Subscription Economy: the economy of subscriptions

This morning to go to work, you probably turned on Spotify to start the day with some good music, while maybe you read the news that arrived directly in your inbox through your subscription to your favorite newspaper. So, maybe, during your lunch break, you ordered some of the Christmas gifts on Amazon, which you will receive tomorrow thanks to your prime subscription. And tonight, you’ll probably end your day with some episodes of your favorite Netflix show. While you may not really be aware of it, subscription services have become part of our daily life.

According to a survey released by American consulting firm McKinsey earlier this year, the subscription e-commerce market has grown more than 100% annually over the past five years. And 15% of online shoppers have signed up for one or more subscriptions to receive products (food, clothes, makeup…) on a recurring basis, often via monthly packages.

“In the subscription economy, it’s not about the ‘package’, it’s not about the CD, it’s not about the code, it’s really about the people using that code and what they’re doing” (a valuable source of consumer data) says Tien TzuoCEO and co-founder of Zuora, a company that creates and supplies software for businesses to launch and manage their subscription services, which recently published a book focusing on the subscription economy, Subscription Economy, term coined by its founder Tien Tzuo.

The subscription economy can be defined as a paradigm shift. No more ownership: the company-customer relationship no longer revolves around one-time purchases of goods or services. This new business model is about much more, namely establishing a long-term relationship in which the customer pays regularly, receiving services and support in return. According to Zuora, the subscription economy has grown nearly 6 times (more than 435%) in the past 9 years.

In his book, Zuora’s CEO argues that this new way of doing business is transforming every single sector of the economy. One sector that has been completely remodeled is that of transport. “It’s no longer about the vehicle, it’s about taking the consumer from point A to point B and doing it in an optimal way, combining scooters, bicycles, cars and public transport”, says Tien Tzuo. After disrupting the taxi business, Uber and Lyft are now increasingly operating as mobility platforms, offering customers an easy way to get to their destination using all the options available to them. Last October, the two rivals both introduced a subscription plan. Customers can now pay monthly to get rates on trips they take regularly (such as commuting). Lyft also offers a monthly plan all-you-can-ride $ 300 for users who move a lot.

In a world where resources are limited and existing ones are not used in their entirety, the subscription economy also has a positive impact on resource scarcity by increasing the efficiency of existing resources.

In the case of cloud computing, for example, some servers are shared and used by many companies. Just as this new business model can support the circular economy with a shift from the “buy and waste” approach. For example, if you are selling a washing machine based on a subscription agreement, there is little incentive for the seller to make it obsolete and a great incentive to reuse as many parts as possible. As well as for many other products.

Very interesting is what we read in the reportThe End of Ownership (the end of the property). In 2018, a Zuora survey conducted by The Harris Poll found that we were in the midst of a new era: the end of ownership. Consumers were less interested in status and the ephemeral personal fulfillment that came with owning things. Instead, they were motivated by a desire for fulfilling experiences that enrich their lives. In 2020, The Harris Poll (again on behalf of Zuora) revisited this trend. The result? Not only is the end of the property intact, but it is accelerating.

The recent survey involved 13,626 respondents over the age of 18 in 12 different countries.

The results reveal growing consumer preferences for using subscription services over ownership of physical products. According to the report “A new completely digital society is emerging”, this has been accelerated by the pandemic and other pandemic-related safety measures. 78% of international adults currently have subscription services (71% in 2018). And 75% believe that in the future people will subscribe to more services and own fewer physical “things”. 16% of adults in the US are interested in news and information subscriptions compared to 12% in 2018, 13% for the UK (11% in 2018) and 17% for Australia (13% in 2018).

Everywhere around us, from e-commerce to connected cars, to transportation, to smart medicine, the world is defining itself by relationships rather than products.

We are facing an enormous cultural change, which is transforming the economic exchanges we know. We are used to linear flows, “produce, sell, earn”, but this is no longer the case.

Ownership as the only solution is giving way to new types of use. Owning something no longer prevails in people’s logic. What is emerging is a world in which the important thing is the service and quality, and above all our data.

The debate is large and important. We decide to act or stand by and watch.


Source: Il Blog di Beppe Grillo by beppegrillo.it.

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