Looking beyond the subscription hype

Looking beyond the subscription hype
There’s lots of talk about the rise of subscriptions and how the whole world’s being turned upside down and round and round by it. But what’s the truth behind the marketing spin? Richard Doughty does a quick fact check

According to a recent press release by a provider of cloud billing systems, 58 million adults in the UK now subscribe to services. Leaving aside their tenuous grip on stats and maths (89% of the UK’s adult population, as quoted, is nearer 47 million people), this is an obvious example of misleading marketing. It’s probably fair to say that a majority of these adults have been subscribing to services of some kind for the last 50 years; whether it be phone contracts, utilities, gym memberships, healthcare or something else. But these should be excluded from any argument about a seismic shift to subscriptions.
The subscription revolution is changing the habits of both businesses and consumers from upfront payments to recurring purchases; where previously we might have bought something outright we now move to a ‘rental’ model, with the benefits this brings to those on each side of that arrangement. Announcing that 89% of people have adopted subscriptions is not only horrible numberwang, it also shows a misunderstanding of the nature of this transition.

So, what is it?

In short, subscription services are based on a payment instruction that recurs for something that previously would have been a series of one-off purchases. This change of payment arrangement to a recurring billing model can be beneficial to both vendor and consumer.

What are the benefits?

Does subscription billing benefit people and if so, how? My view would be yes, it does. It benefits users of services where typically a common aspect of the subscription model is the ability to consistently receive improvements to the service. Whether this be car leasing (getting an upgraded model every three years and inclusive servicing) or SaaS where you’re always on the latest software version and receive upgrades as part of the deal. It makes ownership more affordable, eliminating the need for large upfront payments.

Is it really cheaper?

Well, it can be hard to decipher the truth from statistics and working out if it’s cheaper depends on where you draw the line. Is it cheaper in year 1? Almost certainly. Is it cheaper over your entire lifetime? Probably not.
Often customers don’t need a constant flurry of new features (I’ve got a copy of Microsoft Office 2003 that still does everything I need), however, it can also prevent the need for additional outlay on ancillary components; the hosting side of SaaS being a good example – what customers want is the software and benefits they get from that, they don’t want to be involved in the purchase, management and upkeep of the hardware and operating systems required to run it. So, this draws a distinction between affordability and cost of ownership. Indeed, in the subscription business model, no user is ever really an ‘owner’.

Contracted and uncontracted, a new type of subscription

Many of the older, pre-existing types of subscription, involved a contract – a committed period of service that a company could use to forecast and recognise revenue early. Aside from changes to financial legislation that’s regulating this, there are now many subscription examples where no long-term contract is in place – typically ‘pay-as-you-go’ or rolling monthly subscriptions where you can cancel at any time.
The subscription revolution is more about stickiness, trying to package up as a service something that previously was just a purchase. Amazon’s a good example of this with their subscribe and save model; there’s no contractual commitment, but by creating the perception of a commitment through the user interface presentation they build an expectation in their customers that they’ll be using the service for the foreseeable future. And by adding value to a product (even something as simple as delivering those goods), companies can remove the item from a customer’s weekly shopping list and prevent churn. The Razor-Blades-as-a-Service concept being a good example; allowing customers to forget about needing to buy them and then they won’t shop elsewhere.
There are many good things about the subscription industry, and compelling reasons for companies and consumers to participate in it. It doesn’t require dodgy stats and ill-conceived press releases to make a convincing argument.