Looking into the Crystal Ball: The Future of Subscriptions
There’s a subscription for that!
Once upon a time, in the infancy of smartphones, we used to say, “There’s an app for that!” Now, it seems, there’s a subscription for this, that, and everything else.
In this, the final part in my series tracing the history of subscription businesses from the 17th century onwards, I am going to examine some of the major drivers of this growth and share fascinating new subscription business examples.
A Viral Effect
While COVID-19 has adversely impacted several businesses, subscription businesses are not among them. Many S&P 500 companies have seen sales drop at the rate of 10%, but subscription businesses are growing at 12%.
One of the main reasons for this resilience is that the pandemic and the associated lockdown has created significant changes in our entertainment habits. We are now a lot more dependent on OTT platforms like Netflix, Hotstar and Amazon Prime for our entertainment. We subscribe to productivity apps to keep our work schedule under control. We use meditation apps like Headspace to keep our sanity. These have now replaced movie outings, restaurant dinners and yoga classes!
Second, subscription businesses offer the flexibility to pay in small monthly amounts, something that lets customers enjoy services and products even in the current times of financial uncertainty. You may not invest in a 52” TV right now, but you’ll hold onto your Netflix subscription (maybe even upgrade?) because you know you can cut back/downsize if the need arises.
The same applies in a B2B context as well. In the early days of the pandemic when businesses were unsure what their future looked like and was holding tightly to their purse strings, subscription businesses offered attractive payment deals and options that eased their burden and kept them continuing as customers. Companies are still not investing in new hardware purchases or leasing premises for the long term, but they are mostly continuing their subscriptions.
Renting versus Owning
The previous generation was raised to value stability and security; their idea of a good future involved a government or bank job that they would hold onto no matter what. But millennials are cut from a different cloth. We want flexibility, adventure, and the freedom to explore. This applies not just to jobs (although the gig economy has been fueled by the pandemic) but even to lifestyle choices.
In the last few years, we’ve seen a rise in rented workspaces like WeWork, self-drive car rentals like Revv, and furniture rentals like Rentomojo. Millennials prefer the flexibility of renting what they want, without having to bother with owning, maintaining, and disposing of them. If you move cities, you just send the rented furniture back to the company, pack your bags and leave! No accumulation of objects, no hassle of packing and shipping or reselling! It is no surprise that these rental companies operate on a recurring revenue model.
Rising Investor Interest
Another factor that is powering the growth of subscription businesses is investor interest. According to BCG’s COVID-19 Investor Pulse Check, 91% of investors believe it is important for healthy companies to prioritize building business capabilities even at the expense of delivering earnings per share (EPS). This is because experienced investors are in the game for the long-term — and subscription businesses are built on lasting relationships!
Subscriptions: the new Silver Bullet?
So, can any business be converted to a subscription model? Well, almost yes. Here are some interesting examples.
Sports & Leisure: Special-interest subscription boxes like PlateCrate (baseball), ReefBox (scuba divers), LuckyTackle (fishing), and more. These haven’t caught on yet in India, but fitness subscriptions like Fitternity and FitPass have. With these, you take just one monthly membership but get to choose from a variety of classes and locations from a wide network. Flexibility? Check. Affordability? Check. Fun? Also, check!
Lottery: That’s right! If you’re the gambling kind, jackpot.com lets you participate in any lottery from any country for £9.99/month. According to Pablo Grunbaum, the COO of Jackpot.com, “Our decision to launch the Netflix-type subscription model of international lotteries is one that ensures the industry’s continued evolution and gives consumers genuine flexibility.”
Air travel: Surf Air is a California-based commuter airline that offers unlimited flight service for a fixed monthly fee. For $199/month, you can schedule flights or book them on-demand. “Fly on your terms,” as their website so delightfully puts it. I can see this catching on in the world’s busiest business hubs in the next few years.
Virtual Reality: HTC’s Vive offers VivePort, a subscription service gives you unlimited access to hundreds of VR experiences including apps, games, movies, and more. In a world where we may likely be spending a lot of time indoors, this could have a lot of takers.
Overall, the stars seem to have aligned to give the subscription business model a boost, and the future looks very promising. What can businesses do to seize these opportunities and get on the subscription bandwagon? Happy to discuss the same directly.
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