The EU Just Killed ARR

https://paid.ai/blog/ai-monetization/eu-data-act-killed-arr

by arnon • 10 months ago

75 94 10 months ago

mehdibl2• 10 months ago

What is the issue? There is 2 month's notice. If you have bad services and customer don't need it any more makes sense to allow termination, instead of contining to bill customors for nothing.

This is more healthy and would push more SAAS to focus on Sales not building tricks to force retain customers!

arnon7• 10 months ago

The issue is you can't use the "I'll give you a deeper discount for a 3 year contract" line anymore.

It'll potentially create a situation where customers in the US pay a lot less because they still have that incentive.

deadbabe• 10 months ago

I think you could still do it but it would involve some clever financial engineering.

kranke155• 10 months ago

Prepaid contract. This is a false issue.

phkahler2• 10 months ago

> The issue is you can't use the "I'll give you a deeper discount for a 3 year contract" line anymore.

I don't see why not. You can still offer a low price right? You can still promise it won't go up for 3 years. But the customer can now cancel at any time.

jdietrich• 10 months ago

Nothing in this Regulation prevents a customer from compensating third-party entities for support in the migration process or parties from agreeing on contracts for data processing services of a fixed duration, including proportionate early termination penalties to cover the early termination of such contracts, in accordance with Union or national law.

https://eur-lex.europa.eu/eli/reg/2023/2854/oj/eng

mehdibl2• 10 months ago

Such discounts are prepaid, or you give free period after paying in full for 70% of the period.

Also there is prepayment in a lot of commitment. When you commit on the cloud such contract your PREPAY compute unit and this is not new.

youngtaff• 10 months ago

The legislation applies to “Connected Products” which most SaaS services aren’t

arnon7• 10 months ago

It also applies to "data processing services":

"Article 25, Contractual terms concerning switching … The rights of the customer and the obligations of the provider of data processing services in relation to switching between providers of such services …"

This explains it in a lot more detail: https://www.dlapiper.com/en-gb/insights/publications/2025/07...

bearjaws• 10 months ago

Seems like great for competition, if someone can steal your business you have a bad business.

arnon7• 10 months ago

Agreed, but it does open up some cans of worms where you may accidentally lose customers when they forget to renew (even if they meant to)

paulsutter• 10 months ago

This is wonderful, occasionally the EU bureaucracy gets something right

Yes it’s good for customers, but it’s also good for vendors. They are no longer subject to this arbitrary and destructive pressure from investors, and may see a revenue increase as customers lower the bar for signing up

The right measure of ARR is statistical anyway. Just because a contract lasts for a year in no way establishes the contract as recurring. It has been a very arbitrary standard

jerojero• 10 months ago

I can't wait to move to Europe and end my Adobe subscription that I forgot to cancel a few months ago.

0x3f• 10 months ago

Try downgrading/switching package, then cancelling. At least in my region, this resets the cancellation clock.

matthews3• 10 months ago

Boom. Subscription gone. Access revoked. Business workflows broken.

Maybe we need more regulation to require a grace period after a failed payment...

arnon7• 10 months ago

That's what I'm advocating for

leggenda47• 10 months ago

The website messes up the back button in iOS Safari

browningstreet• 10 months ago

This will radically change the customization, integration, onboarding, implementation, and training end of these contracts.

StopDisinfo9102• 10 months ago

What a complete misrepresentation...

Limiting notice period to two months and forcing you to give customers the possibility to terminate at any time is not killing ARR. It might moderately increase churn but even then, unless you are frankly dishonest, not that much.

You still have ARR when your customer can terminate their contract.

