The idea of small but constant spending instead of big one-time purchases has become one of the major consumer trends of the past decade. In 2022, it’s hard to find an area that hasn’t already been reached by the subscription model, and the market has been growing steadily in recent years.
Subscriptions are so popular today for a very simple reason – they’re convenient. Whether it’s a streaming service or a SaaS product, subscriptions allow companies to generate a steady income and provide customers with a regular and predictable supply of content or products.
Nevertheless, what are the pros and cons of subscriptions, and what to expect in the future? Let’s find out.
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Why has the subscription boom happened only recently?
It’s not known exactly who invented subscriptions, but their first mentions go back more than 300 years – in the 17th century, this model was used by publishers of books and periodicals in England. For decades subscriptions worked in the publishing business until they got to the daily supply of milk, cable TV, and fitness clubs.
But the real “boom” happened only in the 2010s with the wide spread of the Internet. It all started with young companies and startups: in 2011, Netflix finally switched from DVD distribution to regular online streaming, and in 2012, Dollar Shave Club, a razor delivery service, started operating in the United States. The first company remains the largest in its niche, and the second, four years after its launch, was bought by Unilever for a billion dollars.
By the end of the decade, subscriptions were no longer limited to soap operas and razors: they could now meet almost all of life’s needs. In just a few years, the market has changed, and the business model has been adopted by many major corporations. Among the most high-profile examples in the last year alone is the launch of Apple TV+, Disney+ and HBO Max with movies and TV series, and Apple Arcade and Google Stadia with games.
What are the reasons for the rapid development of the subscription model?
One of the main reasons for the rapid growth of subscriptions has been digitalization. The availability, cheapness, and penetration of the Internet allowed businesses to get rid of intermediaries and interact with customers directly. Previously, to subscribe to a magazine, one had to go to a kiosk or post office, fill out an application, and pay a year in advance, but now everything can be done through the website or an app.
The development of online banking has also played a serious role. Now it’s easier than ever to make a purchase: Cards are linked to the payment system in your smartphone, and you can pay for a purchase online with just one click. In the worst case, you only have to select one of the saved cards in the browser and enter the SMS code.
What are the benefits of subscriptions?
Subscriptions turned out to be both beneficial for businesses and ordinary people. Companies have gained a more loyal customer base through the model, clearly predictable revenues, and have been able to expand faster. And consumers got lower prices, personalization, or exclusive features.
Globally, all subscriptions can be divided into commodity and digital. In the first case, the client pays for a physical product, and in the second – for access to a service, content, or service. But all companies use the model in different ways: some want to make money on the subscriptions themselves, while others use them only as marketing support for their core business.
For example, Amazon, Apple, and Disney are unlikely to be able to recoup their streaming services shortly at current costs. Even Netflix, which generates the largest revenue among all competitors, does not recoup the cost of content production. That’s not to mention Amazon Prime Video, which has far fewer subscribers, or Apple TV+, which has the lowest price on the market.
In the case of Apple TV+, Amazon Prime Video, or Disney+, the companies are using the subscription model as an extension of their core business. Apple closes its ecosystem, Amazon promotes the marketplace, and Disney promotes movie theater releases, theme parks, and cruises.
What are the drawbacks of subscriptions?
Businesses like the subscription model not only because of the predictable profits and loyal customers. In most cases, subscriptions are designed in such a way that they’re not easy to cancel.
And while in the case of digital subscriptions it is usually possible to go to the service site and cancel the service manually, with physical products things are much more complicated. For example, in the U.S., automatic charges due to “trial” product subscriptions had to be solved at the payment system level.
But the problem is also relevant to online services, though in a slightly different form. In the case of content, users think that the possibilities are endless – you can listen to all the music in the world and watch all the shows.
But what happens if you pause Apple Music or iCloud for a few months? – Manually collected playlists over the years will be deleted, and the files saved in the cloud will eventually disappear.
With a massive library, services like Netflix create the illusion that everything is available anytime. But in the same way, in a couple of decades, a service can shut down one day and take that library with it, leaving customers with nothing.
Another disadvantage is licensed content, which can disappear before the user has had a chance to watch it. Many people subscribe to services just for specific well-known series, but a third-party show can be removed from the service at any time due to the end of the rights or the wishes of the rights holder.
This happened with “The Office” and “Parks and Recreation,” which Netflix was unable to renew because the owner took the series to its streaming service.
Why will there be more subscriptions?
Now is the best time to use subscriptions: while the industry is just forming and companies are looking for a sustainable economy, goods and services are available at the best value. When the market stabilizes, there will be no more such variety and prices, so it is not necessary to shun subscriptions in 2022.
At the same time, we should not forget about the disadvantages behind subscriptions: once subscribed, it is psychologically difficult to abandon them, and the quality and price of products and services may change in the future. In addition, in the case of content, users only get access to it but don’t own anything.
Subscriptions allow you to eat, dress, wear shoes, play sports, and even ride electric scooters and rent a car – it’s easier to say what you can’t do. However, there are already too many subscriptions and they are hard to keep track of, especially if the card is debited on different days during the month.
In the coming years, the model will penetrate more and more areas of life and will become more flexible. Some startups are already offering subscribers a pause instead of a full unsubscription, and are also changing the frequency of debits depending on needs.
