You can subscribe to just about anything these days. A regular monthly payment can cover your favourite magazine, music and movies, as well as your clothes, coffee and contact lenses. In 2019, it is perfectly possible to survive on standing orders. You could probably go weeks without even opening your wallet, if you were so inclined.
The concept of ownership is losing its appeal, says John Phillips, general manager EMEA at Zuora. Against a backdrop of “mass digitisation” and the growing momentum of the cashless society, people care less “about owning stuff” and more about “having access to stuff… which is why they are watching Netflix and [Amazon] Prime now, rather than stockpiling DVDs.”
Zuora, a cloud-based financial technology platform, helps launch and curate businesses’ subscription services. It has worked with companies across multiple sectors, including the Financial Times, Ford and HBO, to create customer databases and manage cash flow. Zuora’s founder, the Taiwanese-born American entrepreneur Tien Tzuo, is widely credited with coining the term “subscription economy” to describe the increase in businesses and consumers open to fixed-rate and fixed-term transactions, rather than passing trade.
A Nation Subscribed, a recent study by Zuora in conjunction with YouGov, found that 82 per cent of people across the UK now regularly subscribe to at least one product or service. Some 73 per cent are actively looking to sign up even more aspects of their lives to subscription services within the next two years. Nearly a quarter of the adults surveyed, for example, said they would prefer a car-as-a-service product, such as Zipcar or Evogo, over actually buying their own car.
For Laurent Guillemain, UK CEO of HelloFresh, the subscription economy is characterised by a “more continuous relationship” between companies and their customers. HelloFresh, founded in 2011, provides subscribers with kits for preparing a meal delivered to their homes, with herbs, spices and recipe cards packaged up for busy professionals who work long hours, or those who want to liven up their home cooking. As Guillemain says, “it’s a regular grocery purchase that people would do on a weekly basis streamlined for them. You can appreciate the convenience element, and then there’s the curation and customisation element because we have different recipes that they can choose from.”
The steady and consistent nature of the subscription model is helpful for customers, Guillemain says, because it is cost-effective and convenient. But it’s also beneficial for businesses, “because we can really create a deep connection with the people buying our products…We can make small tweaks and learn from feedback. We can find out what ingredients they like, what they’d like more of and what they might like less of.”
While magazine or newspaper subscriptions, club or gym memberships and movie rental services have existed for many years, subscriptions to cars and meal kits are a relatively new addition to the market. But Guillemain is not surprised by the “scope” of the subscription economy, which he says reflects the growing influence and reach of technology. “There have been several mega trends. There’s been a rise in online shopping. Fewer people are carrying cash, because it’s more convenient to pay for things digitally. The internet has opened up new markets. As people become busier and busier, they have less time to do the chores and tasks they might have done in the past.”
Subscription models, though, are “only [as] sustainable as long as you’re delivering the value your subscribers expect”, says Len Markidan, chief marketing officer of cloud-based fintech platform, Podia. And Jamil Ghani, vice-president for Prime, the top-tier package on Amazon’s video streaming and shopping services, agrees companies cannot afford to be complacent about customer loyalty. “We continue to invest to make Prime even more valuable for members, and we’ll keep introducing new ways to make their lives even better,” he says.
The subscription economy has also been catalysed, Markidan notes, by the increasingly competitive landscape of the internet. Revenue from online advertising, he explains, is only as valuable as the web traffic a site is able to generate. With so many sites competing for traffic, meeting these targets has become more and more difficult.
Research by Podia, which helps businesses launch and manage paid for services and membership packages, has found that the average website offering multimedia content requires at least 2.5 million visits per month to earn $1,000 over that period from Google’s AdSense platform. Creators who are just starting out aren’t even given the option to monetise by the likes of YouTube, which requires at least 1,000 subscribers to a channel before allowing ads. For websites offering multimedia products such as articles and videos, Markidan says that the switch to a subscription model makes sense because it “bypasses these third-party gatekeepers, puts money in the creator’s pocket, and lets subscribers support their creator’s work in exchange for exclusive access.”
The Athletic, a subscription-based sports journalism website founded in the US in 2016, launched its UK edition earlier this year, with a focus on football. The selling point of the site is that it offers subscribers high-quality national and local reporting and analysis, delivered in the form of news, features, interviews and videos. The site has no external advertising whatsoever.
Ahead of its UK launch, The Athletic poached some of the best football writers in the country from rival titles including the Times and the Guardian, while investing heavily in a team of staff editors and sub-editors. The Athletic’s business model is entirely subscriber-based, which managing editor Ed Malyon believes is the way forward for journalism in general. “If you were designing a sports website or app from scratch to be the best it could be for a reader,” he wrote in a blog in August, “it wouldn’t have aggressive pop-ups or autoplay videos or distracting adverts that dispirit you before you’ve even read the intro. It would be a clean, simple experience like The Athletic’s.”
The pace of technology, Zuora’s John Phillips points out, has changed behaviours and raised people’s expectations. “One of the things that banks are seeing is greater interest from consumers to have a clear understanding of how they spend their money from month to month.” He adds: “Subscriptions can help people to be more organised in their budgeting. Consistent payments, month to month, take some of the stress out of people’s lives. Think of it as digitising discipline.”
The subscription economy shows little sign of slowing down. According to Zuora’s Subscription Economy Index, companies with subscription models have grown their revenues five to nine times faster than traditional businesses over the past six years. “We have moved past the age of ownership,” Phillips reiterates, “and companies have to get used to the age of usership.”
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