Decoding the Case of Adobe and Difficult Cancellation Policies

Insight: Of Ease of Use, Customer Focus, and Long-term Wins.

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The US Government has filed a case against Adobe this week for allegedly violating the rights and trust of its consumers suggested by the Restore Online Shoppers’ Confidence Act (ROSCA). The release on their site discloses this:

“The complaint alleges that Adobe has further violated ROSCA by failing to provide consumers with a simple mechanism to cancel their recurring, online subscriptions. Instead, Adobe allegedly protects its subscription revenues by thwarting subscribers’ attempts to cancel, subjecting them to a convoluted and inefficient cancellation process filled with unnecessary steps, delays, unsolicited offers and warnings.”

The Justice Department then cites the reason for its case:

“The Justice Department is committed to stopping companies and their executives from preying on consumers who sign up for online subscriptions by hiding key terms and making cancellation an obstacle course,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “We will continue to enforce ROSCA against those who engage in such misconduct. No company, whether it is a small business or a member of the Fortune 500 like Adobe, is above the law.”

What is this alleged misconduct?

Adobe was one of the early pioneers of digital subscriptions when it shifted to an online model for its suite of products including Photoshop, Illustrator, PDF Editor etc. It successfully led the software industry's shift to an online sales and delivery model. This move marked a significant departure from the traditional method of selling software on physical media such as disks and CDs, which eventually became obsolete.

This also meant that the traditional model where customers purchased software once and owned it indefinitely was no longer an option.

Instead, subscriptions offered users ongoing access to software updates, customer support, and sometimes additional features or services.

Consumers welcomed this change for its convenience, lower costs, and improved offers to upgrade software directly from their computers.

Soon, the business model evolved from companies selling 'lifetime licenses' to selling subscription plans, thereby creating 'annual recurring revenue' streams for software businesses.

This transition not only provided software companies with more predictable revenue streams but also allowed them to continuously innovate and adapt to changing customer needs and technological advancements.

Even Microsoft adopted this model and moved away from its earlier offering of lifetime licenses. Now, users need to pay monthly or annual fees to use its Office suite of products, branded as Microsoft 365.

This model has implications, especially for consumers and businesses that rely heavily on these products.

While the subscription model provides convenience, and continuous updates with periodic access to new features, it also introduces recurring costs that may not align with every user's needs. Some may find themselves paying for features they don't necessarily use or need, which can increase their overall software expenditure over time.

Some businesses may also disallow the use of older versions of software for which users hold lifetime licenses.

But when implemented effectively, this model benefits both consumers and businesses: it lowers the price of software, streamlines delivery mechanisms which reduces costs for the firm, generates recurring revenue, and facilitates real-time updates with new features.

Typically, subscription plans include fine print that mandates an 'auto-renewal' option upon signing up, often suggesting flexible cancellation terms, which can give users a sense of security and encourage low-risk signups.

In Adobe’s case, the allegation is that the fine print included a complex cancellation process with embedded hyperlinks.

Allegations state that buried inside the terms was a clause imposing an early cancellation penalty equal to half the subscription price, resulting in surprises when consumers attempt to cancel the annual plan.

This prompted me to check the process. So, let’s walk through signing up for Adobe today.

Here are the current subscription plans that Adobe offers online, along with a screenshot of the 7-day free trial as a teaser.

Adobe’s current subscription plan offers

Note the following regarding the plans:

1. For the second option shown on the right - an annual prepaid plan of USD 263.88/year - there is no refund if you cancel after 14 days, meaning that you are locked in for the year.

   

2. When you hover over the (i) icon for the first option - an annual plan paid monthly - you see the following additional term:

The ‘early termination’ fee is not defined.

I then continued to select the plan to see how long it would take before they showed me this fee.

1. The list of offers to choose from included plans with several attractively worded free trials and other pack inclusions (also on free trials), etc.

2. After selecting the plan (see first image) — annual, paid monthly for $268/year — I was shown a login screen to create or sign in to my account.

3. I entered the email address associated with my Adobe account.

4. I was shown the payment method screen with the plans and annual plan selection still showing on the right pane.

5. Below the PayPal method, there is a set of fine print with four links that point to canceling options via Adobe Account or Customer Support. The third link is to the terms of use, and the last link is to the subscription and cancellation terms. There is no hint that the fee information is inside the cancellation terms.

