Why is Everything Subscription-Based Now?
You’ve surely noticed the trend. More and more things that we used to simply pay for and use however we see fit are now transitioning to a subscription system. The term “software as a service” has become mundane, content creators are all relying on Patreon subscriptions, GamePass is a thing and now news is coming out that Apple also wants to transition iPhones to a subscription model. While some things make sense within a monthly payment system, others seem to be stretched and molded to this new “ownership” model. So why do so many companies make the switch and is it here to stay?
Money, Dear Boy
The answer to the “Why?” is, as it often is with tech, money. For years now, there have been two core revenue models that continue to bring in funds no matter what: direct advertising and subscriptions. What started off with cable channels, streaming services and regular deliveries has ballooned into a one-fits-all system for one simple reason — it’s efficient at generating money.
Subscription models easily conquer the market with as many as 78% of US households reported to have at least one streaming service subscription in 2020 and 55% paying for at least two. The numbers are almost certainly inflated a little by the ongoing COVID pandemic, which forced people to stay at home for years, meaning that the value of plopping down on the couch with a movie on your home screen rose quite a bit. Still, it’s very likely that streaming is just too ingrained in people’s lives to leave now. There’s endless content coming out and, with Games As A Service and subscriptions to game releases becoming a thing, it’s quite likely that many households will latch onto the simple entertainment solutions. After all, subscriptions have a very seductive offer: set up a payment once and you’re hooked up to a stream of content for however long you want. Instead of shelling out $60 for a game on release day, why not pay $12 over the course of 8 months, getting many other games and, eventually, the one you want? If you furrowed your brow and said “But that ends up costing more”, you are correct but, remember, subscriptions aren’t about selling you only the thing you want at the price you want it. The model relies on smaller payments softening the blow of the cost with extra fluff making it seem like any increase in price is actually irrelevant since you’re getting more stuff. Will it be stuff that you wanted or stuff that you might actually like? Nobody knows, but you’re already paying for it and it’s so convenient to just have this stream of content on constant tap. Companies know human psychology, so don’t fault yourself for enjoying your GamePass or Netflix subscription. They’re bespoke mechanisms for making money, simple yet ingenious.
Saying that, while many people assume that the system is only adopted by big, greedy corporations, that isn’t entirely correct. In 2020, Bandcamp, a music marketplace for independent music (recently bought out by Epic), gave musicians the option to offer subscriptions to their fans. It’s a pretty clean model — pay a flat fee every month, get exclusive or early access to new music in return, as well as access to the back catalog of your favorite artists. So even smaller artists realize that the system, in its base form, works. After all, that is the basis of Patreon, arguably one of the most successful examples of a subscription model being used correctly. Creators make thousands of dollars monthly through small, dedicated fanbases, instead of relying on the whims of YouTube’s fickle monetization system or joining a company that could interfere with their style or message. But for every Patreon success story, there’s a baffling service that uses subscriptions for things that don’t necessarily need them. Here, for example, is an article that lists the eight (!) best wine subscription services in the UK. The necessity of even a single such service is debatable but the fact that there are enough of them to make a listicle ranking the top eight is a perfect illustration of how deeply the subscription model has rooted itself.
A Necessary Evil
Having read all that, you might wonder if subscriptions are somehow inherently bad, which is not the case at all. Like I mentioned, there are some very good and fair examples of a subscription model working in favor of the person getting the money and in favor of the person getting the content, bringing both equivalent rewards.
The problem only arises when the subscription model is applied to things out of a desire to squeeze every last cent out of the customer, instead of when it makes sense. Think about it, why exactly does Adobe need you to pay monthly for access to a piece of software instead of you paying a set price to actually own it? There’s no logical reason, really, other than Adobe knowing that their products have become the de-facto industry standard for designers, editors and more, meaning that they can get away with being a little greedy. There’s no real extra service that comes with this subscription and only one side benefits — a perfect example of how not to do it.
Conversely, things like Blue Apron or even Amazon deliveries might not be to everyone’s liking, but they at least make sense on a basic level — if you know you don’t want to bother buying groceries and doing meal prep, you get the meal kit. If you know that you, for some reason, need 10 sponges every month on the 25th — go ahead and subscribe. You’re buying in bulk, you’re saving time, all the good stuff. The companies, meanwhile, get guaranteed monthly revenue and a devoted customer. That scheme might not be the most perfect example but it’s one that genuinely makes sense. Even the wine subscription stuff might be weird to the average person but there’s certainly a niche market for it.
In It For the Long Haul?
The interesting question here is whether this model is sustainable in the long run. Sure, it’s making money in the moment, but what about 5 or 10 years later? Will people still be willing to pay every month for basic stuff like access to software or hardware usage? The factors vary depending on the service type but, in today’s everchanging world, I’m inclined to say the answer is no. Even the good old advertisement has changed its form and how it’s done, and that’s been one of the most lucrative and easiest ways to generate revenue. Staying the same and relying on a trick that’s popular at the moment does not guarantee longevity.
Plus, you may have noticed I keep saying revenue instead of profit. The reason for that is simple — many of these companies make a lot of money selling stuff on a subscription model but making the money isn’t the end. You then have to count your expenses, see whether your investors are happy, check whether that big chunk of money will wither when you get to counting the profit. Many companies don’t make that sizeable of a profit, and those that do are often doing it at the expense of meaningful growth: just look at Netflix’s always-rising profit and the missed subscriber goals they set. By trying to maximize gains every year, these companies are drying up their own market, kneecapping their future chances at success.
The subscription model, at its base level, won’t die off because it’s simply the best one for some use-cases. But I 100% expect some of the current giants to either abandon it or keel over when the profits stop breaking records and subscribers turn to better offers. The sustainability of this house of cards is questionable, at best. But for the next few years, don’t worry and enjoy your Netflix.
