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Subscriptions, bonus content. These are just some of the words that are being thrown around more and more often in various parts of the economy and our lives. Some see it as the biggest revolution in capitalism since its birth, others as an evolution that will help build a leaner and more globally connected economy.
At the same time, it is not only services such as Netflix, Spotify or Voyo that directly insist on a subscription, or push you into it through a plethora of advertisements. This includes Google and its cloud services, fintech applications such as Revolution and others, or the increasingly popular operational leasing for anything: cars, bicycles, mobile phones, office and computer equipment.
But what else are we willing to buy for a subscription, and does this pattern makes sense at all? Can subscription living really support the circular economy model and show us that we own too much stuff? Or will we be at the mercy of corporations because of this publishing phenomenon?
"Why own such a cordless drill when you can easily rent it in a few clicks? Or a chainsaw, lawnmower and other things"
Where did the subscription come from?
The term subscription economy , slavishly translated as an economy based on subscription , was introduced by American-Taiwanese businessman Tien Tzuo. He already founded Zuora in 2007, which offers a comprehensive platform for the subscription model and is today, unsurprisingly, one of the biggest promoters of the subscription economy.
Philosophically, the company sells this approach by saying that "the core of the subscription economy is the idea that customers are more satisfied when they subscribe to the current results of the work of the given business than when they buy the given product . And it is precisely this emphasis on the "burden of ownership" that is the key change in mindset compared to the traditional perception of capitalism.
While it is still common today to strive for constant growth and – in quotation marks – the accumulation of goods, in the subscription economy , on the contrary, people try to minimize the number of things and services they actually own. A secondary (and often positive for the provider) effect then becomes the natural effort of people to use prepaid items and services with maximum efficiency ("Well, I'll take a look at it, if I'm already paying for it...")
Or another example. Why own such a cordless drill when you can easily rent it with a few clicks? The same applies to chainsaws, lawn mowers and other things that spend the vast majority of your time somewhere in your shed or basement, taking up valuable space. Maintenance of these things also costs something, so why not switch to a subscription?
Orientation to the subscription economy is mainly a mental evolution and understanding that a thing that a person uses at best twice a month does not have to be owned at all costs. It is therefore not surprising that promoters of this economic model emphasize sustainability and are often fans of the circular economy .
Subscription economy in practice
Logically, not only customers but also the companies themselves have specific benefits from this economic model. With services, the main one is obvious: the subscriber's natural urge to consume it. In production, it is mainly a reduction of the pressure on the number of pieces produced, because for example the aforementioned drills do not have to be produced all at once, and the company's income will be compensated by a certain monthly flat fee from subscribers, within which the given pieces are only adjusted or repaired.
It might occur to many now that the impact on innovation in the given sectors is at least debatable in this respect. After all, this largely removes concerns for manufacturers about whether the successor model will be successful enough for them. However, the automotive industry or the consumer electronics market, for example, clearly shows that operational leasing is mainly based on the desire of customers to use the latest model of the brand.
In addition, the subscription model brings with it a positive effect in the form of a much deeper relationship between the customer and the company . At the same time, based on the long-term loyalty of the customer, the company is able to flexibly fulfill their wishes and continuously improve their services. Last but not least, certain subscriptions, unlike, for example, piecemeal sales, provide companies with stable and predictable income.
Considering the above, it is not surprising that the fastest growing segment in this market are companies offering software as a service (SaaS). Operating systems, office packages, CRM systems and a number of other programs that we used to buy on CD or DVD are now paid for by subscription. A great example is Microsoft Office. Understandably, this trend was accelerated even more by the coronavirus pandemic, during which flexibility was key for companies.
After all, the popularity of "subscription life" can already be illustrated by hard data. The aforementioned company Zuora regularly creates its own Subscription Economy Index (SEI), which quantifies the growth in the volume of business with subscription-based products and services. And according to a press release from this February , this index has grown at more than four times the rate of, say, the S&P 500 stock index over the past decade, whose growth is often used to illustrate success.
Billion dollar razors
The best example from practice and at the same time a pioneer of innovative use of subscription is the California company Dollar Shave Club . Today, this brand is, together with Gillette, among the largest sellers of razors on the American market, and over the course of the decade it has spread to other Anglo-Saxon countries.
The brand of founders Mark Levin and Michael Dubin was even so successful that the British conglomerate Unilever bought it in the summer of 2016 for one billion dollars!
