Buying Into the Subscription Economy

The idea of subscribing to things is nothing new. Magazines have offered subscriptions for decades. You pay a set price in return for receiving x number of issues on a regular basis.

However, the last few years have ushered in a “subscription economy.” These days, you can set up subscriptions for just about anything: software, airline flights, movies, books, music, and even toothbrushes and diapers.

Driving all this is the Internet and, even more so, the Internet of things (IoT). Technology now makes it possible to measure usage in highly precise ways—and offer a variety of products and services that range from jet engines to automobiles—on a per usage or per-period basis. Hence, the existence of Netflix, Zipcar, Salesforce and Spotify. And jet engine manufacturers are essentially collecting fees based on usage.

One company, Zuora, which has received more than $250 million in funding, has developed a software platform (including billing, analytics and workflows) that can help companies looking to offer their products under a subscription model.

Expect Massive Disruption

Over the next few years, we should expect massive disruption across a wide swath of industries. As the IoT takes shape, this trend will accelerate, so business and IT executives must keep an eye on the subscription economy.

Although many established companies will resist the move into this space, they will find that doing so leaves them vulnerable, as upstart entrepreneurial firms take control. Did anyone know the words Netflix or Spotify 10 years ago?

Of course, this brave new world of subscription pricing changes behaviors and requires different metrics and key performance indicators (KPIs) then in the past. It also requires big data and analytics.

Within this business model, organizations typically benefit from those who pay a flat monthly fee but use a service less frequently. However, this is a tricky proposition because the risk is that a customer may use the service so infrequently that he or she cancels.

In addition, customers may hate a particular product or service release or react to a data breach or other negative event by cancelling en masse. In a subscription-based world, there is no buffer, and that could spell immediate doom for some companies.

At some point in the future, it’s reasonable to think that people may stop buying automobiles. Instead, they will simply order a car on demand, and the autonomous vehicle will show up at their doorstep.

A service such as Uber, which now seems disruptive, may find itself disrupted. Automobile manufacturers may need to adjust to radically different business conditions, just as artists have had to adjust to digital music and different pay models.

Buckle yourself in. The concept of ownership, property and usage models will undergo a radical transformation in the months and years ahead.