You all know the story: The board members of Blockbuster all sat in a room and laughed at Netflix, saying nobody will buy a DVD subscription service. Believe it or not, there are still deniers of the subscription revenue model in other industries, even though the numbers show a different trend. The deniers may be laughing at Blockbuster now, but following the same path as its board members. Is it too late to change course?
It's Good For the Customer!
For consumers, subscription business models address practical needs and promise added simplicity.
First, there’s cost. Consumers today have more demands on their budgets than ever before, as big-ticket expenses such as housing, health care, and education continue to climb faster than wage growth. For many types of goods, a monthly subscription fee is more accessible than a higher one-time expense.
Next, there’s convenience. As consumers seek out ways to simplify their lives, the “set and forget” nature of subscription services can help them do so.
The slogan on Audi’s subscription service website captures this appeal: “All of the power. None of the responsibility.” Subscription business models offer consumers the promise of one less thing to worry about.
Younger Consumers Prefer Subscriptions
One of the reasons that subscription-based products are so popular these days is due to the heavy influence of the millennial generation. As it turns out, millennials are just not as interested in becoming owners of lots of different products, and instead have indicated a notable preference for leasing or renting cars, appliances, laptops, furniture, and software.
It's Good For YOU!
Creates Steady and Predictable Revenue
Once a company has started acquiring subscribers and has a solid view into metrics like customer lifetime value and churn rate, subscription businesses become easy to track and predict. Because they’re based on recurring payments, subscription models offer a surer source of revenue that business leaders can count on for strategic planning and investment purposes.
Strengthen Customer Relationships!
Consumers also tend to stick with a subscription service once they’ve signed up. As angel investor Eric Stromberg notes:
“Subscription is a powerful business model because it creates an environment where the default customer behavior is retention, as opposed to one where the default behavior is churn.”
Believe the stats!
- By 2022, 53% of all software revenue will be generated from a subscription model
- The car subscription market is set to grow by 71% by 2022
- 70% of business leaders say subscription business models will be key to their prospects in the years ahead
- The average subscription billing vendor is growing 30%–50% annually
- In the US, 38% of businesses say they will increase their number of subscriptions.
- The Subscription Economy® has grown nearly 6x (more than 435%) over the last 9 years
- The subscription eCommerce market is projected to reach $473 billion by 2025, up from $15 Billion in 2019.