Subscription model – the underdog that’s winning

Just last week we had a discussion with one of our clients who were interested in establishing a one-time pay-out model for their product. Being a seasoned consultancy for over a decade we wanted to walk him through various other business models before he committed to one.

As I always do, I save the best for the last, a strong closing statement has an effect like none other and I swear by it. So, I brought out the trump card, the one that’s been accepted and loved by business and companies’ world over, including a majority of our clients as well – The Subscription model.

Needless to say, it was a winner and why wouldn’t it be?

With the last decade of learning and growth with our clients, illuminz has witnessed businesses constantly choosing the subscription model over and over again. Amongst the business community, this model is loved because of its relatability with economies of scale. The economy of scale and scaling fast is what makes businesses open to incremental growth surges and we’d like to show you why.  

Businesses and business models they run on are fascinating. For the uninitiated, a business model is that key element which allows you to map out an ongoing value generation for your clients.

The progression curve of how your business idea starts off, how should it progress, and at which point do you mark it as being successful?
All these questions will enable you to create a business model that holds strong in troubled waters. You should narrow it down to these three questions:

-   What are you creating? - Feasibility

-   Who is your target audience? - Desirability

-   What is your revenue model? – Affordability

The ability to harness the power of business model generation has become a competitive need of the hour. There are a variety of business models that one could choose from for their business. The one that you are surrounded by currently is – The subscription model.

What is a subscription model?

Subscription business models are a great way of breaking down a huge one-time fee into smaller, bite-sized multiple portions.

Besides making payments less taxing for the payee, it also helps businesses generate steady monthly revenue. It’s a great way to acquire clients and retain them for the long run, keeping them engaged throughout.

The Subscription Economy

Right now, there is no escaping it, with your Netflix memberships, and your Amazon Prime accounts, Spotify and Apple music accounts, Zomato Golds, Dollar Shave Club packs and YouTube Premiums. Routine payments and billable cycles that push product purchases and keep the brands thriving each month are very common. But that’s an individual perspective, do companies do the same?

Of course, they do.

Entrepreneurs:

With a monthly flow of funds coming into a business it helps ascertain projections for the long run. Anyone who has ever managed budgets will understand and agree that a stable source of funds is better than a sudden surge in funds that are unforeseen. This is because of the simple reason of being able to align and allocate funds to certain areas.

Businesses with a steady monthly flow of funds via subscription models have a shot at better financial planning. Besides, steady cash inflow results in steady outflow to important arenas like Research & Development. Innovation becomes integrated into the processes of a business courtesy the fund allocation.

On the other hand, your clients get the ultimate value derivation from a product or service when the pay-outs are smaller. It’s a win-win for both the businesses and the end consumer.

The subscription model is synonymous with a continuous flow of capital into the business. This further enables your sales and marketing teams to add more subscribers and keep growing your business overall.

Microsoft Office, Adobe and SaaS business apps and many more have eagerly adapted to the subscription economy, and for good reason.

The subscription Economy ropes customers in with the allure of buying digital products and services on a pay-as-you-g(r)o(w) model.

The transition to a subscription model has been smooth because of the surge in demand in response to outstanding functionality for the consumer base.

How Adobe disrupted the market?

2013 was a different time, however when Adobe pivoted into a subscription model. CMO Ann Lewnes who had joined Adobe after a 20-year tenure at Intel.  During which she worked closely with the ‘Intel Inside’ program and oversaw campaigns that were noticed and celebrated in the Marketing community and otherwise.

Adobe while tremendously successful in creating creatives and document services with great flagship products still had room to grow. For one, Adobe’s engineers were developing new product features constantly, the con, however, lied in the wait. Adobe had to wait for 18 long months to release these product features to the world.

This led to revenue spikes every 18 months, the revenue trickled thin and unpredictable during the rest of the time period.

Something had to be done and done fast.

Adobe decided to transform its Creative Suite business from the standard boxed-licensed software model to a monthly cloud-based subscription model.

The world was introduced to – Adobe Creative Cloud.

The company saw revenue streams getting steady, with a one-time buy of the products that ranged from $1,300 - $2,600. This was not inclusive of version upgrades that came at a later stage, leaving people and companies high and dry. Making a switch to subscription-based pricing that hardly made a dent at $9.99 for a single product and $52.99 for all the apps in the Creative Cloud.

Genius!

No wonder they are credited today as the industry role model that was able to pivot a business model with such ease and finesse when it came to execution.

Lewnes, when asked about the great transition, said, “We had a thirst for massive change and risk,” She believed that risk is “how you stay alive” in an industry as volatile as technology.

Adobe’s current user base stands as somewhere around 14 million and is projected to be around 20 million come 2024 all thanks to the subscription model at play.

The ripple effect

Soon enough the world followed suit, and businesses all over the world started understanding the value of the subscription economy. All it took was one pioneer to walk down a path that changed the face of pricing and business models for the time to come.

Netflix: This entertainment giant cracked the code with the subscription model and overtook Blockbuster by miles. They allowed their patrons to pay a low monthly fee and have access to thousands of shows and movies. Netflix started out competing against Blockbuster, offering an alternative to driving back and forth to the store to pick up and drop off movies. Over the years, it morphed into a powerhouse that boasts a 75% share of not just U.S. homes but world-wide.

Being able to explore territories that they hadn’t earlier Netflix recently brought out a mobile plan that was cheaper for audiences in India.

Spotify: Music, something that resonates with everyone no matter the age, there was never a dearth of platforms that let you listen to music. Spotify elevated on that, bridged the gap between music and podcast channels and gave an option to eliminate ads for a fee. For a monthly fee, you get access to any song you wanted, from as many different recording artists you wanted, as often as you wanted, whenever and wherever you wanted. Gone are the days of buying an album if you liked a song in it. Spotify came and changed the music industry.

Chewy: The pet-industry went into overdrive in the last five years. Millennials are all about furies being a part of the family. Who would have thought dog food and treats could be sold as a subscription? Chewy came in as a game-changer. It sells all types of pet supplies on its website and offers an extra 5-10% savings if the customer opts to “auto-ship” the order on a monthly basis. If you find it inconvenient to go to the store, buy a heavy bag of dog food, carry it to your car and into your home, then a company like Chewy is exactly what you need.

Amazon: Prime is everywhere, and why shouldn’t it be, you’ve got movies, music, savings on everything under the sun from electronics, to cosmetics, stationery, musical instruments etc. you name it, Amazon has it. Amazon has made convenience their USP and has become a household name globally, if that isn’t a feat, what is? Recognized for its huge selection and competitive prices, it offers a “Subscribe and Save” option that gets often-used items delivered right to your doorstep on a regular basis – and for less money.

A better world

The subscription model has also discouraged the use of pirated software. Furthermore, enabling businesses to cater time and efforts into creating something that generates value for users. Piracy isn’t a preferred option when compared to the quality of genuine products at the fraction of a pay-out on a monthly basis.

In many ways, the subscription model has inched us closer to ending piracy with affordability being a huge factor for masses.

An example of this was seen when Microsoft made MS Office available on a subscription-based model to the world. Their user base made a jump from 2 million to a whopping 120 million over a span of just 2 weeks.

It’s a safe bet that subscription clearly outpaced one-time payments.

The idea that subscription resonates with, isn’t to just hook your clientele but to constantly engage and up-sell products and services while deriving value for them.

Any good business should reflect on its strategy, values and what drives it. So, when you do, ask yourself, are you taking enough risk to stay alive?