Subscription economy
The two-year old pandemic is crippling enough. Worse, the other calamities (like typhoon Odette) rubbed salt into the wound. To be blunt about it, had it not been for the internet, the ongoing pandemic must have inflicted more damage not only to our economy but to humanity as a whole. More importantly, it also offered us a lot of opportunities.
Inarguably, the opportunity to “work-from-home” should not have been available. Also, although we are productive in our virtual offices and must have earned something, still, most of us must have starved as home deliveries through ecommerce should not have been made possible.
Indeed, thanks to ecommerce, we found our ways to survive during this horrible time. Yes, ecommerce has been here for decades already. However, it has evolved and rose exponentially through the years. Thanks to the internet, there are goods and services that are not just delivered on one’s doorsteps but cheaper as well. Some of these are through subscriptions.
Yes, two of the most successful business models helped us navigate through the storm. These are the subscription business model and the platform business model. Amazon, eBay and Lazada are some of the most successful platforms today. Not far behind is the subscription business model and Netflix is a good representation.
Historically though, subscription is very popular in publications. Whether it be newspaper, magazine, etc. we used to have daily, weekly or monthly subscriptions. It was then unimaginable, however, for goods to be sold via subscription.
There is no argument that there are products that can easily transition to subscription. Software companies, for instance, easily shifted to such business model. Well, for businessmen and professionals, we are all aware that there were canned accounting software (QuickBooks) that were purely sold then but were opened to subscription years later. “QuickBooks” online is one them. Some companies though used the subscription model from the very start and succeeded tremendously. Netflix is one of them.
Yes, a lot of traditional companies have now embraced this model and startups have sprouted too. Summed up, the subscription model has become so huge that Zuora (a leading commerce, billing, and finance solution for subscription-based businesses) coined a phrase and described this new business landscape as “subscription economy.”
Estimated to be worth US$650 billion right now, according to Zuora, the “subscription economy has grown by over 350% since 2012.” And the future is bright as the UBS financial services firm predicts that this “subscription economy” will “grow to US$1.5 trillion by 2025” or more than double of its worth now. This prediction is based on the premise that “traditional pay-per-product (or service) companies are moving toward subscription-based business models.”
This shift is driven by an increasing preference of both businesses and consumers to subscribe to services, rather than buy products. As Zuora stressed, the “formula for growth is focused on monetizing long-term relationships rather than shipping products.” It further noted that these market shifts are “driven by new models of consumption and cut across all industries.” The truth is, the shift can be felt in both luxury and basic items.
A good example for this is Volvo, a traditional car manufacturer. “Care by Volvo” is its answer to a “new generation of drivers who expect the seamless experience born from the digital transformation to extend into every area of their lives, including car ownership.” It considered the pluses of subscription pricing. These include a “dependable monthly payment, no surprise add-on costs, easy upgrades, quick delivery, and a simple app-based or online payment process.” Then, it “applied those benefits to the typically messy business of buying a car.” The result was a “monthly subscription payment plan that includes the vehicle itself, regular maintenance, insurance, roadside assistance, upgrade opportunities, and more.” Starting with just two models in 2017, it added new features and included all Volvo models in 2019.
For basic items, “Misfits Market” is a good example. It is a “subscription box of sometimes funny-looking fruits and vegetables.” It is a go-between for farmers and consumers. The farmers got a reasonable price for their “ugly” produce. More importantly, the consumers paid less for the same fresh and nutritious fruits and vegetables. As the company helps farmers raise their revenue without increasing their farm inputs or yield, the supply side is steady and stable.
By embracing the subscription business model, both companies are successful. Certainly, both are easy to replicate. That’s a no-brainer.
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