There is no denying the success of the subscription economy. It seems to be a win-win for the customer and the business. The world is transitioning from products to services, and this is something companies cannot ignore. However, before your company considers making the switch, I think it is important to pull back the layers a little bit to understand why the subscription model is so successful.
Gym, news, music, apps, video games, packages, food, etc. What do most of these have in common? You subscribe to them on a daily basis. Whether you realize it or not, you are part of the subscription economy.
A brief history of the subscription model
When you look at the history of the subscription model, technology has always played a role. Back in the 15th century, the printing press allowed small publishing companies to increase the volume of production without having to raise the cost of doing business, which led to a regular subscriber base. AT&T was formed in 1885 and created a monopoly around the communications market, which allowed the company to charge monthly subscription fees to access their service. Then we fast forward to the 21st century where companies such as Netflix and Spotify have caused major disruptions to their industries.
The expert’s opinion on the subscription model
If you are looking for the expert in this field, look no further than Tien Tzuo, employee #11 at Salesforce and founder of Zuora, a cloud-based subscription company. In his book, Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It, Tzuo says that the subscription economy is creating a pivotal moment in business history, one we have not seen since the Industrial Revolution. He explains that most companies are built to sell products instead of services, and if they are not shifting their business model now, the chances are that in a few years, they might not have any business left to shift. His team found that subscription models grow their revenue more than nine times fast than the S&P 500.
Now you might be quick to say, sign me up (note the pun), but it is important to understand what makes a subscription business so successful. Tuzo points out that customers are demanding more today and want a new way to engage with businesses; there is no longer a one-size-fits-all approach and constant improvement is expected. A subscription company assumes more responsibility because for it to work, it has to grow and maintain a relationship with each one of its customers. There is no more launching a product and walking away from it.
A customer-first approach is the secret sauce of the subscription business
The subscription model shifts your focus from the actual product to the customer. Much like the “Lean Startup” method, it requires shorter development cycles, experimentation, validated learning, and iteration. You are creating this never-ending feedback loop where customers help shape the product. Being agile and customer focused are not new things, but one could argue are some of the primary drivers behind what makes the subscription model successful. Which is also why an approach such as design thinking, a user-centered, empathetic approach to problem solving, is gaining popularity with clients today because it is a user-centered, empathic approach to problem-solving. See the theme?
Look at Amazon (even before Prime) everyone is always trying to figure out their secret. From the very beginning, it is not hard to see what they did differently. Jeff Bezos always said the mission of Amazon was to raise the bar across all industries in what it meant to be customer focused. Amazon does not focus on their competitors they focus on their customers.
Customer feedback drives the product vision
More often than not we are coding to timelines and fulfilling what the client wants, rather than what their actual customers want. When I go to initial meetings with clients they often ask for a mobile app or some piece of software that does X, Y, and Z. The first question I ask is how did you define this scope? More than likely it is just a list of what they think they should do. I challenge clients to go out in the field and talk to the end user. Figure out what is working, and what needs to be improved.
One of my clients is a leading luxury apparel and accessories company that has an iPad app for store associates to personalize the shopping experience for their customers. The app had been created before the company really understood what the customers and associates wanted or needed. So they had my team go out in the stores and observe. We took the observations along with other data points and displayed it in a heat map to visually show to the executive team. It was easy for us all to look at that and make decisions based on the data on what we should focus on over the next few iterations.
Never underestimate the power of having qualitative data to support the quantitative. If feature X is the most popular and desired, no one is going to argue to spend time on feature Y if it has no interest. As we started work, we did pilots frequently and went back in the stores to gather even more feedback. I think everyone would agree that what we built was not what anyone had in mind at the beginning, but in the end, we satisfied the needs of our users which was our initial goal.
In summary, subscription models can be lucrative, and customers seem to be flocking towards them. Whether you adopt a subscription model or not, it should all come down to your customers wants and needs. You can argue access over ownership and all the other themes behind the subscription economy, but in the end, the companies that win are obsessed with satisfying their customers.
Stone, B. (2013). The everything store: Jeff Bezos and the age of Amazon. New York, N.Y.: Little Brown.
Tuzo, T., & Weisert, G (2018) Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It New York, N.Y.: Penguin