling, which is sad because I think companies like Cousera and Rosetta Stone fill a real need.

Making money on software is tough- especially if your target customers aren’t businesses. It’s easy to see why plans that promise regular, consistent, predictable payments would be popular. But you need to make sure your business model mirrors your customers’ consumption model, otherwise your pursuit of stable revenue could end in a stable, predictable monthly income of $0.

 Posted by at 12:47 PM