twitter youtube

Senior Managing Director | The Opes Group LLC

The Subscription Service Model

The subscription service model is nothing new. One of the earliest examples of the model is the newspaper. Citizens would pay a monthly fee to subscribe to The Washington Post or The New York Times in order to get access to the paper; in fact, many people still subscribe to these publications today. But in recent years, the subscription model has made its way from the newspaper industry to a variety of markets. In fact, due to its proven success, it is rapidly becoming the go-to business model for a large amount of industries.

 

What are some examples and how has it become so popular?

 

With the dawn and subsequent boom of the Internet, the subscription service model has taken off. Today, millions of Americans, and people around the world, subscribe to any number of services. Some of the most popular services are subscription boxes. In short, users pay a monthly, quarterly or yearly fee and receive a package in the mail that includes a variety of items, gadgets or consumables. Some popular examples are Loot Crate (a subscription service that provides subscribers with pop culture items), FabFitFun (a subscription service that centers on women’s beauty/health products) and Dollar Shave Club (a subscription service that delivers men’s grooming products). In fact, the model has spread so wide that there are even companies dedicated to offering subscription boxes for food, like Blue Apron or Home Chef.

 

And the subscription box model isn’t the only version of subscription services. Many other industries are getting in on the action. Services such as Netflix or Hulu offer unlimited streaming of hundreds of movies and television shows at a fixed monthly rate. YouTube also offers a subscription service for ad-free videos. The music industry has also hopped on the bandwagon. Services like Apple Music, Spotify and Tidal offer the ability to stream millions of songs for a monthly subscription fee.

These subscription services are incredibly popular. According to ExpandedRamblings.com, Apple Music and Spotify alone have over 150 million users; Netflix, by itself, has over 110 million subscribers, with Hulu and HBO Now totaling a whopping 22 million subscribers.

 

But the subscription model doesn’t end there. The model is so successful that it is even beginning to disrupt legacy industries that were once thought impossible to change, like the automotive industry. According to CNN, several high-profile automobile manufacturers, such as Volvo and BMW, are offering subscription service-like options to consumers. Volvo’s Care program offers users a Volvo XC40 SUV for $600 per month, and that includes insurance and maintenance costs. After a year, subscribers can opt to upgrade to a new model. Several other manufacturers offer incredibly similar programs, and should the model take off, we may no longer need car dealerships.

 

So, why is it exactly that today’s consumers prefer the subscription service model? Well, according to an article from AdWeek, most consumers prefer subscription-based models for two main reasons: convenience and ease of budgeting. With subscription services, consumers can opt to “auto renew” their payments; this makes it easy to continuously pay for the service without having to remember to login to a website and make a payment. As for budgeting, with subscription services, prices are at a flat rate; consumers no longer need to worry about fluctuating costs. They make a single, flat purchase every month and they continue to receive the product or service. This makes it very easy for consumers to plan their budgets.

 

Additionally, the freedom and flexibility of subscription services allows for consumers to scale their services accordingly. If at one point consumers would like to scale down their service, they can; and once they’ve saved up some money, they can opt to ramp up their service (i.e. Netflix offers a variety of plans ranging from “Basic” to “Premium,” each of which ranges in price and quality).

Today’s consumer enjoys these conveniences and benefits. In a world of instant gratification fostered by lightning-fast social media and Internet service, consumers expect the same type of gratification from all of their services, regardless of the industry.

 

While the automobile subscription service models are still very new and unproven, the other models are very much real; and they have made a profound impact on the way companies do business with consumers. As an investor or even an entrepreneur, you should heavily consider looking into businesses that offer subscription service models. They are, for all intents and purposes, a great indicator for what the future of consumerism will look like.