Monday, December 10, 2018

How Subscriptions Are Remaking Corporate America

Alex Eule (via Josh Brown):

Investors, somewhat belatedly, have discovered the subscription payoff. The market now values Microsoft at $23 for every dollar of profit it generates, while Apple’s price/earnings ratio is mired at a hardware-like 13 times.


In 2012—the last full year it sold boxed software—Adobe earned $2.35 a share. This year, the company is projected to earn $6.82, going to $7.98 next year.

It’s a stunning jump for a 36-year-old outfit. The stock’s gain has outpaced earnings growth because investors are paying more for every dollar of profit. The stock has risen 793% since Adobe outlined its subscription strategy in 2011.


“Retention is the new growth,” Narayen tells Barron’s. The subscription model, he adds, has made the company more responsive, with developers tracking customer habits and updating software in nearly real time.

Steven Sinofsky:

This is true. But it also dramatically changes product development to be more incremental and less aggressive about dealing with potentially disruptive change. It makes one think everything exists to sustain the subscription bundle.


The bigger problem is the class divide the subscription model is creating. The less well off population is now (or soon will be) unable to access tools that were available to them a few years ago.

Chuq Von Rospach:

True, which is why Lightroom has 3-4 legitimate competitors chasing its market where two years ago it has none.

Previously: Productivity Apps and Subscription Pricing.

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I figured once you were hooked into monthly or annual subs, developer aggressiveness would slow on these apps. Oops, I mean services.

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