Adobe in cloud-cuckoo land
<p>Congratulations, Adobe, on your impending move from selling Photoshop and other boring old standalone applications that people only had to pay for once to a &#8216;Creative Cloud&#8217; subscription service that will charge users by the month and hold their critical data hostage against those bills. This bold move to extract more revenue from customers in exchange for new &#8216;services&#8217; that they neither want nor need puts you at the forefront of strategic thinking by proprietary software companies in the 21st century! </p>
<p>It&#8217;s genius, I say, genius. Well, except for the part where your customers are in <a href="http://www.wired.com/wiredenterprise/2013/05/adobe-creative-cloud-petition/">open revolt</a>, 5000 of them signing a petition and many others threatening to bail out to open-source competitors such as GIMP.</p>
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<p>Fifteen years ago I pointed out in <cite>The Cathedral and the Bazaar</cite> and it sequels that buying proprietary software puts you at the wrong end of a power relationship with its vendor. And that this relationship will almost always evolve in the direction of more control by the vendor, more rent extraction from your wallet, and harder lock-in. Adobe&#8217;s move illustrates this dynamic perfectly.</p>
<p>But the response from its customer base highlights something else that has happened in those 15 years; open-source applications like the GIMP, and the open-source operating systems they run on, actually offer users a practical way out of these increasingly abusive relationships. Adobe&#8217;s customers aren&#8217;t being shy about pointing this out, and the company is going to feel heat that it wouldn&#8217;t have before 1998. </p>
<p>It&#8217;s not clear which side will back down in this particular confrontation. But the underlying trend curves are obvious; even if Adobe wins this time, sooner or later the continuing increases in the rent Adobe needs to claw out of its customers are going to exceed the customers&#8217; transition costs to get out of Adobe&#8217;s jail.</p>
<p>The problem is fundamental; one-time purchase payments can&#8217;t cover unbounded downstream support and development costs. They can only even <em>appear</em> sufficient when your market is expanding rapidly and you can always use today&#8217;s new revenue to cover support costs from last year&#8217;s sales. This stops working when your markets near saturation; you have to somehow move customers to a subscription model to survive.</p>
<p>But doing that doesn&#8217;t solve an even more fundamental problem, which is that the stock market doesn&#8217;t actually reward constant returns any more; it wants an expectation of rising ones in order to beat the net-present-value discount curve.  Thus, in a near-saturated market, the amount of rent you extract per customer has to perpetually increase.</p>
<p>But what can&#8217;t go on forever won&#8217;t. Eventually you&#8217;ll have to squeeze your customers so hard that they bolt.  This may be happening to Adobe now, or it could take a few more turns of the screw.  But it <em>will</em> happen. And as with Adobe, so with all other proprietary software.</p>