The billion-dollar gimmick was a very simple subscription that, for a monthly flat rate of one dollar, offered customers the delivery of all shaving properties directly to their homes. The company elegantly solved the problem of users who forgot to buy new razors: they automatically arrived every month. In addition, for a lot, some 25 crowns, everyone sacrifices for that comfort.
"Why spend twenty dollars on Gillette blades when you can pay nineteen to Roger Federer?" asked company founder Dubin in a period ad (see below), referring to the sponsorship of the famous tennis player. His concept worked and over the years he added hair products to his portfolio .
All the benefits of the subscription economy that we listed at the beginning of the text were then used by streaming services. Because, just like men, beards will keep growing, people will have a constant need to watch companies and series. And the media, which use subscriptions (pay-walls) more and more often, mainly because of falling income from advertising, operate on the same principle in combination with a hunger for information.
At the same time, Netflix, YouTube, Spotify and, in the Czech Republic, various premium contents of TV stations had a huge advantage over other segments of the economy that try to offer subscriptions - consumers were used to them. These services have brought a concept into our living rooms that was already popularized by ordinary video rental companies. The fact that today we can order a movie with a single click on a smart TV is just a natural evolution given technological progress.
How much streaming services have taken over the market, after all, is demonstrated by the status of the legendary Blockbuster video rental chain, of which there were thousands in the United States at the end of the last century. Today , there is only one left in the town of Brand, Oregon, which even earned its own documentary called The Last Blockbuster .
At the same time, the case of the evolution of video rental stores shows that for many people there was never a physical need to own a film as a carrier. Why too? There is only a minimum of films (as well as series) that you watch more than once. Rent is absolutely logical in this case.
So the evolution towards streaming services was completely natural and in line with what the subscription economy promotes. That is why we will take a closer look at the entertainment industry in one of the future separate articles.
Subscription limits
But while subscriptions have been a great success for music and series, the book market has been struggling with a similar model for a long time. It is a hard-to-explain phenomenon that goes hand in hand with the fact that, against all odds, electronic books have not (yet) been able to displace paper ones; many people find reading an experience that paper can convey better than an e-book.
In addition, specialist books are a very specific discipline, which are used much more often than fiction. People usually read it once and save the book for a longer period of time or send it on. Thus, while subscriptions make at least a general sense for fine literature, this is not the case for professional literature.
Subscriptions and microtransactions are also gaining ground within the video game industry very slowly. The last time Google came across this model was with its Stadia console . At first glance, games have not become more expensive in recent years, but their economic model has changed: today they are much more of a service. We will also focus on them in a separate text of our special.
Where subscriptions have long-term problems is the automotive industry. And now we are not talking about operative leasing, the popularity of which is growing (in addition to renting a car, you actually pre-pay for service), but the attempt by car companies to charge for anything: infotainment updates, connection to a mobile phone or - yes, this is also possible - heated seats . Only the advent of electromobility can change this: charging subscriptions are already quite clearly visible on the market today.
In short, individual car transport is an area where subscriptions will hardly succeed. This is also proven by the very slow start of shared cars. We perceive a car as something too personal, and these services often cannot cover the current demand at peak times.
The future of the subscription economy
However , there are still plenty of areas where the subscription economy is more of a wishful thinking of companies. Nevertheless, according to a number of predictions, this segment, i.e. the subscription-based economy, has set foot on a bright future. According to available data , the worldwide segment of the subscription economy had a volume of approximately 650 billion dollars in 2020, but for the year 2025, the size is already expected to more than double: 1,500 billion dollars.
The British company Juniper Research then states that for the next few years, subscriptions to physical goods, or items in the so-called metaverse, should be the driver of this segment. According to the researchers, the first mentioned area should increase its volume from 64 billion dollars in 2020 to 263 billion dollars. And the virtual world grabs around 69 billion dollars for itself
We'll see if this bold prediction pans out. Among other things, due to the fact that there will probably remain areas that the subscription will run out of. Personal conformity, for example, prevents the launch of clothes on subscription, and even if the concept of second-hand goods has existed for years, our favorite T-shirt will continue to roll in our closet most of the time anyway. At the same time, it would certainly be possible to get rid of the "burden of ownership" and buy a subscription from a fashion brand.
What may sound like science fiction today may be a reality in a few years. It only depends on whether we as a society mentally allow this change. Our life will then be almost completely subscription-based.
But is it good? Will this help a more sustainable economy, or will the absence of personal ownership mean too much power in the hands of corporations that offer subscriptions? This is the question we will try to find an answer to. As well as where our limits lie, to which we are willing to let the phenomenon of "subscription life" penetrates.
