BSMS 50 - Software without the subscription?

• In the last few years, many software companies have been able to get away with neglecting the second “S” in SaaS (service). But given the state of the tech industry, that’s now sometimes a determinant factor in whether or not someone continues using a product. We talk more about this in episode 44.
• Whether you sell software in a subscription model or through one-time version purchases or pay-per-update, there will almost always be a need for product innovation and support—to help customers succeed with the product and to maintain compatibility with hardware and browser changes. That can be paid for in service subscription fees (hence, the term, SaaS), or in other ways: for example, you could buy and own a software product, but the tradeoff is that you may need to coordinate and pay for server space, technical expertise to maintain it, and you’re stuck with a single version. The software world has trended toward the first model the last 10 years, but now people are starting to challenge this concept. For many products that aren’t consistently improving (or, in some cases, becoming bloated or harder to use)—customers often wonder, “What am I paying a continuous subscription for?” 
• Supporting a pay-once model is an interesting positioning and differentiation play—and could be one of the underlying components of 37Signals’ strategy. For customers who’ve ever felt burned by the traditional SaaS model, a product that supports a pay-once philosophy could help you stand out from the competition.

• 37Signals manifesto: once.com
• T2D3 CMO Masterclass: t2d3.pro/masterclass
• Submit and vote on our podcast topics: kalungi.com/podcast

Welcome to episode 50. Wow. Big milestone For B2B SaaS Marketing Snacks. My name is Mike Northfield. I lead go-to-market and product marketing at Kalungi and T2D3 and I am here together again with Stijn Hendrikse, who is a serial SaaS marketing executive, ex-product marketing leader at Microsoft, and founder of Kalungi. And today we're talking about this new manifesto or challenge to the software subscription model, SaaS, by Jason Reed, who is the CEO of 37signals. 37signals makes Basecamp and HEY and essentially their stance is that customers should kind of once again be able to return to the old model of software where you could buy it once and really own it. So the world where you could buy a box and inside the box was a CD, you could install it, it's on your computer, it lives there, and you only had to pay once for it.

You don't have to pay a recurring subscription to keep it. So we talked about some of the pros and the cons of both of these models, the pay once owned forever and the software as a service model. And then we speculate on why Jason introduced this manifesto and kind of tie it into some larger themes in the software world. This is a little bit of a departure from our normal format on this podcast where we talk about frameworks and decision models for software marketing, but I hope that you like it. Love to hear your feedback. It's more of a current event kind of topic, but definitely when this came out it made some waves in our community so we thought it would be worth talking about here. As always, really appreciate you spending your time with us. There's just so much content out there and it's really special to have the community of folks that listen to our podcast. And if you like our content and you like the podcast, we'd really appreciate it. If you share it with others, leave us a review on Spotify or Apple or wherever it is that you're listening to this. And yeah, I appreciate you hanging out with us, and let's get into it.

Stijn:

Now, specifically with technologies like blockchain, it's easier to have hybrids of that where the ownership can still be secured even if it's run by someone else or it runs in a different place, right?

Mike:

Okay, so last month, Jason Fried, who is CEO of 37signals, who also makes Basecamp and HEY, he wrote a manifesto with his own take on an anti-SaaS approach to building software. And they kind of argued for a return to the pay once, own forever, open source and host on your own server model of software products. And so I'm curious, I'd love to hear your take on it. And I know that you also in your career, you came from a world where that was software. It was very much a you own it, you host it, and the cloud and SaaS was an evolution of that. So I'm curious to hear your perspective on that. But before I do that, I'm going to just for the people who are listening, I'm actually going to read the manifesto just so you guys have full context on what we're talking about and also put a link in the show notes so you can check into it and read it on your own if you want.

So it's once.com and it's a letter from Jason Fried CEO 37signals. And it goes like this:

Something happened to business software. You used to pay for it once, install it, and run it, whether on someone's computer or a server For everyone, it felt like you owned it and you did. Today most software is a service not owned, but rented buying. It enters you into perpetual landlord-tenant agreement, and every month you pay for essentially the same thing you had last month. And if you stop paying, the software stops working, boom, you're evicted. For nearly two decades, the SaaS model benefited landlords handsomely with routine prayers and payers to the church of recurring revenue valuations, shot to the moon on the backs of businesses, subscribed at luxury prices for commodity services they have little control over. Add up your SaaS subscriptions last year. You should own that shit by now.

