The Subscription Economy

How can startups shift mindset in 2017 and adapt to changing consumer expectations?

TL;DR: The subscription economy, esp. the membership model, is marvelous. And it’s booming! ♥ ︎Dip your toe in the water: offer a subscription, consider membership, grow a community, nurture superusers.

Pat Flynn, Ramit Sethi, and other famous bloggers wrote a lot about membership sites recently. It’s an interesting concept, so I set to learn about it more. I’m happy to share some learnings.

These three books give a decent overview about the evolving business model, called also the Subscription Economy:

What can we learn and apply? (#analysisMustInspireAction)


Slides on Slideshare.

Note: For more details, see the slides on Slideshare.


A long time ago, the subscription economy used to be all about magazines — but not anymore! It varies from long-term car rentals to websites that allow consumers to have flowers, steak, and even socks regularly delivered to their doorstep.

“OK, but what’s so cool about it?!” you may ask.

First, this business model offers a regular and predictable cash flow. Wouldn’t you like this, Mr. CFO?

Second, the lifetime value of customers is higher than in the “old-school” businesses. If the perceived value is high enough, customers do not cancel the subscription. As a result, subscription-based companies are valued higher by investors.

Paid Apps? Fading Out!

It is interesting to see that the paid apps are fading out. Instead, the in-app purchases and subscriptions are raising.

Do you remember the last time you paid for an app? I cannot!

On the contrary, I clearly remember subscribing to an app or service such as Freeletics, Headspace, Spotify, Blinkist, Focus@Will, …

The in-app purchases are increasing constantly.

A recent ITProPortal’s report indicates that four in five people across the UK have at least one subscription service. Wow!


Evolving Consumer Expectations

From the Trend-Driven Innovation framework we know that there are two main innovation drivers:

  1. Evolving customers’ expectations
  2. Alternatively, a new technology

Now, let’s look at the evolving customers’ expectations and zoom in their desire to own things. Years ago, it was all about owning things. Today, consumer behavior changes and the “access generation” prefers access to things rather owning them.

Consumer Change: From Ownership To Access

The market evolves, too. Zuora calls it Relationship Centric economy.

“In the old world (the Product economy) it was all about things. In this new era, it’s all about relationships.” ~Zuora

Moreover, customers expect personalized services, including continuous improvements in the quality of these experiences.

Just look at the vast amount of companies serving customers across the industries:

Example: Companies in different industries with subscription model

Even when I am thinking about HotelQuickly (which I co-founded), we only have two licenses vs. dozens of subscriptions.

Did You Know?

Apple

Did you know that Apple offers an iPhone upgrade program?

Indeed, getting us to subscribe to a phone is much easier than asking us to purchase a new device every year. Moreover, as subscribers, we are worth much more over time.

“Every day that passes, Apple cares less about how many iPhones they ship, and more about how many Apple ID’s they can gather, and how much revenue they can generate per ID.” ~The Automatic Customer

Uber

Did you know that Uber tests a new subscription program?

Based on the subscription model, it appears that Uber would lose money on each ride.

Amazon Prime

If you live outside of the USA, you may not know about Amazon Prime.

Amazon benefits from consumers’ willingness to join its Prime program to receive free two-day shipping.

Amazon Subscribe & Save

Did you know about Amazon’s delivery service?

Customers can subscribe and set up scheduled deliveries. Diapers.com, anyone? :-)

Microsoft Office 365

Microsoft is shifting gears here!

Adobe Creative Cloud

Adobe is no longer supporting the licenses. All apps can only be accessed via its monthly subscription.

And others?

The whole market is evolving. Who is not experimenting with subscription business?

New consumer behavior

Customers expect immediate access to products and services with low barriers (no licenses, no long-term contracts… yay, not even in telco!).

Customers are used to subscribing for online products and transfer this behaviour to other consumer goods (razor blades, flowers, snacks, …)

Why companies like it?

  1. Recurring, predictable cash flow
  2. Higher lifetime value of customers
  3. More valuable, long-term relationships

Subscription Models

“The concept of buying music at 99 cents a song is becoming irrelevant.” ~Bloomberg

The Subscription Economy suggest the following nine business models:

  1. Membership website model
  2. All-you-can-eat content model
  3. Private club model
  4. Front-of-the-line model
  5. Consumables model
  6. Surprise box model
  7. Simplifier model
  8. Network model
  9. Peace-of-mind model

Membership

“I’m convinced that the Membership Economy will have as profound an effect on society as the Industrial Revolution or the spread of the automobile. And the leaders who ignore it will follow carriage makers into oblivion.” ~The Membership Economy

Subscription vs. membership?

  • A subscription is a financial arrangement. Monthly, quarterly or yearly.
  • Membership is an attitude, emotion, a connection.
“Through membership, members can be perceived as important, connected, or successful. In short, membership makes us feel good.” ~The Membership Economy

Subscription Boxes

The subscription boxes are booming, too!

Takeaways

  1. Make sure to put the customer at the center of the business model, instead of the product. A membership organization builds a “neighborhood” for its ideal customer.
  2. Restructure the customer support department and create customer success team instead. Employees should become more consultative and focus on helping members get most out of the service or product.
  3. Form a new role of a community manager. He or she will attract, manage, and leverage the robust community around an organization.
  4. Your members should contribute frequently. A membership organization needs its members to make a habit of checking in. What will you do to encourage members to make the visit a regular habit? #gamification, anyone?
“Innovation is motherhood and apple pie in nearly every type of organization, but for the Membership Economy, continuous innovation is especially important.” ~The Membership Economy

“Any CEO who is not thinking about membership is missing a huge opportunity to point his or her organization toward long-term, sustainable profitability.” ~The Membership Economy

📝 Book Notes

Would you like to get much more detailed notes and research data about the subscription and membership economy? Download the PDFs here.


👨 Michal Juhas

I am the CTO and co-founder of HotelQuickly, learning and writing about:

  • Tech trends and innovations
  • Parenting and children education
  • Personal growth

ℹ️ michaljuhas.com