Subscription-Based Licensing: A Tax on Both Your Houses

by Tony Lovasco, President of Twisted Lincoln, Inc.

With Product Activation and other forms of "Digital Rights Management" (DRM) becoming more and more prevalent, the rights of consumers to control how they use the products they buy are quickly eroding. While there has been no formal announcement, it is clear that many major software makers are slowly introducing the idea of subscription-based licensing into the minds of the average consumer.

Using various forms of DRM, software manufacturers have already begun to restrict how, when, and for how long consumers can use their software. Product Activation, for example, requires that the user communicate with the software maker in some manner before it will be fully functional. If the customer exceeds a certain number of activations (which will occur each time the product is reinstalled), or if they wish to install it on a replacement machine, they will have to call the software maker's support line and ask for special "permission" to reinstall. Because the consumer relies so heavily on the software maker's approval to use the product they purchased, it would be easy for Activation to be exploited. All a software manufacturer would have to do would be deny re-activations for discontinued products, and the consumer would be forced to either upgrade, or be forced to buy a competing product. Either way, the customer has lost the ability to use the product they legally purchased.

Sadly, consumers in general are all too willing to accept the idea of Product Activation, and DRM in general. Because of this, a wide variety of software makers have implemented a variety of methods that cause the customer to be dependant on their approval (and continued existence) to use their products. Slowly, software providers will likely begin implementing a "feature" in their software that would force you to re-activate after a certain period of time, even if you haven't re-installed or upgraded your hardware. They would market this as a defense against "software piracy," claiming that they could then easily track when a piece of software was illegally distributed. In fact, one company already does this. TMPG, Inc., maker of the popular Mpeg2 encoding software TmpgEnc Plus, uses a type of DRM they call "Periodic License Validation." This requires that the machine with their software installed contact their servers every few months to verify that that copy is still installed on the original machine. If it fails the validation process, the software will be disabled.

Why are schemes such as Periodic License Validation a problem? Mainly because there are only slight differences between the control that comes with periodic Product Activation and subscription-based licensing. Once a software program is required to periodically validate itself, it would take very little for the software maker to force you to pay for continued use -- all they would need to do is keep you from re-activating until you pay a fee. Even if you never re-install, you could only use your software until the next validation period -- at that point you would be locked out until you pay. While TMPG, Inc. has not done this, what's to keep them from doing so?

Many people would argue that there are already some cases of subscription-based consumer software, in at least some incarnation. Most virus protection programs require a yearly fee in order to receive updates. If people accept this, what's the big deal with having all software subscription-based? Sadly, the people who make such arguments do not understand the implications of their statements. There is a profound, fundamental difference between paying a subscription fee for continuing access to updates, versus paying a fee to continue to use a product. Sure, virus protection programs aren't too useful if you don't keep them up to date, but at least you can still use them after you cancel your subscription. Most importantly, they still continue to function exactly as they did when you purchased them, even after you stop paying for your subscription to the updates. With true subscription-based licensing, you must continue to pay a fee to use the product, without any guarantees of added features or benefits. You are simply paying for the "privilege" to use what you purchased.

Of course, the next argument that proponents of subscription-based licensing will use is that paying a periodic fee to use software will make it cheaper and more accessible to lower-income users. Instead of paying $100 to $300 for your Operating System, for example, you may only pay $50 up front, and $20 a year to continue to use it. Of course this will prove to be much more expensive in the long-term (especially if you keep using the same software for long periods of time).

Subscription-based licensing is a step in the wrong direction. It would effectively mean that you are no longer buying a piece of software (or more precisely, a license to use a piece of software), but instead simply renting it. This would put all control over the software (and in the case of Operating Systems, your entire computer) in the hands of the software maker. Such a situation is unacceptable, and should not be tolerated by the consumer. Any customer purchasing a software product that uses subscription-based licensing is foolish. What if they use the software in the course of their business? How would it effect the bottom-line if all of a sudden, the point of sale program you use to run your cash registers costs twice as much to "rent"? With standard software licensing, a company can budget for a one-time purchase, and never have to worry about the costs to use their product increase. But with subscription-based licensing, one can never be sure that their costs won't rise.

