There was a time not long ago when numerous shelves and crates throughout our houses were dedicated to storing recorded music — as well as books, magazines, video cassettes, and DVDs. Despite how much space they took up, we invariably wanted to hear a tune that was missing from our collection — so we’d head to the store to buy another album taking up yet more space on our shelves. Owning music was a hassle accompanied by clutter.
That all changed with what is called, “the subscription economy.” Thanks to cloud-based technologies, speedy Wi-Fi, and streaming services like Spotify, we now have access to every album produced by our favorite musical artists — with literally millions of additional songs, genres, sub-genres, and micro-genres waiting to be discovered. The best part? The monthly price to rock out to our favorite songs whenever we want costs less than a monthly purchase of a CD or two.
In the subscription economy, access replaces ownership. Products that need to be bought, stored, and maintained, take a back-seat to the experiences we, and likely many others, want to have. Recently we’ve been speculating just how far the subscription economy will go. How soon will owning anything — especially high-ticket hard-to-maintain depreciating assets — go the way of the dodo bird?
The subscription economy is gaining momentum. In 2013, The Economist found that 80 percent of customers are dropping traditional ownership of key items in favor of new usage models, such as subscriptions. Since Y2K, American consumers nearly doubled their enrollment in subscriptions with revenues that reached $420 billion in 2015, according to Credit Suisse. Additionally, IDC Research discovered in 2017, nearly two-thirds of retailers either already had a program of recurring payments, or were seriously considering adding one. There’s a good reason for this trend; according to the Subscription Economy Index (SEI), subscription-based companies are growing revenues approximately nine times faster than the S&P 500.
Cost and Convenience
What a monthly Spotify subscription did for listening to music, a Netflix subscription has done for viewing movies and television shows. Many of us find ourselves, gratefully, saying goodbye to high-priced DVD-based software used for editing photos and videos — and are transitioning to Adobe Creative Suite subscriptions.
Instead of paying the upfront cost of about a thousand bucks every time we want a new, or updated editing application, we can now pay a reasonable monthly fee to get ongoing over-the-air updates, and technical support throughout the year. As a result, we can rest assured we’re always running the latest, greatest versions of the applications we use everyday.
Yes, we save money by subscribing rather than buying things. The real power of subscriptions is convenience and saving time. A low-cost subscription to Dollar Shave Club means that you never have to shop for shaving supplies but, you never run out. A subscription to Stitchfix or Trunk Club delivers monthly stashes of fashionable clothing based on user-selected style preferences. With a subscription service like Parasol, new parents get a monthly box of disposable high-quality diapers for the bambino — while monthly shipment from MeUndies keeps adults clad in new underwear ranging from classic to, ahem, adventurous. There are now countless monthly subscription services — from both start-ups, and established brands like Target and Walmart — delivering almost anything you can imagine, from beauty and bacon, to socks and snacks.
Companies making a successful transition to the subscription paradigm stand much to gain, and not just recurring revenue. They can learn a lot about their customers’ product choices, browsing habits, and payment preferences. If done right, the data generated from a subscription will help the company develop a devoted customer base. The subscription provider will better understand and provide exactly what its customers want. These best-of-breed players realize that the “unsubscribe” button is one click away — making it just as easy for dissatisfied customers to bail out as to sign up.
That said, there is also an additional onus on the subscribing customer to pay attention. It’s all too easy to accumulate a set of subscriptions that keep flowing into your house — without keeping tabs on how much you’re spending, and its impact on your credit-card bill. The poster children for subscription misuse are magazines that pile up but never gets read, or the gym membership that produces a svelte body in January that starts to sag by March when you forget where the gym is located.
Wheels by the Month
While streaming music and shaving supplies are proven to work in the subscription economy, new old-school industries are only now giving these models a try. What appears to be the most powerful new use of subscriptions is transportation.
The meteoric rise of ride-hailing applications like Uber and Lyft has shown that many young urbanites are happy to forego car ownership in favor of gaining access to a ride when they need it. A car subscription could be the answer for the vast majority of motorists who still want to have a personal vehicle in their driveway.
A car subscription makes so much sense when you consider the monthly total cumulative cost of buying, financing, insuring, fueling, parking, and maintaining a car. It’s not surprising that Cadillac is experimenting with offering customers in select cities an all-inclusive flat monthly fee to choose from a menu of its luxury vehicles — without any long-term commitment. It’s not cheap at $1,800 a month plus a one-time initiation fee of $500.
Other luxury carmakers are jumping on the bandwagon. Porsche launched a similar subscription program that ranges from $2,000 to $3,000 per month. Volvo is trying a more affordable $600 monthly subscription, but it doesn’t offer the most compelling aspect of a subscription plan: flexibility. It’s only available for the XC40 compact SUV, and you are locked in for 24 months — making it feel more like a traditional lease.
For car subscriptions to gain in popularity, they will need to offer a wide selection of cars, the ability to stop, start, or swap cars on a monthly basis, and a price that everyday motorists find compelling. That’s exactly what Ford is doing with its Canvas subscription platform.
For an activation fee of $99, you can select the pre-owned Ford you desire with expected monthly mileage, and then pay month-to-month without any long-term commitments. Drive a low-mileage Ford Fusion family sedan one month for around $425, and next month swap it for a Ford F-150 for about $535, or a sporty Mustang for about $575. Those prices are equal to or less than the total cost of owning those models when you calculate insurance, maintenance, and car financing.
Canvas is currently only available in Los Angeles and San Francisco, but if a spin in a sports car goes the same direction as streaming your favorite jams, you’ll soon be able to skip the more conventional route and instead get your next ride — and the one after that — delivered on a monthly basis to your home for a single flat monthly fee.