SaaS still makes sense for many products, but its grip will slip. Installation and administration used to be hopelessly complicated, but self-hosting tech is simpler now and vastly improved. Plus IT departments are hungry to run their own it again, they're tired of being subservient to big tech's. rainclouds, once upon a time you owned what you paid for, you controlled what you depended on, and your privacy and security were your own business. We think it's that time again. Introducing Once, a new line of software products from 37signals, pay one time own forever. We write the code, you get to see it, we give you the software, you get to host it simple and straightforward, not enterprisey or bloated for one fixed price once. We'll be launching the first product late 2023 with more coming in 2024. In the early 2000s, we were among the early pioneers leading the industry into the SaaS revolution, and now 20 years later, we intend to help lead the way out. The post-SaaS era is just around the corner.

Stijn:

There's so much here. So let's peel this back. It's like one layer at a time. First, there's nothing of course new in this notion of buy versus own and run versus let someone else run it. Whether you rent an apartment versus owning it or have your money in a bank account versus having some bars of gold in a safe at home. This whole notion of control and cost and the different equations there that drive people's choices, nothing new. So I've been in software for 30 years, Mike, and my first half of my career was at Microsoft, which arguably was the most successful perpetual software licensed company ever and is probably now if you look at your revenue, also the most successful SaaS revenue provider, SaaS software provider, because Microsoft 365 is probably the largest SaaS business in the world. I always try to remind people when the word SaaS, when you dissect what that really means, there's two S's there, right?

There's the software part and there's the service part. The software being hosted in the cloud and is easy to maintain and easy to access and easy to scale and the amount of resources it needs, etc. That's actually very beneficial from a technology perspective, just the way it works. But it doesn't say anything about the economics really. It just runs somewhere else. But you could still buy that software and maybe own it. You then have to pay some hosting fees somewhere. The service part is really the tricky part. And I think what happened in the last 10, 15 years as SaaS industry matured is that companies have gotten more and more away with charging for providing a service in the form of a subscription commitment. People have to pay something, and if they don't, they can get cut off. The other side of that coin should be that you provide a service that is value the subscription that someone pays every year.

And I think when SaaS companies can get into trouble, and I love what Jason Fried and his team are doing, they're basically challenging this and this is great. There's going to be a little bit of tension here and mostly competition and a challenge to SaaS commerce to do the second "S", to do it well, to provide that level of service. I don't mean customers, I don't mean support. I mean service as in the service experience, the value of the service. It keeps increasing. It is worth you paying that subscription fee every year. If you buy a book, you don't expect that book to get better. The book will age and it'll age well and you'll fine with it because you only pay it once. You don't have to pay for the same book again. But if you subscribe to a magazine, you expect that magazine to be different every month.

You expect if you buy a Patreon version of a podcast, you expect that podcast to keep making new content, etc. And that's I think when you're a SaaS company and you want your customers to keep paying, you just need to do the service part really well. And of course you need to keep improving the software. And don't be mistaken, most perpetual software solutions that were any good and that people found valuable and customers kept using it over time. They also came with what's called maintenance fees. So these customers, they paid annual maintenance costs to get the latest version to get bug fixes, right, to get support on that software because I don't know, you're a little younger than me so this example may not resonate with you, Mike, but I would challenge anybody who listens to our podcast to find a piece of software that's 10, 15 years old and try to install it on your computer and see if it runs. Probably won't.

If I go find my word perfect copy, perfect 5.1 from 90 or something like that, first of all, it's going to be on a five-and-a-quarter-inch floppy disc that I could try to squeeze into my USB drive, it's not going to work. And then the CPU architecture of our computer is different now. Everything has changed. So unless that software evolves and constantly adapts to its environment, it's just not going to run anymore. So this notion of I buy something and it'll work forever, that doesn't fly. You buy it and you own it. Yeah, sure, but you might own a brick at some point. It just doesn't do anything. So I think keeping those two things separate is important. But now let's talk about the things that are really good about this sort of anti-SaaS movement. I think there are a lot of scenarios where giving up too much control is not in the best interest of the customer.

