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Having used Google Chrome now for a couple of years, I've really gotten to like rolling/automatic updates. I know that most modern software has "automatic updates", but many large pieces of software only have "minor version automatic updates", leaving you to pay to for each major version. Obviously, these companies get you hooked with version 1 and then get you to buy each subsequent version since you're often locked in and/or you're used to the product.

Is there a viable business model for "automatic major version updates"?

For instance: "Is there a business model in which Microsoft could just sell Office"? There would be no version number. As new features come out, they're automatically added. How could/would they continue to make just as much money?

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How much do you pay for Chrome. –  AlexC Dec 15 '11 at 10:32
    
$0... but that doesn't include my privacy / any extra advertising Google is able to do because of my use of Chrome. Still what's your point? –  Chad Dec 21 '11 at 10:03
    
@Chad - Yes just look at the subscription model that is now offered with Office 2013. Costs around $99 pure year ( which includes a small discount ) and you get all updates to Office as long as your subscription is active. –  Ramhound Feb 22 '13 at 12:46

5 Answers 5

Software companies would love this sort of subscription model but most enterprise customers tend to be wary about that sort of model

  • Most companies are far more willing to allocate budget for a one-time purchase than to sign up for an ongoing subscription cost. They know that they have the budget today to buy 100 Office 2010 licenses, for example, but they don't want to commit to paying for 100 Office subscriptions every year even when they have a bad year. These customers would prefer the flexibility to reduce expenses in bad times and to spend money in good times. There are also generally tax benefits to having large software purchases happen in relatively good years rather than spreading them across all years.
  • Pricing software subscriptions tends to be tough. Most customers can happily go multiple major releases between upgrades (often because they use a small subset of the available features anyway). But the vendor makes quite a bit from customers that want to upgrade with every release cycle (often because they are the heaviest users). If the vendor prices the software so that subscriptions are cost neutral for the heaviest users, the normal uses will end up paying far more. If the vendor prices the software so that subscriptions are cost neutral for the normal users, they lose quite a bit of potential revenue from the companies that are the heaviest users.
  • Automatic upgrades are generally not something that corporations like to see. Before it rolled out a new version of Excel, for example, a large corporation would want to do some testing to verify that it didn't interfere with any of the other products it used. It would want to put together some level of training to help users with the transition. It would want to examine its business processes to determine whether the upgrade would create problems (for example, what if partner companies need files sent to them in the old Excel format-- now you have to train users that they have to do a Save As rather than a Save every single time). All that takes quite a bit of effort to plan for and execute so the corporation would want to ensure that the new version provided some reasonable return on that investment. And that assumes that the new major release doesn't break any existing processes-- many major releases of enterprise software depricate old APIs which then requires that someone update old bits of code. This is why most customers are happy to upgrade every few releases.
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#3) I believe this is why Chrome has Stable, Beta & Dev channels. That way, your company's IT (or whatever) group could stay on the Dev version and check compatibility, etc... and give the go ahead before the stable version comes down to the rest of the users in say a couple of weeks or a month. I know the timing might be difficult, but I don't think this is as big an issue. I agree with #1 & #2. –  Chad Mar 23 '11 at 19:41
    
@Chad - But if a company has multiple subscriptions, the number of environments grows exponentially. If you want to test the next version of your internal app, you want an environment that matches current production except for your internal app changes. If you want to test the beta version of chrome, you don't want to add in the impacts of a development version of Office or the release candidate of your CRM system. That's a lot of potential environments to maintain let alone test in. –  Justin Cave Mar 23 '11 at 19:53
    
I disagree with "Most companies are far more willing to allocate budget for a one-time purchase than to sign up for an ongoing subscription cost". Most (larger) companies buy Microsoft licences and subscriptions annually. Also the fact they can be treated as expenses instead of assets makes it attractive. –  Robert Wagner Feb 22 '13 at 5:42

Do you know about Microsoft Software Assurance? I'm not sure how much of Microsoft's revenues are coming from such contracts Microsoft has with companies but this kind of sounds like what you are discussing unless I misunderstand the question.

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For office to make the same money from free lifetime updates they'd have to lift the price to reflect the cost of 5 or more versions, making it obnoxiously expensive.

