Consumers are increasingly foregoing the security of owning things for the affordable flexibility of on-demand access – and according to Goldman Sachs, millennials are leading the way. It seems the “end of ownership” is not far off.
Retailers are responding to consumers’ changing preferences by evolving new kinds of commerce. Although these new business models assume many forms, we can call them “subscriptions” – commercial arrangements that grant consumers access to something they want without having to buy it outright.
We believe there are five reasons why smart CE retailers are paying attention to subscription commerce:
1. Subscriptions work – and not just for magazines. The subscription model is colonizing one vertical after another. Content was first, from books-of-the-month to cassettes by mail. The digital revolution made selling content by subscription even easier. As reported in Financial Times, last year revenue from paid music streaming services overtook revenue from CD sales, and it may be only a matter of time before streaming subscriptions overtake one-off digital downloads, too.
Now, almost anything that can be delivered digitally is being offered by subscription. And consumers are responding in droves. When’s the last time you bought a movie?
2. Subscriptions aren’t just for content anymore. Now, subscription models are moving from digital content into less obvious verticals. Consider cars: global use of fee-based car sharing services is growing rapidly, as more drivers, especially millennials, as NPR notes, prefer the affordability of on-demand access over the expense of car ownership.
Closer to home for TWICE readers, consumer electronics are already being sold by subscription: AT&T, Verizon, T-Mobile and Sprint encourage consumers to pay a monthly fee to use a brand-new smartphone, and then return it for another new one. Phone subscriptions in all but name.
3. Subscriptions are risky, but rewarding. Subscriptions make great business sense. Consider Adobe’s 2013 move to an all-subscription model for its popular Creative Suite. Despite an expected decline in that year’s revenue, Adobe’s stock rose. Subscriptions offer retailers an unparalleled ability to develop intimate, insight-driven, long-term relationships with paying customers, which is one of the most important benefits of all.
Moving to a subscriptions model isn’t without risk though. Companies should typically expect to see softer revenue the first year they switch to a subscription model, unless of course the switch also garners a horde of new users.
To ease the transition to subscriptions, companies should first test the waters with less popular products before transitioning flagship products.
4. Subscriptions take smart and scalable business infrastructure. To take full advantage of the possibilities of subscriptions, merchants are using sophisticated models like time-based access, metered usage, or tiered access. These models come with back-end complexities.
Once you’ve decided to offer a product by subscription, how can you protect it against piracy, monitor metered use, or satisfy consumers’ desire to adjust their subscriptions on the fly? These problems are hard, but the right systems and services can solve them. To thrive in the economy of access, retailers need to invest in infrastructure that adapts as nimbly as subscriptions do.
5. Subscriptions are the future of commerce. The economy of ownership is rapidly giving way to the economy of access. At the same time, the evolving Internet of Things is enabling something we at Digital River call the “Commerce of Things” – the way physical objects, from smartwatches to coffee makers to shoes, are starting to mediate commercial transactions for us, with our permission and on our behalf based on our unique usage.
In major appliances too the possibilities of object-mediated subscription commerce are endless. Imagine, for example, refrigerators that tactfully offer to replace their water filters automatically, just when needed.
Subscriptions are the future of this industry, and the future of commerce. Are you ready?
James Gagliardi is solution innovation VP at Digital River, a leading global provider of commerce-as-a-service solutions.