The Subscription Business Model: Past, Present, and Future

Overview

Subscription business model needs no introduction. It is everywhere in our lives today.

An interesting point to think about this radically would be the concept of gainful employment. Employers are, in principle, SUBSCRIBING to the employees. That apart, everything ranging from gym memberships to car subscriptions operates on the same principle.

The vendors provide goods or services to the customers in exchange for a recurring fee at regular intervals for uninterrupted access to the offerings.

The benefits for the vendors are numerous. Some of the biggest ones are a constant stream of revenue, customer loyalty and retention, easily available market research, to mention a few. For the customers, the biggest levers would be convenience and value for their money.

Subscriptions are the only business model that is entirely based on the happiness of your customers. Think about it—when your customers are happy, then they’re using more of your service, and telling their friends, and you’re growing.

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After all, a gym membership could cost anywhere between $10 to well over $250. On the other hand, costs of setting up a gym would range from $10,000 to $50,000 excluding all the miscellaneous inconveniences that would come with setting one up such as real estate and maintenance.

In summary, the subscription business model is something that has proven very successful over the past many years. Now, this article is setting out to timeline the progress of this model at an individual consumer-level rather than at an institutional level.

How was it, how is it and how will it be…

The Past of Subscription Business Model

Imagine a typical 17th-century village in Western Europe, straight out of the likes of ‘The Three Musketeers.’ The Renaissance is just done with; everyone has the drive to modernize and civilize themselves.

Now assume that the village scribe spends many days and nights traveling across the continent and beyond to garner knowledge, document it, and return to the village. Scribe’s manuscripts are well sought-after, of course. Now naturally, access is limited to the number of copies available, which is usually just one.

The scribe, being the expansive person, decides to charge a small fee to the patrons in the coin of the realm. Not for purchasing the works and claiming ownership, rather for the privilege to come to visit a pre-determined premise wherein they can browse through the scribe’s works.

BINGO!

The Subscription Business Model’s first publicly available and well documented genesis.

And from thereafter, this model diversified into a wide variety of goods and services such as grocers and farmers offering products to customers at better rates should there be a commitment from their side to transact with them for an agreed-upon timeframe.

The Present of Subscription Business Model

If we set out to list all of the popular examples of subscription business models currently relevant, the word-count of this story would run into the thousands.

However, in terms of principle and market share, this model has been gaining mainstream acceptance by the day. Additionally, the average citizen’s financial acumen is increasing with every passing year, rendering them to make smarter decisions about managing finances such as debt obligations and the financial sense in subscribing to a service or goods instead of purchasing it.

An elementary example here would be the Apple iPhone, one of the most desirable consumer products out there is released every year with a gradually increasing price point. An interesting metric to observe is how the number of customers availing of iPhone subscription deals is increasing year-on-year with the increase in the iPhone price tag every year.

Another note-worthy example that has been emerging in certain developed markets is car transportation. Instead of purchasing a car for long term usage or renting a car for short term, you subscribe to a plan which provides you with a car for the duration of the commitment period with the option to change your model periodically as opposed to being stuck with the same vehicle all the time.

As per a Mckinsey report, the subscription e-commerce market has grown by more than 100 percent a year over the past five years. The largest such retailers generated more than $2.6 billion in sales in 2016, up from a mere $57.0 million in 2011. One of the biggest acquisitions in the subscription business model was when Unilever bought Dollar Shave Club for a billion dollars. Mckinsey’s research in 2018 indicates that 15 percent of online shoppers have subscribed to an e-commerce service in the last 12 months. I have no reservations to say that this number is continuously rising.

In conclusion, as a society that is gearing towards prioritizing convenience, subscriptions and its business model will be gaining increasing relevance.

And The Future…..

For a second time, imagine an atypical 22nd-century metropolis. Atypical because people in the metropolis are not quantifying their social standing by basing on any verticals we refer to for the same in the present. Rather, it is based on how they use their time and resources to stay content.

To enable this, governments with their hearts in the right place or entrepreneurs seeking to capitalize are setting up lifetime-subscriptions based on housing, schooling, food, healthcare, and transportation options that help the masses focus on themselves than the more mundane but important affairs mentioned earlier.

This is something that already exists at scale in certain countries and migration options into such countries are highly sought after.

Such countries are currently the exception. Soon, it could be that everyone enjoys a high standard of living in nearly every region, and subscriptions could potentially accelerate this even further by encouraging the masses to prioritize convenience.

Very realistically, it could be that by the 22^nd century or much sooner than that, subscribing to goods and services becomes a norm rather than the exception. I will end this article with a very insightful video on the types of subscription models a business can successfully adopt. We should know. After all, we have just learned our future is dependent on it. Till then Adios Amigos!!

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