The subscription economy came from digital, and it’s here to stay

By Jonathan Crowl

| Retail

If you’ve noticed a quiet transition away from selling products to offering them via subscription, you aren’t alone. The subscription economy is nothing new — companies have been renting out tools for years, as well as leasing cars, and many services like TV and internet have always been available via subscription models — but recent years have seen consumers embrace subscriptions in places that once seemed unlikely.

Even clothes are entering the arena, with a number of companies offering to ship boxes of apparel to consumers on a monthly basis, allowing them to keep what they want while returning the rest. This is the subscription economy in full bloom, and while some see it as a trend, others feel that it’s a permanent shift away from traditional consumerism.

The result is massive disruption throughout a wide range of industries, not just brands competing for digital clients. And while the change is disorienting for some, the continued rise of subscription-based business models is proving to be a win-win for brands and customers alike.

Inspired by the digital era

You can thank digital innovation for the rise of “everything-as-a-service.” Beyond the simple dynamic of consumers paying monthly for their TV and internet access, the advent of cloud storage and cloud computing made it easy to store software in a centralized place and to license out access to it instead of distributing physical copies to consumers.

More recently, streaming services have found enormous success with subscription models. Netflix is the most recognizable of them all: While it started as a by-mail subscription service shipping DVDs directly to homes, its online streaming has become the centerpiece of its business model, with the company offering consumers a large library of movies and television that includes original programming. Other companies like Hulu and Amazon have followed suit. Meanwhile, Spotify, Apple Music, Pandora and Tidal, among others, have saturated the music streaming services market.

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Each of these companies has the same goal: to increase profitability by growing their subscriber base. Consumers found the subscriptions to be economical, for the most part, since they could consume media in quantities that would have previously been financially unfeasible.

As these brands saw their success continue to pile up, other services and companies thought the model was worth trying for themselves. Amazon even lets you purchase your toilet paper and dog food on a subscription-based schedule, if you choose, meaning you never face the prospect of having to make a late-night run because your dog is hungry. However, this new selling proposition has succeeded for one simple reason: The more consumers embrace it, the more they seem to love it.

The impact on companies and consumers

When things are working well, the subscription economy can benefit both companies and consumers. Take Netflix, for example: In exchange for a monthly subscription fee, Netflix consumers have access to a massive library of content that they couldn’t come close to affording on their own. Netflix, meanwhile, can bank on a consistent influx of revenue, rather than traditional companies that produce a product, sell it and are then forced to sit down and invent something else that will generate sales and revenue.

Subscription revenues keep coming in on a monthly or annual basis — assuming, of course, that customers remain satisfied. According to Forbes, this is where consumers wield their leverage: If consumers of a certain brand are unhappy with their experience, they’re more likely to end their subscriptions, and that threat remains palpable as long as they remain subscribers. Companies, then, are required to focus on customer retention: Netflix and other brands need to keep their customers happy in order to keep revenues flowing.

This is exactly why Netflix cares less about the success of its original programming and more about each show’s ability to keep customers subscribing. Subscription services are inherently experience-based in that the relationship is ongoing and liable to change. The best way for brands to preserve and grow their revenues is by simply making sure that their customers are getting what they want. That’s all any consumer wants when they pay for a subscription service, and in many cases, it will be enough to stabilize that relationship.

Ultimately, most companies are finding that subscription business models offer stability while aligning business goals with customer desires. For those reasons, don’t expect subscription models to go away anytime soon.

Written By

Jonathan Crowl

Reporter

Jonathan Crowl has served as a tech writer and reporter for a number of tech publications and corporations. Specializing in mobile technology and digital startups, he is based out of Minneapolis, Minnesota.

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