And this could be for security and privacy reasons. It could be for ability to customize the software. The essence of SaaS is that it's the same thing for everybody, all the tenants. If you need to really optimize cost, and that is far more important to you than the software being up to date or the latest and greatest, if it's just the same thing that has to keep running for 10 years and do the same thing, buy it by all means and don't rely on another party to keep making it better or support it. Reliability and downtime, although it's really hard to beat the Azures and the Amazon web services of the world in reliability and uptime, they do have issues. There are SLAs that are not perfect. So if you have a need for a certain level of reliability and often that you can guarantee better yourself with a certain dedicated piece of infrastructure, etc., then that's a good reason to do that.

And then ownership and dependency. We live in a world where we've seen a lot of globalization in the last 20 years, but we also see, that retract, right, there are some countries that don't trust other countries. So whether the software comes from one country versus another might be an important factor, whether you want to own that or rent it and how much control you want. I have a colleague who always talks about how for people in certain parts of the world, the word copyright doesn't mean the same. It's not protected from copying, it means the right to copy.

By the way, that's also when I was at, before I was there when we did the whole transition from office on-premise, perpetual software to Office 365. And one of the big things that people don't realize is that when in the perpetual model, of course people bought the software but it was digital, they were bits and they could be run many times. You could buy it once and run it on many different computers, which drove, for example, piracy. There were a lot of people who were not paying for the software. So although in the model buy and own, there are usually two winners. The person who owns it, the person who got some money, but as soon as the software gets copied and gets used without paying for it, of course there's other issues there. Meaning the people who may want to innovate the software and keep it high quality, just need to have the financial means to do so, et cetera, etc.

And SaaS solved for a lot of those things. So SaaS has brought a lot of good, but I think this movement and the things that Jason writes in that memo are a really great sort of counterweight to, I think what a lot of SaaS companies have done in the last eight, nine years, specifically as SaaS kind of matured, is to just squeeze that subscription gravy train without providing really innovation and without making the software as good as it can be without providing a certain level of support. So I think that sort of sums up why we are where we are, and a little bit of pushback towards the money, maybe having drifted a little too much to the supplier side versus the customer maybe feeling they gave up too much control and they have this SaaS news around their neck that they can't negotiate about the price because the defender will just cut them off completely.

And so yeah, I think it's a good balance that we need to maybe recalibrate. There's also this other thing. When I talked about globalization and maybe software that's made in one country, not being easy to rely on in another country, that becomes really important when you have a company that works with vendors and suppliers and distributors or other kind of business partners where the software has to work together. They need to use the same version of something and then the same version of a piece of design software, for example. Then of course when one country, sorry, one company has a subscription to a certain piece of software and they, let's say in the US and they work with a provider in Indonesia who says, well, we don't want this US piece of software to kind of run on our computer without us controlling it, having a little bit of control.

Maybe they need a perpetual version of that software that can just be installed locally and then it's up to the US provider of that software if they want to do that, right? If the business is worth it doing that, if they want to provide, maybe the company they cater to in the US has a vendor in Indonesia with a way for them to give that vendor access to the software, maybe on a local infrastructure that may not have the right internet bandwidth or et cetera, etc. So I think in the end, those are just commercial tradeoffs. But yeah, so the real reasons behind this non-SaaS movement, let's summarize, data privacy and security concerns, customization, level of control, figuring out how do you optimize cost in the right way versus value, and there I think a lot of companies can also just challenge their SaaS service providers to provide that second "S," the level of service, the quality of the software, the software has to evolve, and then reliability, downtime, and some form of dependency. Those are really, the drivers. Got to own the rent, collecting rent if you don't show up and do maintenance on the bathtub when it's clogged and people won't want to pay your disaster fee every year.

Mike:

And it makes sense. I mean, from a consumer perspective, I like the concept because I also, I come from a design background and I used to own Adobe Photoshop, CS3... 

Stijn:

You were like a proud owner probably.

Mike:

I was great.

Stijn:

Paid a lot of money for it.

Mike:

I paid a lot of money for it. I didn't want to pirate it. I wanted to own it, and I did. 

Stijn:

And it made you feel like a professional. You knew what you were doing. Yeah. Just like with your MacBook.

Mike:

A hundred percent. Exactly. There you go. And I loved that. I could boot it up anytime it was mine. I didn't need to...

Stijn:

No phoning home, no logging in.

