Subscriptions are rapidly becoming the de facto payment model for a new generation of businesses, but as markets become more competitive how can you continue to differentiate and grow your revenue streams? Guy O’Connor looks at the opportunities for more flexible businesses to adopt a pay-per-use strategy.
There is no doubt that the “as a service” model continues to gather momentum as businesses new and old adopt the recurring subscription model for their services. Certainly in the software market, the price per month approach has become the norm as industry heavyweights from Salesforce to Microsoft, and Adobe to Google, are all now selling their applications on a per user per month basis.
However, does this simple subscription model work for all types of customer? Or is it perhaps time to consider the next level of granularity in order to address a wider market opportunity?
Certainly for B2C services there is a considerable risk in the simple price per month model. In fact many businesses are already familiar with a phenomenon which is common in the mobile phone business – churn
. This is the propensity of users to move away from their network when their contract ends. In other sectors, this could simply mean customers cancelling a service when they realise how little they are using it.
As consumers, we all find ourselves subscribed to services of various kinds, from software to health clubs to online publications. However, there comes a time when the penny drops and we figure out that we may not be getting value for money. The dawning realisation goes something like this:
1. So I pay X per month for my health club membership;
2. But I’ve only been Y times in the last 6 months;
3. X / Y = $$ per visit. Ouch!!!
We also find ourselves subscribed to publications that we never have time to read. Is the $30 a month really justified when I flicked the pages, for 15 minutes last month? i.e. $2.00 a minute?
We all know that the data exists to bill these services based on actual usage, be it swipe cards at the gym, or time and page impressions on a website session. So maybe there is a “pay-per-use” model that can attract incremental users to a service that would not commit to a monthly contract?
The natural reluctance to adopt such models is of course the fear of cannibalising existing subscription revenues. However, businesses should consider the number of potential consumers of their products that would never commit to $X per month, but instead, would be prepared to pay a premium to pay as they use.
For example, someone may wish to read reviews on white goods they need to replace, but they don’t want to receive the magazine every month as it also reviews products they can never imagine buying. So wouldn’t it be an extra source of revenue if the consumer could make a one off payment, even at a premium, to just read the information which is relevant to them as and when required?
We can also consider this model in terms of health club membership. Lots of people want to get in shape pre-holiday or lose weight post-Christmas, but they fall off the wagon for much of the year. Knowing this, many people are reluctant to sign up to a private health club and their business is lost to the local leisure centre where they know they will only pay per visit. If these same potential customers could pay-per-use, or pre-pay for a set number of visits, they may be persuaded to try the more luxurious health club. Having tried it, they may even be convinced to sign up more permanently.
And in the enterprise software sector, it can be hard to justify full seat licences for occasional users so why not offer pay-per-use pricing for ad-hoc users as a complement to the all-you-can-eat enterprise licences of the ‘power users’?
In the telecoms industry, “pay-as-you-go” services transformed a flat-lining subscription market and now represent 77% of global mobile users. So unless five billion consumers have got it wrong, pay-per-use has the potential to launch the next chapter of growth in the subscription revolution too.