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Downloadable Content

Downloadable Content

In the waning weeks of 2022 I briefly touched on some of the big trends I saw being prevalent in 2023. You’ve got things like Zero Trust security strategies, AI-enhanced security algorithms, cloud-based everything, but I neglected an important one I think, and that’s recurring revenue.

I know because its something that’s come up multiple times in the past two weeks. NAPCO has credited its recent growth to recurring revenue, and in interviewing CEO Don Joos this past week its clear that subscription services and forms of recurring revenue are part of ACRE's strategy, and of course it is, everyone wants to get a piece of that pie. Nothing looks better on a quarterly balance sheet than a source of money you can always count on. It’s also a lot easier to sell a service than a product, so it feels like a bit of a gold rush on that front.

Of course, this isn’t new. Subscription services have existed for a long time and have proven results. The video game industry is a prime example of an industry that has begun to gravitate toward services over products. Subscription services from consoles are normal, with each company vying to offer the more attractive platform, and on top of that there are many games that require monthly subscription services, or at least seasonal DLC. Downloadable content as we call it, or season passes, any way to squeeze another dollar out of the user.

So far, it’s worked fantastically! Gaming profits run in the billions, and it’s no wonder. Some of the services are predatory enough that they’re just gambling, only with no hope of a tangible, physical payout. I bet you’re seeing where I’m going with this. There’s been massive pushback from both consumers and regulatory bodies for this monetization, especially in Europe. To say they’re coming to a breaking point is an understatement.

An even better example - traditional newspapers. Subscriptions help drive ad revenue as rack sales account for a lot less influence in that sphere these days. The internet has now come along and offered a cheaper alternative for both readers and advertisers in some cases. It’s not a better product, and the reach isn’t necessarily better to targeted audiences. It is cheaper,  however, and that’s the most important thing at the end of the day.    

I’ve seen several people in the industry say they’re not concerned about churn in subscription numbers, because as clients are usually businesses and corporations, they’re less likely to cancel services on a whim. I’ll give them that, but I’ve never met any business that wouldn’t shave a penny to make a little more profit. Fierce competition in a subscription-based industry will eventually constitute a race to the bottom. What happens when your major source of income is from recurring revenue, and you can’t offer the lowest price?

Game over.


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