6. I selected the cancellation terms link. I had to scroll through three screens full of subscription access information that govern the free trial and access denial for payment failures. After the final scroll, I reached the end of the terms.

7. There, in the final two sentences, I discovered that the early termination fee is 50% of the subscription fee of $268/year.

Seven steps to discover the fee.

This means that if I sign up for a trial, forget to cancel within the 14-day grace period, and cancel on the 15th day, then Adobe will charge for a six-month plan without giving me access to the software (at least the way it is worded below).

Adobe subscription plan cancellation clause.

It is not a stretch to see why consumers must have been surprised. This type of condition—termination fees without access—is highly unusual for a SaaS business.

Compare this with the plans and pricing page for Microsoft, where the cancellation terms are shown as a footer at the bottom of the page, and the process is immediate with access pro-rated for the billing period, without penalty. This is a standard practice.

Adobe’s recent Q2FY24 results demonstrate that they had an outstanding quarter. Their investor report shows record revenues in digital media, with a reported annual recurring revenue of $16.25 billion. The Digital Experience subscription revenue reported was $1.20 billion, indicating a 13% YoY growth.

The software-as-a-service (SaaS) business model presumes that the software's value will drive customer retention, and churn rates are a constant pressure to measure, understand, evaluate, and overcome through a process of understanding customer drivers and building customer engagement.

This is why it is extremely important for any business intending to build a long-term trust relationship with its customers to offer a simple, easy-to-use cancellation process.

Imposing difficult cancellation conditions in fine print is usually considered egregious and not in tune with the software industry’s best practices.

Netflix was one of the earliest startups to demonstrate the ease of retaining customers by enabling easy, no-questions asked cancellation and then tempting you to return with discounted trial periods. Even to this day, canceling a Netflix subscription is convenient and easy. Canva, another disruptor SaaS design product, also has user-friendly cancelation policies.

Most volume-oriented SaaS businesses today adopt a seamless cancellation process and enable you to cancel without penalties from your Account Settings.

However, some well-known companies create friction in the process for two reasons: one, to get a chance to make you an offer to retain you (discounts, other perks), and two, to understand why you are leaving so they can take preventive action for other customers.

Pro-tip: When signing up for any new software or digital service, always check the cancellation terms beforehand. If the process is easy, with no questions asked and pro-rated access (i.e., until your monthly plan duration is completed), it suggests that the company is being transparent with its plans.

One common practice that was used until a few years ago was for prominent digital newspaper and cable subscription businesses to require customers to call to cancel.

This ‘call’ creates a low level of friction.

Here is an example of a newspaper that still requires a call today.

Calling to cancel newspaper subscriptions.

Pro-tip: Check if the company offers a real-time chat option, as most companies have switched to this help desk feature, making it easier to cancel subscriptions online.

Acquiring customers is always expensive for businesses, involving investments in resources for marketing, sales, advertising, and promotions.

Therefore, especially for consumer-based businesses, retaining customers is cheaper than acquiring them, which is why many customers receive attractive retention offers when switching from non-captive¹ mobile, Internet, and landline services.

Business leaders are measured on growth, especially in companies needing to meet quarterly forecasts, where recurring revenues and customer retention numbers are significant indicators of continuity and growth.

But in this era of technological innovation, disruption, and competition, employing old-school methods like hidden fees is unnecessary and only serves to create long-term disloyalty instead of enabling customers to return freely and easily.

Pro-tip: Research shows that an unhappy customer will tell an average of seven others about their experience.

Non-refundable software fees are a relic and should be abandoned as a strategy. Pro-rating for the billing period and offering perks and incentives for users to stay with the company or return later is a better long-term strategy.

Building long-term or lifetime customer value (LTV) for your product is as simple as creating substantial value and ownership in your product.

Even when customers leave, they can send future subscribers to your business by sharing their positive experience.

That should be the ultimate goal for any SaaS business: building incredible customer value through ease of use, product value, transparency, and partnership that causes customers to stay, and if leaving, to speak well of your product and business.

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1. Served by multiple providers.