I wrote a comment on a facebook post about Adobe subscriptions versus buying full copies of the software. People seem to have appreciated it, so here it is (with corrections and addenda as I feel necessary).
The original post was asking why you can’t buy Photoshop and Lightroom “for a lifetime” instead of having to pay monthly, and whether there is an advantage to getting it monthly.
One more clarification: when I talk about the “subscription system”, I am NOT talking about the transition to Creative Cloud: I am talking about conversations in the run-up to the creation and release of Creative Suite in 2003. I left Adobe in early 2002, so they were definitely before that date.
Disclaimer: I’m attempt to recall conversations and thoughts which happened between 1997 and 2002, when I was employed at Adobe. That’s a long time ago. It’s entirely possible that I am misremembering and I am certainly adding insight and analysis informed by the intervening years. I am not claiming that these revenue recognition rules were determinative in Adobe’s decision to switch to a subscription model, but IMO they were a sufficient reason and I do think they contributed. No attribution of malice, illegality, or really almost any negative motive should be inferred from these recollections and ruminations. One of the reasons I’m writing this is that someone responded to my comment on facebook saying they could now give up being butthurt about the change from shrink-wrap to subscription at Adobe, and I guess I’m really hoping to facilitate that alteration in a wider audience. YMMV. Everybody has an opinion, and this one is mine :-).
I was at Adobe when the subscription system was being introduced. A significant part of the discussion was rules about revenue recognition.
— Evan Robinson, Facebook comment, 2019-01-08
When adobe sold a copy of photoshop, you would think the money they received would be called income as of the date the money was received.
It wasn’t.
Rules then in existence required adobe to apportion that received money between the copy of photoshop sold and future software updates to the extent that those updates included new features as opposed to bug fixes. Distinguishing between new features and bug fixes was not straightforward, and we didn’t exactly have a good plan for how many updates would be issued and exactly what bug fixes and new features would be included.
That put adobe in an impossible position with both the tax people (who wanted income recognized properly) and Wall Street (who wanted to know how much money adobe made each quarter from photoshop).
The subscription model eliminates this problem, as all money received for a copy of photoshop can now be recognized as income when it is received.
I can’t say how critical this issue was to the decision (because I was too low level to be included in the decision making) but I assure you the conversations were had.
Let’s be clear: I was either a senior software engineer or a first level engineering manager for the entire time I was at Adobe — I was not privy to the decision process on adding subscriptions to the existing shrink-wrapped software products Adobe sold. However, I was involved in discussions (I don’t recall if these were formal meetings or informal hallway chatter) about Revenue Recognition Rules, which I believe were a significant element of the decision made then to add subscriptions and later (long after I had left Adobe) to switch entirely to a subscription model.
Revenue recognition was an arcane element of accounting to me when I first heard about it. I assumed that if Adobe sold a product for $100, Adobe considered that $100 to be income, collected on the day it was received.
But that’s not how it worked. When Adobe sold a shrink-wrapped software product (in a box, with either floppy disks, CDs, or DVDs containing the software and paper documentation — yes, this is how we used to sell software), they received $100 (for example), but they could not consider all of that $100 as income on that date. Because there were almost certainly going to be updates created and made available to the buyers of the software, some of that $100 had to be “recognized” as received on the date of the update. Exactly how much was difficult to say: IIRC, bug fixes didn’t involve revenue, but adding features did, and someone had to make a guess as to how much the new feature was worth so that the revenue from that new feature could be “recognized” on the date of the update. But if a bug fix made it possible to use a feature that had been shipped thinking it worked but it didn’t, was that a bug fix or a new feature? How to value new features? How to estimate how many new features would be brought out in updates in the year (or two, or three, or who knows how many) between one major release and another?
So far as I know, the primary entity enforcing this clusterfuck was the IRS or the FTB — the tax people. They didn’t want revenue recognized until the appropriate time. But the SEC and Wall Street were potential players in this too: the SEC didn’t want earnings overstated in one period by early recognition of revenue, and Wall Street wanted to know, really know, how much money Adobe was making on Photoshop every quarter. And honestly, any tax accountant is probably going to tell you to put off reporting revenue as long as you legally can, especially if the money is already in your pocket.
So far as I can see, there was no way to please all of the players here in the existing shipping model. It wouldn’t be possible to set a real value on new features, but we might have been able to mine earlier updates and decide that X% of the work done between releases was on features that were shipped in updates. That might have satisfied everyone for a while, but eventually there would be a release cycle that either had no new features added or a huge new feature added, either of which would piss off the tax people and give Wall Street an excuse to hit Adobe for meddling with their revenue numbers deliberately. We might have begun charging a modest fee per update ($5 or $10 or $20) which maybe would have allowed us to recognize the original revenue more easily, but I’m pretty sure eventually either Wall Street or the tax people would have claimed that the modest fee didn’t accurately reflect the revenue of the updates, and I’m completely sure that our user base would have been severely pissed off about the charges.
A subscription model solves the problem very neatly: all revenue is recognized upon receipt, or (if it’s an annual payment) maybe it gets split up into monthly pieces and recognized accordingly, either with or without interest and future value reflected — but in any case it’s predictable, easy, and not really subject to complaint.
As I recall, the initial subscription models were still based upon a shrink-wrapped development schedule and the costs were very high, and I don’t think they were very popular. But the mechanism I now use to get Adobe software (the photography bundle, which is $10/month for Photoshop and Lightroom) is cheap, easy, and means I get updated software every quarter (or so — I don’t necessarily install every new version that Adobe releases).
If they were available to buy, I could afford shrink-wrapped copies of all the Adobe software I use. But I wouldn’t switch from the subscription model now without a fight. I don’t feel that way about all the software I get via subscription (Microsoft Office comes to mind), but for the Adobe software I use, it works for me, and I’m glad they did it.