On yesterday’s call with investors Autodesk CEO Carl Bass, acknowledged the company has reached an important milestone. This most recent 3 month period is the first time the U.S. software company has sold its products solely by subscription.
Moving to this new business model began at the end of the previous financial reporting year as individual product maintenance agreement sales ceased, a process that continued during Q2 of fiscal 2017 when suite clients were brought under the new system.
New subscriptions triple
Autodesk has explained recent financial performance, which saw revenue decrease by 18%, as the result of, “undergoing a business model transition in which it has discontinued most new perpetual license sales in favor of subscriptions and flexible license arrangements.” A more detailed explanation from the company’s 8-K filing reads,
During the transition, revenue, margins, EPS, deferred revenue and cash flow from operations will be impacted as more revenue is recognized ratably rather than up front and as new product offerings generally have a lower initial purchase price.
Bass adds, “New model subscription additions more than tripled year-over-year to 168,000 while the maintenance subscriptions declined as expected by 34,000 during the quarter.”
This shift should, in theory, result in a smoother flow of revenue but a primary motivating factor for Autodesk moving to this subscription model is to prevent piracy of their products. The makers of another widely used software suite, Adobe have also moved to a subscription model, again in an effort to recover the value that is currently lost from unauthorized versions of tools such as Photoshop, Illustrator, and Premiere Pro.
Software on Cassette?
In the 3D printing industry Autodesk are not alone in adopting a subscription based model, earlier this year Carbon announced they would be selling hardware via subscription. The inventors of 3D printing technique Continuous Liquid Interface Production (CLIP) received $10 million in funding from Autodesk in 2015 and more recently an additional $81 million from investors. At the time of the subscription launch a Carbon M1 3D printer was $40,000 per year, for a minimum three-year period.
Advocates of this business model highlight the fact that a continuous stream of revenue pays for developers to create more frequent patches, and for users to receive the most recent software enhancements. When software came on a CD-ROM (or even back in the mists of time, a cassette), a single use one off fee arguably made more sense. However, users are likely to closely scrutinize the value of updates when a regular payment is required for continued access to the software.
On one of the promotions to encourage users to upgrade their software Carl Bass said, “more than 50% of the subscribers tuned in licenses that were seven years back or older. This reinforces our view that there are meaningful number of active users whose licenses are more than five years old and are interested in moving to the latest software.”
What do you think about software subscriptions? Let us know in the comments below.
Featured image shows Autodesk Stingray model courtesy of PLACE architect ltd
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