The sub economy.
Subscription Services: The Future of Business
Subscription services have been on the rise. Whether it is a monthly payment for a newspaper, access to streaming video through a service like Netflix, or free shipping through a retailer like Amazon, it’s a common practice in the business world. Companies increasingly seek to maintain relationships with customers rather than selling them a product once and watching them walk out the door.
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“This is part of the market process,” David Boaz, an economist at the Cato Institute, told the Washington Examiner. “Companies are constantly innovating with new products, new distribution systems, new pricing systems, and so on, and that means they’re constantly negotiating with consumers.”
The Rise of Subscription Saturation
For decades, customers purchased their favorite films and albums as physical media, making their collection of CDs and DVDs grow. When websites like iTunes took over the market, users started buying single tracks and digital copies of albums, which entailed fewer ownership rights than copies of physical albums. Now users are shifting away from buying music altogether and instead rely on streaming services like Spotify and Netflix to provide their favorite movies and songs.
The number of streamers has doubled in recent years. 616.2 million users subscribed to some sort of music streaming service as of 2022, more than twice the collections subscribed in early 2019. Netflix and other streaming services have also grown in recent years.
Subscription delivery services are also a popular market. Users can now save time by having their products of choice delivered to their home, whether shaving equipment, food, or even boxed collections of toys.
Automakers are dabbling more and more in providing temporary solutions for car availability. For example, some carmakers tested subscription services for automobiles in the late 2010s. BMW charged $2,000 a month for a mid-tier vehicle. Users could drive them up to a certain amount of miles per month, swap out cars whenever they liked, and receive access to repair options without extra costs.
The service struggled to attract enough users, leading most automakers to suspend the option. But other startups stepped in and offered similar opportunities. Zipcar is one of the older automobile subscription services that can “share” a vehicle through an app and offer more affordable options in urban settings.
“As cities face continued population growth, congestion, and an increase in mobility solutions, particularly on-demand, we are seeing more and more interest in an equitable and sustainable option for owning a car,” Justin Holmes, head of public policy at Zipcar, told the Washington Examiner.
Users can pay for a monthly subscription to receive access to Zipcar vehicles, although the products are primarily available in urban areas like San Francisco and New York City. Holmes said that personal car ownership in cities is “highly inefficient” and that most cars go unused even as they claim a large portion of household budgets.
Unagi, an electric scooter developer, launched a subscription service in 2020 that allows users to pay $40-$60 a month to access scooters that people usually pay $1,000-plus for. The fee enables users to get access to the device as well as replacement parts and repairs. Unagi adopts a “hardware as service” approach, CEO David Hyman told the Washington Examiner.
Software developers are also embracing this approach. Industry software developers like Microsoft and Adobe have increasingly aimed to offer monthly subscriptions for software updates rather than having users pay enormous amounts to access the latest versions of Photoshop or Microsoft Word.
The growing interest in subscriptions exists for two reasons, according to Neale Mahoney, professor of economics at Stanford. The first is that e-commerce creates new opportunities for subscriptions. The second is the notion that subscriptions replace the need to make certain purchases, such as coffee, cars, or razors. Users can now just pay a monthly fee for the product that previously cost them four to five figures to buy.
Will Subscriptions Replace Property?
As subscriptions and rentals become more prominent in the economy, some conclude that property ownership is diminishing and that tech companies will make the practices unnecessary. “Welcome to 2030. I own nothing and have no privacy. My life has never been better,” argued Danish politician Ida Auken in a 2016 essay published by the World Economic. Auken theorized that ownership as a concept would no longer be a thing in the future due to the growing number of apps designed to supplement needs like transportation, property, and delivery.
The essay subsequently became the focus of criticism from conservatives and others who saw it as a sign of an elite effort to undermine the ideal of strong private property rights.
Yet trends suggest that the U.S. population still has a strong commitment to private ownership. For example, while despite the growing number of options for driving, households are still buying cars. More than 278 million cars were registered to drivers in 2021, according to the Department of Transportation, a 3.6% increase over 2020.
Car subscriptions are also more expensive than a new car payment, which averages around $729 for new vehicles. Video streaming services are also upping their prices in order to get more users to turn to their ad-powered models. And most delivery services charge a premium for their products. This makes the product lines untenable for those with less income.
The companies may also be unsustainable. Startups like Blue Apron, which specialize in delivering premade meals to consumers for a subscription fee, have struggled to make a profit for years despite appearing successful at face value.
The startup world may see more subscription-focused startups in the future, Hyman predicted, but it will not be enough to replace most industries. Unagi worked with a consultation firm to get a sense of the electric scooter market but only found that a third of electric scooter users would consider a subscription model.
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What are some potential challenges that consumers may face in managing multiple subscriptions?
O the era of access over ownership,” says Arun Sundararajan, professor of business at New York University’s Stern School of Business. “Ownership is no longer a prerequisite for enjoying the benefits or services that a product provides.”
This shift towards subscriptions and rentals can be seen as a positive development for both businesses and consumers. Companies can secure recurring revenue and build long-term relationships with customers, while consumers can enjoy more flexibility, convenience, and cost savings. Instead of investing heavily in products that may become obsolete or go unused, individuals can access the goods and services they need on a temporary basis.
However, there are still some challenges to overcome. Privacy and data security are key concerns when it comes to subscription services. Users often share personal information and preferences with these platforms, raising questions about data protection and potential misuse. Companies must prioritize safeguarding customer data and ensuring transparency in their data handling practices.
Another challenge lies in the potential for subscription fatigue. As more businesses adopt this model, consumers may find themselves overwhelmed by the number of subscriptions they have. Managing multiple subscriptions can become burdensome and costly, leading individuals to reassess their spending habits and prioritize the services that truly add value to their lives.
Additionally, not all industries are suitable for the subscription model. Certain products or services, such as luxury goods or specialized equipment, may still be better suited for ownership. The decision to subscribe or own will ultimately depend on individual preferences, financial circumstances, and the specific value proposition offered by each business.
Despite these challenges, the future of business seems heavily inclined towards subscription services. The rise of technology and digital platforms has made it easier than ever for companies to offer subscription-based models, and consumers are increasingly embracing the convenience and flexibility they provide. As businesses continue to innovate and adapt, the subscription economy is likely to expand and evolve, shaping the way we consume and interact with products and services in the years to come.
In Conclusion
Subscription services have revolutionized the business landscape. From music and video streaming to car rentals and software subscriptions, businesses are increasingly recognizing the benefits of maintaining long-term relationships with customers rather than focusing solely on one-time transactions. This shift towards subscriptions offers numerous advantages for both businesses and consumers, providing flexibility, convenience, and cost savings.
While challenges such as data privacy and subscription fatigue remain, the subscription economy shows no signs of slowing down. As technology continues to advance and digital platforms enhance accessibility, subscription services are likely to become even more prevalent in the future. As we navigate this evolving landscape, it is essential for businesses to prioritize data security and for consumers to assess the value proposition and sustainability of various subscription offerings.
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