Rolling updates is a viable selling method for smaller apps (think iOS apps, android apps, stuff like that) or for freeware programs, but most companies selling their software either price it VERY high and shoot for the business market, or make the bulk of their money from repeat customers buying successive updates (an example of this is adobe, who sell to students at up to 80% off to get them hooked on the program which they will then buy later versions of later on).

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Yes, that is what I was thinking. That's why I asked the question, are there viable business models that don't rely on your assumption of them charging so much more up front. –  Chad Mar 23 '11 at 19:42

Ignoring the economics, there are three issues I perceive with auto updating between major releases.

  1. Compatibility Let's say MS adds a new macro engine to Access. Now suddenly all my macros may stop working because they used functions that were made obsolete. This may be fine for one or two people, but when it takes down a company's billing or payroll department that is another story. Extrapolate that to the hundreds of companies that use Access and maybe were using that obsoleted function. If MS leaves in the support for the obsolete objects the apps will bog down with archaic objects over time, causing all sorts of issues.

  2. Major updates. If a company realizes they have to change over from QBasic to VB.net, how can they roll that major overhaul out over the automatic updates? Maybe their overhaul eliminates support for Windows 98. Do they just tell the existing Windows 98 customers to stop updating?

  3. Layout changes. People hate layout changes. I remember countless gripes from Office 2003 to 2007. If that rolled out over night, a lot of people would have been very perturbed with the change. MS could handle the grief, but any smaller companies would have issues on their hands.

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#1) Perhaps the new version automatically updates your macros based on a template. #2) Yes, I agree. However, in this scenario, Windows 98 would never have existed. Just "Windows". Windows, as it were, would always be backward compatible. #3) I completely disagree with this point. In fact, I believe the rolling updates clearly win in the UI department. Instead of having this big change (2003 --> 2007), there would be small changes that a user could easily adapt to. Even though everyone IT knew about the upcoming ribbon, the general user was still very "perturbed" "over night". –  Chad Mar 23 '11 at 19:50
    
#1) This then becomes a question of time to code the update program and whether you should version differently. Visual studio for instance, I have yet to have a 2003 project successfully updated to 2005 without manually fixing code myself. Macros will be similar. #2) The limitation is merely pushed back to the hardware level. At some point the new version of windows can no longer support a 300 mhz cpu. #3) Layout even minute ones cause insane grief in some people. I had a client that would call us every time her icons would change to the standard size because a windows update changed them. –  Wulfhart Mar 25 '11 at 21:51
    
#1) I realized I left a train of thought unfinished. If the update program works without any flaw for the vast majority of users, then all is well. My point I tried to make was, that I haven't seen this in any similiar program. –  Wulfhart Mar 25 '11 at 21:58

Sure, there's a viable business model for "free" updates. Technically, every app in the iOS App Store works this way. There are ways around it, like selling new apps for major versions instead of upgrading the existing one, or including advertising. For many mobile applications, this model works pretty well. However, the iOS App Store also shows what's wrong with the model -- there's more incentive for developers to produce a number of distinct apps than to focus on improving a single app.

Look at it this way: if you were going to pay someone to cut your lawn for the entire summer, would you prefer to pay them a lump sum up front, or a number of smaller payments every week or two? When you pay up front, you're giving away all your bargaining power at once. A week into the deal, the lawn guy already has all the money he's going to get from you, so it makes more sense for him to cut corners on your lawn and spend his time recruiting more customers. On the other hand, if you make periodic payments with the promise that there's more to come, you're both more likely to be happy with the deal -- he gets a regular income and you get a consistently high level of service.

It's the same thing with software. If you think that the $199 that you pay today for the current version of your favorite photo editor (or whatever) is the last money you're going to spend on the product, you're not looking at it realistically. A certain number of upgrades may be built into that price, so you'll enjoy "free" upgrades for a while. In the end, though, the publisher has to pay its staff of programmers, artists, salespeople, and office workers every week or two, so unless the company is in a position to grow its customer base at a constant rate forever, or to realize some other revenue stream from the users (i.e. advertising), you're going to end up paying for an upgrade at some point in the future.

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This question in 2011 was sort of silly. Of course in light of pure subscription model that is now offered for Office 2013 it makes you wonder who the author really is. –  Ramhound Feb 22 '13 at 12:45

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