How the Subscription Economy changes everything
Subscriptions for consumables and services have existed, surprisingly, for hundreds of years. From early polyglot dictionaries in the 17th century, such as The Guide into Tongues in 1617, to the rather inventive Théâtrophone services in the late 18th century. The latter was a service available in luxury hotels, that allowed paying subscribers to listen to opera and theatre performances over telephone lines.
However, traditionally what came to mind for most upon hearing the word subscription, was the faithful magazine subscription format of old or bottom of the barrel scam products from tv infomercials and classified ads. This predisposition towards subscriptions has remained much the same for the last few decades.
Yet, in the last decade alone, there has been a paradigm shift in how we view subscriptions and the type of products or services related to them. Subscriptions have received a new lease of life and even completely revolutionised some industries. They now exist for a varied range of services and products, from the likes of video streaming giant Netflix (86 million subscribers), Amazon (46 million subscribers), Adobe Creative Cloud, Dollar Shave Club, Spotify (40 million subscribers) and snack foods from Graze, as well as a seemingly infinite more just like them.
Subscriptions as an alternative to the transactional model
Take the software behemoth that is Adobe. They increased their customer base by a substantial 20% when they made the dramatic switch from selling individual software licenses — at a substantial cost and which had been a successful revenue stream for the company for more than a quarter of a century — to online subscription plans. At the time it was a controversial move which caused much upset among critics and fans alike. Fast forward to the present and the Adobe Creative Cloud is an essential service for any creative professional, offering Adobe’s entire software suite of first class services for a comparatively small cost than that offered originally.
Likewise, the entertainment sector has seen a surge in on-demand services, namely in music and video. One such company, Netflix, has completely revolutionised how we consume TV and film, and completed this feat twice no less. Initially started out as a snail-mail based video subscription service, it quickly devoured the antiquated one-off transactional businesses like the now ill-fated Blockbuster Video and the last few remaining independent video shops. Since its inception, it has metamorphosed from a domestic based video rental service using a sluggish archaic delivery system, to a growing global on-demand video service supported by bleeding edge server farms, even getting itself in hot water over net neutrality in the process. It’s worth noting that Netflix still has a 4.3 million strong user base on its DVD.com rental platform. And it hasn’t forgotten about it either. With a newly released app and with goals of bringing UHD DVD to the platform, this could extend the lifespan of this dwindling (now legacy) service.
The second innovation in the video giants history, was the introduction of their own original content, like the award winning series House of Cards, coupled with the fact that it could be streamed in its entirety on release. This has been a heavy blow to traditional TV with its polar opposite, weekly release format. Netflix’s growth and massive expansion would have been a far harder task had it not been for the flexibility harnessed from its predictable revenue stream: the subscription model — and of course, the vast data they are able to collect on viewing habits.
It’s not just product or SaaS based businesses that are enjoying success with subscriptions, it’s now creative and consultancy based businesses which are riding this wave of newfound subscription populism. And for good reason too. Instead of consultancies or creative agencies taking the rollercoaster that is project-based billing, or indeed looking for peripheral revenue streams to supplement their core business billables, once a subscription model is implemented this not only makes everyone’s life much easier, it also switches the focus of the business. Subscriptions facilitate a predictable, recurring revenue stream, allowing the focus to be put on growing the business and building meaningful rapport with existing clients. The last point should not be undervalued, especially considering pitching for new business costs 6–7 times more than it does to retain existing business. That’s a substantial cost, and not just in terms of raw monetary value, it’s a cost in terms of time and energy — which if eliminated or at the very least reduced, is a massive boon to any business. Steven Penfold illustrates this point and many more with his detailed guide of how to apply the subscription model to a creative agency.
“this is why most digital agencies are nuts — they don’t focus on making recurring revenue.” — Steven Penfold
A working example of a subscription model applied to a creative business
The business I co-founded 3 years ago, a creative collective helping businesses tell their story digitally, is now based on the subscription model. We changed from a standard project-based billing model to the subscription model in February 2016. This new direction for the business has had a very simple, yet profound effect on how we operate. It has rewritten the relationships with our clients, moved us away from inaccurate fiscal forecasts and given way to predictable growth — not quite bell curve status, but consistent growth nevertheless. Another byproduct of this change of business model has had an effect on the clients themselves. Now, the clients have a transparent view of what services they get from us — not in a retainer manner, but clearly and specifically what plans get them what services, plus they have the ability to upscale and downscale as necessary. If they need writing services for two months and filming services for one month they can simply subscribe to these or drop them as they see fit. There are no more project costs or overtime spiralling out of control. It’s a powerful simplification that works incredibly well for us and continues to evolve our business whenever we add new products or services. That’s not to say it’s been plain sailing by any stretch of the imagination, and there were some major issues with scalability from the start. Suffice to say, we overcame them and we are all the better for it.
As more consultancies and agencies make the change to subscription based billing the level of acceptance and understanding will in turn rise. 2016 saw a growth spurt of agencies adopting the subscription model, with 2017 set to follow.
The rise of the subscription box and its saturation point
There are now more businesses than ever starting as a subscription based business. Take the new wave of subscription box services. For all intents and purposes, subscribers will receive a variation of a gift box with either new and random items or your favorite products depending on your preferences. The items range from luxury beauty products to dog food or more bizarrely, dirt. There are even services that specialise in helping businesses set up their own subscription boxes. Cratejoy for instance, has over 4000 businesses on its books, offering a service similar to that of Blue Apron, Graze or Lootcrate. This new market is growing at an unprecedented rate, with no signs of slowing down. That’s not to say that there is no saturation point in sight, with a box for everything and anything available and the average subscriber retaining several subscriptions at any one time, there will no doubt be a breaking point for the consumer and a flood of acquisitions and mergers for the many similar services coexisting today.
There is a burning question that still remains: are we right to be embracing this new found love of subscriptions, not just from an individual point of view — but as businesses as a whole? Is the subscription economy the right model for all businesses? Probably not. Can it work as a supplement and means to grow a business? Absolutely. But, should we carry caution before we step out into the big bright world of subscriptions? Those age old scams still lurk at the base of many online articles and in the back of select magazines. Despite all that, subscriptions are here to stay, and are only going to get more prevalent. The difficult part will be which ones you actually need.