We recently covered a quick photo editing app that did one thing well, but it cost too much. Photolemur’s regular price is $5.99 per month. It is common that when someone invents a compelling digital tool, they try to turn it into an endless cash stream with a subscription business model. X.ai makes an artificially intelligent assistant that sets up meetings over email. It costs $39 per month. Even the O.G. of productivity apps, Evernote, costs $69.99 per year, for users that want to unlock its full power.
We’re reluctant to be too critical of companies that try to build products that people will pay for. As Aral Balkan, who made the ad-blocking software Better, often likes to say: building products people want to buy allows founders to build lasting businesses that don’t turn customers into product. But $6 per month is also too much to pay for a program that fixes photos in just one way.
Enter ‘Subscribe With Amazon,’ a service from the Seattle giant that takes care of payment processing and makes a product searchable on the most visited retail site on the web, as Techcrunch reported. It’s natural to read this news as Amazon making money off of digital tools with a subscription business model the way it’s taken over warehousing and shipping for thousands of online retailers. We see another opportunity: what if Amazon could grow the market for software services but lower their price, like it did for e-books?
Balkan’s Better costs $4.99 one time, but it’s useful to everyone that owns an Apple device. Other software may be something that fewer people need a lot. With a smaller market, the creators of those products have to ask people to pay recurringly. There might be several apps that each of us might like to subscribe to, but when they all get tallied up it’s too much. So we don’t subscribe to any.
So consumers err on the side of free alternatives, even if they suspect such free products spy on them. Everyone freaked out recently when The New York Times‘ latest Uber exposé revealed that the company bought data about people’s Lyft receipts from inbox cleanup service Unroll.me. There had been an Unroll.me alternative all along, one that committed to honoring your privacy: Clean.email. It costs $7.99 per month, though—nearly as much as Spotify.
Here’s how Amazon’s e-book business applies to these apps: Amazon has a Netflix-for-e-books that it calls Kindle Unlimited. For $9.99 per month, avid readers can get access to a giant library of e-books and audiobooks. As they consume those materials, authors and publishers get paid based on how much they actually read, as we’ve previously reported.
Say what you want about Amazon (and there’s a lot to say), when we speak to independent authors about Kindle Unlimited, they tell us it makes them a lot of money. For consumers, it’s a good deal because they spend less per person on books. Yet by lowering the cost in that way, lots more people are throwing money authors’ way. Economists call this price elasticity. For some goods, people will buy lots more if the cost goes down.
For some products, when the price goes down, lots more people start buying them or each person buys more. Sometimes, it’s enough more volume that more money can be made at a lower price.
Imagine a candy bar that 1,000 people will buy if it’s $1.50 but 3,000 people will buy if it’s $0.75. For this hypothetical candy bar, cutting the price in half makes $750 more dollars total. For a physical product, the net depends on what it costs to make, but the price of each additional digital product is at or very close to zero (most of the time).
So more buyers equate to more money for digital goods, and Amazon has basically proven that people who write good books can increase earnings by lowering e-book prices. So could Amazon grow the marketplace for software markets in the same way?
Looking at digital subscriptions on the site now, it has some products that wouldn’t be bad to bundle. Dropbox Plus, SaneBox, Focus at Will and SherpaShare all seem like the kind of apps a productivity-oriented white collar striver might be interested in. All together they would run more than $300 per year. That seems like a lot.
Could each of these companies could make more money at a lower price if people could get more than one product in a bundled subscription? That seems reasonable. Is this something Amazon has in mind? Amazon did not reply to a request for comment for this story, but it wouldn’t be surprising if they headed in that direction.
It would be great to see more of these useful products priced within reach. The problem with this sector is that any one of them is affordable, but once you get beyond two or three, it’s too much. Lots of folks probably end up just not subscribing to any.
It would be nice to imagine a world in which lots of these good ideas could be made sustainable by Bezos’s behemoth, as long as it doesn’t take a little productivity company’s idea and steal its business model, like it did to computer accessory maker Rain Design.
As long as they don’t, an Amazon-built Netflix-for-Productivity could put entrepreneurs and consumers back on the same side.