Even yearly discount which the article presents as done for are still a thing with the possibility of early exit. You just put a clause indicating that the discount is forfeited if the customer leave before the end of the contrat. Phone companies do that all the time.

throwoutway• 10 months ago

I agree the article seemed disingenous and almost felt like it was shady (can you believe the EU lets them cancel in a sane way?!). When I hear ARR, I don't think of an annual contract. ARR is equivalent to MRR*12 and can be a mix of contract types or even utility spend ($ per bytes). I understand that "committed spend" is when a business agrees to pay $XX annually, but that's not defined by ARR.

basisword5• 10 months ago

> ARR is equivalent to MRR12

Sure but if you actually have customers paying the annual fee in one go (instead of 12 monthly payments when they can cancel at anytime) the ARR number will be much more reliable. With MRR12 you're counting people who sign up for a month and quit.

svdr• 10 months ago

Is there a distinction made between business customers and consumers? (B2B/B2C)

some_random7• 10 months ago

I think that's the exact issue here, it used to be B2C only but is now B2B

WhereIsTheTruth• 10 months ago

This will accelerate innovation, companies no longer will take your subscription for granted

dustingetz• 10 months ago

saas subscriptions is the new gym memberships

nabla9• 10 months ago

This is amazing pro-market regulation!

flowerbreeze• 10 months ago

As a user, this is great news. I think that the artificial lock-in to services that have near zero cost of on-boarding and off-boarding is not what nice companies should do.

As an entrepreneur, this is amazing news! This means users can now more easily switch to my superior service.

At least this is how I choose to see it. It seems to encourage healthy competition and I'd rather compete on the service quality and value than the cleverness of my contracts and discounts. I'm sure it will hurt the bottom line of some companies, but I'm not sure it's a bad thing.

raverbashing• 10 months ago

Yeah the only people who would think this is bad are Adobe and companies pulling similar shenanigans

bilekas4• 10 months ago

Absolutely, companies who remain stagnant will fall behind if they don't offer something as good as or better than competition. Only shareholders who are concerned about "guaranteed income" regardless of its sources will not like this imo.

spwa44• 10 months ago

... of course it's the EU. It won't be enforced against large companies. I mean, it seems to me pretty obvious that this outlaws microsoft office. And yet, it's september, and ...

https://www.coolblue.nl/en/product/963184/microsoft-365-pers...

https://www.coolblue.nl/en/product/952796/adobe-photoshop-el...

Seems to me these trivially violate just about every condition talked about in this article ... yet it's still for sale with no way to cancel and get your money back. Am I missing something?

In fact this store only sells subscription software. That's the only thing available. Non-cancelable, of course. And there's plenty of technical and bundling barriers to switching.

LightBug1• 10 months ago

Believe in your product. Or don't.

Choose.

Can't wait for "capitalists" to speak up against this.

daedrdev• 10 months ago

Offering a discount for longer contracts and jacking up the price for shorter contracts have no noticeable difference to either party.

I feel like this article is thus being overly generous. The EU simply wants consumers to be able to cancel digital products that have no marginal cost anyway, which makes intuitive sense imo.

sgjohnson• 10 months ago

Just adopt the JetBrains model? Each consecutive year of uninterrupted subscription gets you a discount, up to a point.

nurettin3• 10 months ago

Jetbrains started the whole "you don't own the software you paid for" movement. I am angry at them and their supporters.

mpawelski• 10 months ago

Don't you keep the the current version of the software even if you don't buy the subscription for the next year?

yoavm• 10 months ago

If your ARR is built upon the idea that your customers cannot cancel their subscription, you're getting it very wrong.

arnon7• 10 months ago

ARR assumes customers will stay with you - that's why it's a bad metric.

bryanlarsen• 10 months ago

The churn rate is always part of ARR financial models. They generally do assume that the churn rate stays constant, but not that it is 0.

quentindanjou• 10 months ago

ARR is a metric. It does not assume anything. The people using it assume, and that's where the mistake is.

Most of the monthly subscriptions currently allow you to cancel at any time. And most of the yearly plans are actually "yearly-prepaid", and this isn't affected (per my understanding) by this law. What is actually impacted are plans like the Adobe year plan, where you pay monthly for a service and cannot cancel unless you pay for the amount remaining of the year.

