Subscribed: The Future of Business Models
A couple of weeks ago, there was a significant shortage of fuel in the Southeast region of the United States. Colonial Pipeline, the most extensive refined oil pipeline system in the country, suffered a ransomware attack that disrupted its operations. I have been working remotely for a few months, and due to the ongoing pandemic, I am mostly home. But, I drove to a nearby Shell gas station to be on the safe side. I pumped seven dollars worth of gas to top off my car.
While I was filling up the car, I wondered how cool it would be to drive to any Shell gas station in the country to purchase fuel for free. Not a freebie, but without the hassle of paying each time I wanted to buy the product. In other words, I thought it would be interesting to subscribe to a particular oil brand by paying a flat monthly fee to the company. In doing so, the customer could purchase fuel on-demand without any additional cost each time. Of course, this scheme would also be relevant for electric vehicles and charging stations.
At first, this concept may appear idealistic. Still, it is perhaps not too far-fetched when we analyze industry trends: aviation, education, news content, gaming, beauty, software as a service, etc. Moreover, businesses are increasingly adopting a subscription model all around us, and nowhere is this trend more prevalent than the streaming industry.
The streaming industry has taken the lead
The spectacular growth we observe in streaming represents only the tip of the iceberg when we attempt to forecast future business models. Companies are increasingly focusing on acquiring active users, enabling them to gain deep insights about their users and cross-selling other products and services to make more money and retain them.
Netflix best represents the popularity of streaming services. In the past decade, the company has been growing at a CAGR of over 26 percent. With a paltry subscriber base of 20 million in 2010, Netflix has over 204 million subscribers at year-end 2020. In absolute terms, this represents nearly a 920% growth in just ten years.
The music streaming industry has also observed a phenomenal increase in subscribers. Whereas companies focused on selling soundtracks or albums to customers in the recent past, they are now making a value proposition to customers for access to unlimited music, all for a “flat-rate” subscription fee. This has resulted in a boom in the music streaming industry.
Subscription e-commerce is also on the rise. Companies like Dollar Shave Club and Blue Apron are grabbing market share from traditional companies reluctant to explore this business model. According to a 2018 McKinsey study, The subscription e-commerce market has grown by more than 100 percent a year over the past five years. But, honestly, we have not even scratched the surface yet.
More industries will migrate to subscription pricing
Evolution in digital technology, including payment services and CRM software, has made it easier to implement the subscription business model in many sectors. Therefore, regardless of the business, a form of subscription is likely possible today. This being said, there are services and goods for which I wish there were a subscription-based business model.
Eventually — likely sooner than we know — we will be able to subscribe to grocery store chains and shop for our foodstuff and household necessities, similar to having a gym membership. Date night? No problem. One could subscribe to a favorite restaurant or a fast-food spot and pick anything from the menu without paying a dime after dining.
The rapid adoption of subscription services is fascinating. Imagine a world where we can subscribe to daycare services for our children, barbershops, nail salons, furniture, and even housing. Pay a monthly fee to have access to a plethora of goods and services.
The interaction between companies and customers is inevitably “subscribed”
Companies want to lock in customers and develop a long-term relationship with them instead of the traditional one-time payment relationship. They want to be able to understand customers and even predict interests customers did not know they had. Consumers are also increasingly adhering to the convenience of subscription pricing, its flexibility, and customization. Despite increasing debates about subscription fatigue, fundamentally, subscription business models will improve and will face a broader adoption in our lives.
Until then, we are allowed to dream and hope that industries, which are still resisting the subscription model, eventually succumb.
