Subscription models are woven into the fabric of our society. We wake up and read today’s headlines from the Wall Street Journal, open up Spotify on our commutes to work using our monthly T passes, manage clients with CRM tools, come home to decompress with some Netflix while eating our Freshly deliveries.
In recent years, the subscription market has grown by more than 100% a year, increasing from $57 million in sales in 2011 to $2.6 billion in 2016.
For customers, subscriptions allow for convenience in decision making, no more decisions about when to buy groceries or rent a movie, and easier budgeting. It benefits companies even more: it increases the customer lifetime value for a company, the customer pays up front giving companies more capital to work with, and it creates switching costs for the customer and requires them to opt-out if they wish to cancel.
There are 2 main kinds of subscription models. One where a customer pays a recurring cost and can consume an unlimited amount of content (Netflix, weekly MTA passes, Adobe Creative Cloud) and another where a customer pays a recurring cost and receives a fixed number of items on a regular basis (Freshly, Blue Apron, WSJ). 15% of online shoppers have signed up for a subscription to receive products on a regular basis and 46% of online shoppers subscribe to a media service.
The B2B market is already saturated with SAAS subscription products ranging from marketing tools (eg. Hubspot, Sprinklr, Marketo) to cloud services (eg. AWS, Dropbox) to everything else (eg. Salesforce, Adobe, Evernote). B2C still has a ways to go. Subscription models have permeated the entertainment industry, with streaming services like Netflix and HBO competing for customers. Long gone are the days of paying to rent individual movies from Blockbuster or Redbox. Music streaming was the same, with Spotify and Apple Music making obsolete the process of buying individual songs and albums, now an activity for true hobbyists. Fitness, groceries/food, shipping, personal care, have all moved towards subscribers in an effort to find loyal customers who add to brand equity.
Bigger companies have started to pick up on the direction the market is headed in from all of these e-commerce startups taking their market share. P&G (Gillette on Demand), Sephora (Play!), and Walmart (Beauty Box) have all launched new subscription businesses that are meant to ward off these new threats. Unilever acquired Dollar Shave Club for $1 billion in 2016 and Albertsons acquired meal-kit company Plated for $200 million.
What’s the next market for subscriptions?
Most public transport systems already have a subscription model option (the T, MTA) with weekly or monthly passes. Lyft and Uber have toying with the idea, offering different ride passes and discounted routes over the past few years, none of which have stuck around for more than a few months. Uber first began offering ride passes in Boston in 2016 that started at $85 for 20 pool rides anywhere in Boston. It has since tried many other passes, the latest being a $15 pass to secure a fixed price for any 1 route (eg. Boston College to Trader Joe’s) meant to help commuters who Uber to and from their workplace daily. Lyft launched a very similar model a few months later, with an ongoing monthly subscription for a single route.
Timeshares have been around for decades; it involves a property being owned by multiple parties where each party can use the property for an allotted amount time every few years. The subscription model is not new to travel, but it hasn’t come far. Hotels could create a subscription model where user pay a fee to stay in any of their hotels for a certain amount of time every year (eg. any Marriott in the world). Airbnb could follow a similar model by encouraging customers to subscribe to yearly vacations offering discounted prices for when they travel.
The food industry has come far with the subscription model in the past few years. From delivering groceries on a regular basis with Fresh Direct or a subscription with Amazon Fresh, to weekly deliveries of ingredients with Blue Apron, or entire meals with Freshly. But where else could it go? Postmates already has a premium subscription that allows users to curb delivery fees for a monthly fee. Uber Eats could follow suit by cutting delivery costs; they could even create a bundled subscription for Uber and Uber Eats. Some restaurants have even begun to offer food passes. Junzi, a fast-casual Chinese restaurant offers customers the option to purchase a weekly, monthly, or seasonal pass to eat 2 meals at their restaurants every day.
As a subscriber of Adobe Creative Cloud, Spotify, Netflix, and Harry’s, I personally like the idea of paying a monthly fee, and not having to worry about paying every time I consume a movie or use a razor blade. Uber’s Pat Twomey mentioned that they were trying to find their “Amazon Prime”, a subscription service that would benefit both the customer and the company. What other industries would benefit from their own “Amazon Prime”?