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Decoding the subscription economy: Why are subscriptions popular?

From jet engines to underwear, almost everything is available in a subscription model right now – even in India. How did we get here and where are subscriptions headed?

Shopping, or commerce in general, is a large part of the human civilization. We buy things we need or want on a regular basis. And this act of purchase has led to markets and economies rising and falling over time. Whether it be online shopping, retail stores or any other method, the fact remains that we buy stuff and we do it a lot. With online shopping, this very act has been simplified, to say the very least. Everything from vegetables to private jets is available online. And amid all of this, a new kind of purchasing habit has taken hold in many sectors – subscriptions.

What are subscriptions?

We are not talking about your subscriptions to a weekly newspaper or magazine (like Digit). Although that is where the idea originated, we are talking about subscriptions that have replaced individual product purchases. So, for instance, your Netflix subscription makes sure that you don’t need to buy or rent DVDs anymore (interestingly, Netflix started off as DVD rental). Now the kind of subscriptions that we are talking about could be for anything – a fresh pack of razors being delivered to your doorstep every month? Available. A subscription to your favorite luxury cars? Why not? But one particular subscription area has attracted a lot of attention – subscription boxes.

A typical box from LetsShave, an online grooming products subscription service in India

Broadly speaking, a subscription box service will send you a box of products for a fixed amount every month. These products could be curated from multiple manufacturers, like Birchbox, or could be from their own manufacturing line. Bottom line is – subscription boxes are insanely popular. Don’t believe us? Check out the popular YouTube fashion/lifestyle blogger network that thrives on reviewing subscription boxes and their content every month.

Indian Subscription models
India has its own subscription model companies and services around them. Here are a few interesting ones:

  • Lets Shave – Shaving and grooming products for men and women.
  • My Envy Box, Fab Bag – Cosmetics
  • Recurrex – a Subscription-as-a-Service provider that helps you shift to or start off a subscription model business.
  • Chotuchaiwala.com, Teabox – Tea as a subscription
  • Flintobox – Educational activity boxes for kids
  • LifCare – Subscription pharmacy

Are they popular?

You bet they are (a solid reason why we are talking about it). According to My Subscription Addiction, a website that lists as many subscription boxes as possible, based on what we could calculate from its listing of Monthly subscription boxes there are about 2,500 subscription boxes available right now! These boxes spread across categories like Books, Crafts, kids products, and more. According to Amir Elaguizy, founder of Cratejoy (a Squarespace like service for Subscription box companies), the number is much larger at around 10,000 such services. He also states that the subscription economy has been growing at a whopping 200% since 2011. No wonder you see more of those boxes every day!

As the above statistics indicate, the subscription model is neither new nor rare. From Netflix to LinkedIn Premium, you’ve been paying for services and software in an online, connected world for a while now. Even Amazon has jumped onto the bandwagon by offering subscriptions for products across almost its entire website. Major software vendors like Adobe and Microsoft have moved their best-selling products onto subscription models. But why does it work?

Why does it work?

On the face of it, there are many individual reasons for each subscription service to work. Maybe you signed up for Netflix just to binge-watch Stranger Things, maybe you subscribed to Amazon Prime for the free One-day deliveries, but overall, there are a number of broad reasons because of which subscription models do well. For companies, it is pretty obvious that a continuous source of revenue over the years is more sustainable than one-time purchases in the long run. But what we are looking at are the reasons behind consumers going for subscription models.

  • Convenience

First of all, this is not another way to call Millennials lazy. The current generation of smartphone-toting consumers is used to an on-demand economy, where things are served instantly and with minimal effort. In such an environment, choice itself is a task. These facilities have developed a customer that values efficiency and ease of use above all else. Hence, regular, frictionless, automated deliveries, recurring payments that do not require intervention, constant access to their favorite content – these are all no-brainers when it comes to a millennial’s purchasing habits.

The Ola Share Pass is an example of an on-demand service company including a subscription model in its offerings

And this fact is not lost on on-demand companies either. Ola’s Share Pass is an interesting example that reflects the willingness of a modern customer to subscribe to anything related to something they consume regularly – even if it is already available as an on-demand model. The pass allows them to avail shared cab rides at discounted rates, and mostly builds a sense of loyalty to the service provider itself – in this case, OlaCabs. This is leading to a gradual merger of the on-demand and subscription models.