Mike:

Yeah, it was great. And I remember when the creative Cloud came out and they swapped over to the subscription model, and I was upset about that because it made it, I mean, yeah, it was no longer yours. It's no longer mine. So from a consumer perspective, I get it. I like it from the other side. We have Atlas. It's a product that is not on a subscription basis. We sell it once and then whoever buys it owns it, and they actually can update the source code if they want. We do provide updates for it, and we have an additional service component that we sell on top of that somebody can subscribe to. So we separate those two things and you pay separately for each.

Stijn:

Which was very common in the perpetual software world. That's what maintenance service calls are usually combined, both the quality, that software gets better, and you get a little bit of professional services support.

Mike:

And I think what's also interesting too is that Jason, one of the points that he makes in this is that a lot of tools, because they have kind of been able to get away with locking people in for a specific functionality on their tool, they can go build whatever, they create bloated products sometimes for no reason. One of their takes is that it seems like they are on a mission to create point solutions that are really good at one thing and then selling those specific tools and not over-baking them. So kind of finding over-serviced parts of a market, building tools that work for them, and then selling those specific tools, which I think is interesting. I'm really curious to see what comes out of this. We are nearing the end of 2023, which is about time we should start to see some of these things trickle out. So I'm really curious to see what comes out of it. I will definitely be following along and maybe it's worth a follow-up once some of these come out, we can kind of do a little retrospective and see what's coming out of it.

Stijn:

I think we'll find this, and this is already honestly the case. This is not that revolutionary. There are a lot of companies who buy SaaS solutions that they host in-house or they buy solutions where they have an agreement with a vendor that they have a certain level of ownership cannot be taken away or shut off, and those models exist. So there will be more hybrid solutions like that because also, let's not be mistaken, the non-SaaS world cannot exist on its own. There is no way, software is such a complex beast. It interacts with so many. There are other pieces of software, so many hardware dependencies that look at your MacBook, how often you have to do an update or your phone iOS, someone needs to do that work. Someone needs to actually improve the software and someone needs to pay for that. And so you either pay for that in the form of a subscription service or in a different way, and there is going to be a need for constant improvement, innovation, support, et cetera.

Those things will not go away. What's really cool, what I think enables some of these new hybrid models is that it used to be pretty black and white. You either owned and control that and you run it yourself or you completely outsource in a tenant model and you have to pay rent, etc. Now, specifically with technologies like blockchain, it is easier to have hybrids of that where the ownership can still be secured, even if it's run by someone else or it runs in a different place, or the reverse, you can rent something, but because of certain new blockchain like technologies, you can make sure that the part that you pay for is really partly yours. That kind of there is a certain level of customization or there's a certain level of privacy that is not the same maybe as a completely rented a piece of software that's shared by everybody, etc. So I think there's a lot of new innovation coming that allows us to strike the right balance between those two. And it's also, it's not just SaaS. It's software as a service, service, information as a service, infrastructure as a service. There's a lot of these other "as-a-service" models out there that complete the total solution that you need when you're interacting with software and the data that uses and processes and stories, etc.

Mike:

And there's also something to be said about this model as being inherent to the software itself and the delivery method of value, but also as a technique for positioning. I guarantee that there are some people who will be drawn to this specifically because of the philosophy of allowing people to pay once for something and then own it. I know that to your point, this is not a new idea. This is the way that software used to be sold. It's kind of open.

Stijn:

Yeah. The open source movement. There's so many things that are behind this manifesto.

Mike:

When Jason posted it, it created a lot of noise for the last month on LinkedIn in certain spheres. It's a great discussion because it added a new layer of visibility to it. And so I think there is a lot to be said about just using, because Basecamp and HEY are subscription models...

Stijn:

And by the way, that's helping pay for this to be able to do these other things.

Mike:

Exactly

Stijn:

Which is great, but you need to help them now.

Mike:

Yeah, I think it's really, really cool. There's a lot here. It'll be interesting to see where it goes.

Stijn:

Yeah, that's really interesting topic. Thank you for bringing it up.

Mike:

Big thank you to Adriano Valerio for producing this episode and the Kalungi team for helping us make this whole thing work. And of course to you for choosing to spend your time with us. Without you and your support, we wouldn't be doing this, so we appreciate it. As a reminder, all the links that we mentioned in this episode can be found in the show notes. And if you want to submit a question or a topic that you'd like us to answer, you can do that at Kalungi.com/podcast. Every time we record, we take one of the top three topics and we jam on it. Yeah. Thanks again. We'll see you next time.