The subscription model has become many consumer-facing businesses’ favorite new revenue model, even if they aren’t a newspaper, magazine, or cable provider. It’s not difficult to understand why, who wouldn’t want a more predictable revenue stream in these uncertain times?
These days every content provider on Earth seems like they are introducing (or racing to introduce) a “+” or bundled version of their products, Disney+, Paramount+, Apple TV+, ESPN+, Discovery+ and on and on.
While some of this is no doubt fueled by increased media consumption because people are staying home during the pandemic, it seems there’s a bigger trend at play, and it seems equally likely that it’s only a matter of time before this trend makes the leap from B2C to B2B and enterprise subscriptions.
There are some obvious and novel ways that these models already benefit consumers.
Sticking with the media example, suddenly you have access to a seemingly infinite library of movies and TV shows on-demand on every device wherever you are, instead of having to buy or rent each program individually (which of course adds up quickly).
It’s certainly not unprecedented for retail customers to buy some products this way, not just from publishers and media companies, but historically even many kinds of “payment plans” or “rent to own” schemes were essentially akin to today’s subscriptions, although they generally resulted in the customer owning the product outright at the end, think auto loans or layaway plans.
Nowadays, many consumers are opting for the subscription model for non-media goods & services because they feel they get many of the same benefits as purchasing outright, but often at a better price point and sometimes without the “hassles of ownership.”
And how is this different? Well, in the old days you might lease an automobile instead of buying it for some of the same reasons (price, maintenance, frequent updates), but even leasing still has many of the same drawbacks like insurance, fees, fuel, etc. Plus (pardon the pun), you generally only get one choice when you buy or lease. If you switch to a subscription mobility service, many of those issues go away. You can get a bigger car for shopping trips and vacations, and a fancier car for a night on the town, or you might even opt to have someone drive you around which wasn’t even an option for most people previously!
More Consumers are Choosing Subscriptions
One could make the case that this has also already applied to the “home labor” market as well, with services like TaskRabbit, Instacart, Doordash, and more offering up humans to work on-demand as repair contractors, house cleaners, personal shoppers, and delivery drivers. There are even services like Care.com that can provide babysitters, in-home health care, and pet sitting.
Today, even eCommerce juggernaut Amazon is trying to make almost every order a subscription model instead of a one-time purchase with features like Subscribe and Save, going so far as to offer discounted prices for your promise to purchase more over time.
It may not work for every industry, and compounding subscription upon subscription will have its limits for consumer budgets as well, but it’s easy to see why someone would want to order from the “all you can eat” buffet instead of having to choose from an a la carte menu, especially when they’re hungry!
Now it’s Big Businesses Turn
So what about industrial and enterprise customers? Don’t they deserve these same benefits, just on a larger scale? In some ways, it may even flip the standard consumer model on its head of “unlimited consumption” to “all you can produce”.
Certainly, the CFO’s office has long measured the tradeoffs between CAPEX and lease expenses, more and more so over the last decade, which perhaps just coincidentally has paralleled the rise of both mobile devices and cloud computing along with the emergence of “subscription everything.” Much of the enterprise software world is already shifting to a subscription model via SaaS and hybrid desktop software.
But, in the same way that Tesla can unlock premium features for your shiny new auto long after you’ve taken delivery, why couldn’t John Deere? Maybe you don’t need every feature of that tractor on day one but you do once every quarter or at harvest time? Using John Deere’s (hypothetical) new “Plus” plan, you get even more value out of your CAPEX without having to spend more upfront, giving the owner the capacity to achieve “all you can produce” when you need it, not just when you planned for it.
If you’re doing commercial property maintenance, maybe Grainger should offer you a subscription model for paint and materials products in the same way that Amazon is trying to for home cleaning products.
Subscriptions & CAPEX
Likewise, for any product with historically high CAPEX and short amortization, furniture comes to mind (see Feather in the consumer space). What business wouldn’t want to have the latest advances in ergonomic furniture for their employees (even if they are working from home), instead of having to furnish entire buildings with upfront CAPEX or expensive financing.
Why shouldn’t Fedex offer small businesses a monthly subscription-based on average shipping volumes with the incentive that the business can get a discount on increased volumes during peak seasons or when a burst of activity occurs? Or a plan to help deliver all that furniture and equipment to and from home offices!
Of course one of the biggest expenses in many businesses is labor, and we’ve seen the good and bad ways that this can play out. Certainly, there have been temporary staffing agencies for a long time, but now the employee (ahem, independent contractor) can actually decide when they want to join the workforce on their schedule and at their convenience. The rise of Upwork and Fiverr seems to be making a dent in how businesses can deploy talent for their constantly changing needs.
Another reason businesses will want to offer subscription model is obvious: predictable revenue. There’s also more subtle reasons, like being able to better segment customers, especially those with changing habits and rapidly growing needs.
Subscribing to a Better Future
While it’s impossible to predict the next decade with complete accuracy -- I often say my crystal ball is even more occluded than most -- one thing that does seem clear is that the benefits of subscription services that consumers have been choosing from are bound to continue to become more and more available to businesses of all sizes.
What Does the Subscription Model Mean for Entrepreneurs?
The trend toward turning all products and services into subscriptions will have impacts on all our businesses. For entrepreneurs in the technology fields, there are some key takeaways that can help guide you through this transition.
Take a New View of Your Market Through the Lens that Subscribers are Your Most Loyal Customers
We all want to segment our customers to make sure that our product marketing efforts are having the most impact. Now, instead of just focusing on customers that make repeat purchases or purchase your high-end products, think of those who purchase subscriptions as being in your most loyal tier.
Skate to Where the Customers Are Going Customers increasingly want the flexibility, convenience, and predictability of subscriptions. By offering your goods and services in new subscription packaging, you can give them all the benefits of your top tier at a price point that makes it easy for them to buy.
Find Partners to Help This transition can seem daunting, and there are indeed challenges, not the least of which are provisioning and customer support. You shouldn’t hesitate to seek out a partner and/or vendor that has the experience, capabilities, and flexibility to help guide you through the transition and support you and your customers going forward.
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