  • Indulgence

Right now, the consumer is hooked onto services like never before. Businesses have as much data as they need from a consumer – be it their browsing habits, wish lists, TV show preferences, social media likes and almost everything else they are likely to spend money on. And this enables them to create offerings customised to cater to each customer’s preference – in short, indulge them. In fact, most of the growing subscription boxes pander to the idea of an individual wanting to pamper themselves conveniently. And it’s not just limited to actual products.

Subscription service providers also bank on a low entry barrier, such as a free trial month

Netflix wasn’t always into releasing entire seasons of shows on their platform. But as they saw customers increasingly going for ‘binge-watching’ shows in one session, they modified their offering to encourage this habit. This, and the customised recommendations they already provided based on your viewing habits. Better than going to the store and renting a DVD for yourself each time, right? In fact, most content platforms in the subscription business rely on data generated from you to pander to you.

So why does this work as a factor? Broadly speaking, instead of going on a huge shopping spree in one-go, you are indulging yourself every month for smaller amounts. Same cost, less guilt.

  • Access 1 – Ownership 0

If there is one thing the modern customer is clearly against, it is owning a ton of stuff. From our documents to our content, we are moving away from the need to have local instances or physical goods when we own something. When it comes to digital content, technology has definitely played a significant role in this with better and more accessible mobile internet and public WiFi. If you told a person in the early 2000s that they will not have a single local copy of any of the albums they have purchased over the years, they will probably call you crazy. Today, it’s the norm.

Interest in subscribing to products has been steadily increasing, and shows a steep growth in demand recently
Interest in subscribing to products has been steadily increasing and shows a steep growth in demand recently

As Zuora CEO, Tien Tzuo, the person who coined the term ‘subscription economy’, puts it, it’s all about “throwing ownership to the curb”. And there are reasons behind this. Take GE for instance. General Electric offers jet engines on a subscription model – customers only pay for the time the jet engine is in the air. This happens with the help of thousands of sensors that are placed on each engine. Now, these same engines would cost a $75 million approx up front if they were purchased. A subscription model often helps a customer avoid the steep initial cost involved in an outright ownership deal. And of course, as shown in the Apple iPhone membership plans, there are additional benefits thrown in like regular servicing and warranty, the latest products at launch with minor additional costs and more. Overall, in ‘buy’ vs ‘rent’ (or subscribe), ‘buy’ is definitely losing right now.

But is this really all good?

Not necessarily. Each of the points mentioned above can be looked at from a negative perspective as well. For instance, with regularised payments, the customer has less control over individual transactions and cannot stop a merchant from charging them without the specific ‘unsubscribe’ process. As a result, customers are unlikely to stop a service entirely due to a few instances of bad service, or might not be entirely aware of the charges being levied by the business.

Additionally, one of the main draws of the subscription model – curation – is also one of its main problems. As a customer keeps using a particular subscription service, the service itself goes on to know the customer better and improve its recommendations. But, the recommendations originate in a pool of products/content/services, which gradually gets smaller as the service understands you better. This might reach a point where the service is showing you exactly what you need according to your previous actions. While this might sound like an absurd point to call a problem, think about it from a discovery point of view. Take news services for instance. If a news feed provider, like Facebook or Apple News, keeps offering you articles that you like to see or are interested in, are they really doing their job of keeping you informed? In fact, this is already happening.

If you keep accepting recommendations, how much time will it take to eliminate your choice entirely?

Take another example in the form of content recommendation, or more specifically, music streaming. If you use a service like Spotify or Google Play Music, you might have experienced their discovery services. If you keep using this service, further recommendations from such a service would be based on previous recommendations that you listened to. Gradually, this might lead to the reduction of your role in the recommendations and at one point of time, your entire music taste might just be made up of what Google thinks you should listen to.

Shopping: The auto-pilot version

We’ve talked about AI doing your shopping for you. While that is still in the distant future, we might just be preparing ourselves for a future like that with subscription models. The paradox of choice has been demonstrated time and again in our difficulty to make a decision when options are plenty. The subscription model solves that problem in the guise of curated offerings. With the number of choices our brain has to make every day at every point, it is pretty natural that some kind of a ‘choice fatigue’ sets in, especially for everyday, routine objects. And with the increasing trust, we have on ‘curated recommendations’ formulated from our own data, it’s pretty natural to experience a sense of liberation by choosing subscription models over the buy-as-you-go model of shopping. Be it time, be it effort – and sometimes money – the truth is that the subscription model does save you a lot of stuff. Now, whether that time, money or effort is being redirected into something more useful, or just another round of ‘Netflix and Chill’, is entirely up to the current generation of consumers.

Arnab Mukherjee

Arnab Mukherjee