ARR isn't dead, at all. ARR of the current year was always a predicted metric, subject to plenty of factors such as payment refused on peoples cards. Maybe some businesses were not correctly using this metric and now will have to be more careful.

refulgentis• 10 months ago

30% of the corporate blog links on HN the last 4 weeks have mysterious distance from the facts they purport to relay.

Then, they pivot to something vaguely related that is more fun to talk about.

The distance is never closed, and then you're hit by the ur-slop: "That's not X—its Y" and realize where we're at: it used to be a good idea for SEO to write informative blog entries, then it got outsourced from subject matter experts to marketing, then it got delegated to the interns, then the interns got told to use an LLM. And I love LLMs! Just makes me smile and wish for a new way to run links sites.

myrmidon• 10 months ago

I'm curious if AI writing style is going to leach into human use and possibly even self-reinforce.

I also really don't understand why it is apparently so difficult to teach LLMs not to repeat the same sloppy sentence style multiple times per paragraph...

amtamt• 10 months ago

I wish EU (or may be just a Swedish thing) also could have same kind of cancellation possible for post-paid phone/ internet, eye-glasses subscriptions.

BoredPositron• 10 months ago

We have it in Germany since 2025 and I thought it was a EU thing.

hosh3• 10 months ago

Does that mean, things like AWS Reserved Instances or Savings Plans do not comply with this EU law?

DevelopingElk• 10 months ago

I think that AWS Reserved Instances will still be OK. That is purchasing a product with an expiration date, with the product being compute hours. And its mostly B2B, this article is mostly focusing on B2C. AWS will mostly be in the clear. Services are already billed per call or per monthly usage.

arnon7• 10 months ago

Usage-based will be fine, but if you sell usage-based with a discount that assumes the customer will stay with you for, say, 3 years - this law means they can leave after 1 and not stay for the full length.

Then, you've given a discount that wasn't in your interest to provide.

hosh3• 10 months ago

Does the law as written distinguish between B2C and B2B?

Copenjin• 10 months ago

Thank you EU I guess?

L_226• 10 months ago

So, can I use this against Google to get our locked-in annual gmail subscription nuked in 2 months, instead of next May when the contract change date is?

mytailorisrich4• 10 months ago

The EU trying to solve a non-existing problem.

If a company offers a discount (or not) for a longer minimum term contract and you accept then that's just liberty in action as long as the terms are made clear in advance. There is neither a need nor benefit in regulatory intervention, especially considering all the actual issues on Europe's plate...

basisword5• 10 months ago

> The EU trying to solve a non-existing problem.

It's a problem for me and as an EU citizen I'm happy they're taking the time to solve it.

mytailorisrich4• 10 months ago

How is it a problem? Any bad software companies put a gun to your head to force you to buy their products on their terms?

I am an EU citizen, too, and I would like that the EU do not intervene and regulate anything and everything they might think of just for the sake of justifying their jobs...

B2C in Europe has very strong consumer protection laws, so terms must be clear and fair. People can then make their own decisions. B2B has less protection, i.e. you're supposed to be clued-up a minimum to read and understand contracts, but then people can make their own business decisions, too.

some_random7• 10 months ago

B2C this is obviously a problem and I hope that this the model adopted in more places. B2B however might be a different story.

izacus• 10 months ago

Wow, companies being forced to provide good service to customers through a contract term and upholding the primary driving force of market capitalism (customer can take their money to a better provider).