While it is possible that some software makers will provide their customers with new features and updates as part of their subscription, the vast majority will not. There would be no motivation to do so-- if the customer has to keep paying to simply use the software anyway, why give them anything extra? Moreover, they will then be able to charge a larger subscription fee for the user to upgrade to the newest version. Doing so would both increase their initial profits (because of the increased subscription price) and get the consumer accustomed to a higher priced fee. This would be convenient, of course, once the older version is discontinued, and all customers are forced to upgrade...

The idea of subscription-based licensing is not something new. In fact, many people are already subject to mandatory subscription-based licensing -- Personal Property taxes. Oddly, such taxes are the only other mainstream example of a situation where a person is paying for the mere "privilege" of owning something. No one will try to argue that the government provides periodic security fixes and new features to your home in exchange for those taxes. So why would one think that a software maker would act any differently?

Subscription-based licensing takes the evils of Product Activation one-step further. It takes all control over a product away from the customer, and places it firmly in the hands of the software developer. While copyright holders may claim that you never really own their product -- only use it -- a certain amount of ownership should come with purchasing a physical product.

Anyone who believes that paying a periodic fee for continued use of their software should perhaps consider what their life would be like if they were charged a rental fee for other products. Let's take pants for example. Imagine instead of paying $30 at the store for a pair of pants, you instead paid only $10. But these pants where designed in such a way that they need a special adhesive applied every month in order for the stitches to stay together. So to get your monthly bottle of adhesive, you had to pay $1 each month to the people who made the pants. If you couldn't afford a payment, or if you forgot to send it in, one day you'd be walking along, and your otherwise nice attire would fall apart, leaving you standing in the street with no pants. Clearly that would not be a good situation. Of course, you could always remember to make your payments. But don't forget: if you keep those pants for two years, you will have paid a total of $34 for the $30 pants ($10 initial payment, plus $1 a month for 24 months). The longer you wear the pants, the more expensive they are. And of course let's remember that the people who make the pants could decide at any time to discontinue your pants, and the next time you put them on (fully expecting to have pants to wear to work that morning), they fall apart.

It is incredibly unlikely that you will ever have to worry about subscription-based pants. However the analogy is very relevant. Once a person or organization becomes reliant on a piece of software, they count on it to do their work in much the same way one counts on having pants. And once that software becomes crippled, they are left with a feeling much the same as having no pants...

Someone once suggested to me that people subscribe to a variety of services in their daily lives, so how should software be any different? Well to begin with, most "subscriptions" that such people have come up with are simply services. For example, most pay a monthly fee for water service. Is that a "subscription" in the sense that I'm referring to? No. Why? Because you pay a monthly fee for water. New water. Each month you are simply buying more water. You're not paying a recurring fee to continue to use the same water. That is an important distinction. Those who advocate subscription-based licensing would have users pay a continuing fee for the ability to continue to use a product. That is a far cry from utility services, which continue to provide you with additional product each month.

It has also been suggested that a mortgage is a form of "subscription based licensing." This is absurd. A mortgage is hardly a subscription -- sure there is monthly payments, but in the end, you own the house. You are just repaying the debt that you incurred with that purchase. Renting an apartment, on the other hand, is a subscription -- you're paying for the limited right to use the apartment for a set amount of time. And there are loads of people (including myself) that would advise anyone against renting an apartment, for a number of reasons.

The bottom line is that every consumer of licensed products, software or otherwise, should protest any attempt to move toward subscription-based licensing. Copy protection methods should be carefully examined before being immediately accepted, and Product Activation and other malicious forms of DRM should never be condoned. Subscription-based licensing is an unacceptable situation that must not be allowed to occur. Consumers are already faced with government taxation, and should never have to endure such a concept in the private market. Those who would accept such a situation should be mindful of their pants, as they may one day be without them.