In the last post, we traced the arc from ownership to subscription — how software went from something you bought to something you rented, and how that shift created a silent churn engine most businesses never see coming. Now let's talk about why the model keeps breaking its own promises.
Because the subscription model doesn't collapse from the outside. It collapses from the incentive structure baked into its funding.
The Growth Trap
Here's the cycle. A startup enters the market, prices low, and earns early adopters through genuine value. They capture a slice of market share. Traction follows. Then comes the investor.
The investor doesn't want steady, profitable growth. The investor wants a multiplier. The assumption is simple: pour cash in, accelerate growth, scale the denominator before exit. But growth at that velocity has a cost. Quality assurance gets compressed. Product roadmaps get hijacked by feature bloat designed to justify valuation, not serve the user. And even if quality somehow holds — even if the engineering team is world-class — growth still probably isn't hitting the curve the investor modeled in the term sheet.
So the company hits a fork.
Either they have extraordinary marketing and continue to grow organically by demand alone, without touching the price — or they hit a plateau of consistent demand, see the trendlines flattening against investor expectations, and since they can't manufacture more quantity of demand, they do the only thing left.
They raise the price.
The loyal early customers — the ones who believed in the product when it was unproven — are the first to absorb the cost of someone else's growth expectations. The subscription model doesn't reward loyalty. It subsidizes acquisition with it.
Inevitably: prices rise, integrations break, the software morphs into something it wasn't when you signed up. NYU Professor Aswath Damodaran has called the broader VC model a "pricing, not a value, game" — and he's right. The product isn't the product anymore. The growth rate is.
A Model, Not an Industry
Here's a distinction that gets lost in the noise: SaaS is a business model, not a business category. Software as a Service was a pricing and delivery mechanism — you would have software as a subscription as opposed to software as ownership. That's it. It described how you paid, not what you were buying.
But somewhere along the way, the model became the identity. Entire ecosystems — venture capital, accelerators, analyst coverage — organized themselves around "SaaS" as though it were an industry vertical with its own gravitational laws. And when the model is the identity, nobody questions whether the model still serves the customer. They just optimize it harder.
The Fatigue Is Measurable
This isn't speculation. The cracks are showing up in the data.
Forty-one percent of streaming subscribers now report subscription fatigue outright. Average household subscriptions have dropped from 4.1 to 2.8 in a single year — a 32% decline. Research suggests most consumers significantly underestimate their total monthly subscription spending. People are paying more than they think for things they're using less than they planned.
On the business side, it's worse. Vertice's SaaS Inflation Index shows SaaS pricing rising at roughly four times the rate of general inflation. The average SaaS cost per employee has climbed to $9,100 per year, up over 15% in just two years. And according to SaaStr's 2025 analysis, 60% of vendors are masking price hikes by bundling AI features that nobody asked for — bolting on capabilities to justify the increase rather than earning it through value delivered.
Remember the phrase "Millennial Lifestyle Subsidy"? Companies selling twenty dollars of service for ten, bankrolled by cheap capital. That era ended when interest rates rose. The subsidies disappeared. The prices didn't just normalize — they overshot, because the underlying business was never built to sustain itself at honest pricing.
Usage-Based Isn't the Answer Either
Some companies are attempting a pivot to usage-based pricing as a corrective — pay for what you consume, not a flat monthly seat. In theory, it aligns cost with value. In practice, it introduces unpredictability that businesses hate even more than overpaying. A few companies are making it work. Most are not. Swapping one billing model for another doesn't fix an incentive problem.
Build cost drops. Delivery mechanisms evolve. But the billing model stays frozen — and nobody asks why. The subscription model was an innovation in delivery. It became a trap when growth expectations took the wheel.
But here's what's interesting: behavioral economics has something to say about what happens next. There's a well-documented phenomenon called the endowment effect — the idea that people value things more when they own them. And ownership, as a model, is making a quiet comeback.
Next post: why the psychology of ownership changes everything about how software should be sold.