Sounds like distopia! /s

Glyptodon• 10 months ago

This is a silly article. It seems premised on the idea that ARR can only happen with contractual or vendor lock-in. Which is silly. Like most things, if you can get in the door, and aren't price gouging, few people will want to rock the boat for the sake of it.

basisword5• 10 months ago

The only thing this 'kills' is a stupid metric. You can no longer guarantee a customers LTV will be more than two months. So the metric used to try to value these businesses will change a little. Otherwise, if you offer a good product and don't engage in scummy practices to lock people in, you should be unaffected. If you're a scumbag (and unfortunately, there are a lot of them out there) you will need to work a bit harder to maintain your subscribers.

dzonga• 10 months ago

Good Riddance. ARR is one of those 'fake' metrics like 'EBITDA' that mean nothing but numbers with make up.

a more reflective number is last year revenue + revenue growth rate. and yeah costs / growth of costs.

some_random7• 10 months ago

Hmm that makes sense, but it probably would be best to measure cash flow instead of revenue year over year, maybe some kind of Earnings Before Interest, Taxes, Depreciation, and Amortization. Alternatively you could skip all of that and just go with yearly revenue like you said although that could obviously be gamed with some stupid one-off sales and fees so maybe some kind of Annual Recurring Revenue metric would be more useful?

jjani• 10 months ago

As the domain suggests, lovely piece of examplary slop.

jorams• 10 months ago

This article is just a lie and also seems deeply confused. First it talks about the (false) claim that you can no longer count a yearly contract as such, then it switches to "involuntary churn" without at any point explaining why those concepts are related in any way.

The regulation[1] explicitly says:

Nothing in this Regulation prevents a customer from compensating third-party entities for support in the migration process or parties from agreeing on contracts for data processing services of a fixed duration, including proportionate early termination penalties to cover the early termination of such contracts, in accordance with Union or national law.

[1] https://eur-lex.europa.eu/eli/reg/2023/2854/oj/eng

lmeyerov• 10 months ago

This is a big problem for many enterprise startups. Most (90%+) are customer funded, not VC funded, and it is common to have a few big design partner customers as they figure it out. Imagine several 3yr $1.5M ($500K/yr) contracts, so a team of 10-15 funded on that.

Companies have annual whimsical budget cycles, with new innovation initiatives always big easy targets as not cemented yet. This change makes it very easy to yank one of the 3 year commitments... Which would cause layoffs of a third of the startup.

hosh3• 10 months ago

Would this law have helped that non-profit that had their annual Slack subscription increased from $5k/year to $200k/year?

https://news.ycombinator.com/item?id=45283887

condiment• 10 months ago

The article is hyperbole and this only impacts ARR for consumer services, which tend to be either month-to-month paid in arrears, or annually prepaid. It doesn't change anything, but if your gym membership goes high-tech it might be easier to cancel.

The specific provisions[1] covering unfair contract terms apply only to "unilateral" contracts, meaning contracts that are offered to a customer who meets two important criteria. First that they attempted to negotiate specific terms in the contract. Second that they had no ability to influence those terms but continued to purchase the service anyways. Real, scaled, committed SaaS ARR isn't going anywhere.

[1] https://eur-lex.europa.eu/eli/reg/2023/2854/oj/eng#cpt_IV

0x457• 10 months ago

You can still sell N-years of service at Y % discount? It just has to be paid at the start of contract?

raincole3• 10 months ago

First of all OP is a shill for this paid.ai thing (as if this domain name isn't a telling sign, lol): https://news.ycombinator.com/submitted?id=arnon

Second it's ridiculous. No one is killing ARR. That's absolutely not what EU is doing.

Boom. Subscription gone. Access revoked. Business workflows broken.
It’s the equivalent of your electricity being cut off because you didn’t click “confirm payment” on a reminder email.

Not what EU is doing again. At all. What a slop.

xalava• 10 months ago

The article mixes two months notice cancellation, non-recurring contracts, and business predictions. It is AI generated randomness for marketing.

nurettin3• 10 months ago

If you wanted to get rid of your subscription, you were going to waste money on something you weren't going to use, and that doesn't really help the business or you. (except the business leeches cash, but that shouldn't be their business model anyway)

So nothing of value was lost.

Razengan• 10 months ago

Didn't pirates die off quite a long time ago?

The EU Just Killed ARR

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