How the subscription business model is changing the world
Around the world tomorrow, people will wake up from an app-tracked sleep and take their first counted steps of the day. Many will ask Siri, Alexa or Google to share the morning news while they make breakfast. Some will open near-empty fridges and be glad their weekly grocery subscriptions or meal kits will soon arrive.
Every day, millions of consumers and businesses use subscriptions. Along the way, subscription providers gain further insight into their customers with every tracked interaction. This data shapes business operations and decision-making, eventually affecting customers and all our day-to-day experiences.
Where are subscription business models having the most impact? Here are five industries experiencing the greatest change.
Subscription services in food and dining
Restaurants are facing a challenge. Consumers spent $10.2 billion on third-party delivery services like Uber Eats and DoorDash in 2018. Yet not all restaurants were thrilled with these partnerships. The added sales are often offset by the costs of meeting demand.
Chipotle, for example, had to set up second kitchen lines just to handle online orders. Some restaurants are similarly considering building “ghost kitchens” with no dining service and looking into better packaging for food that doesn’t travel well. These are expensive accommodations, but consumers clearly want the service.
Big-chain grocery stores are trying to stay relevant with new pick-up and delivery services. Whether they’ll compete with meal kit subscriptions like HelloFresh and BlueApron, or grocery subscriptions like Amazon Fresh, remains to be seen.
In the background of all this is change right at the source: the agricultural technology-as-a-service market is expected to reach $2.49 billion by 2024. This includes subscription services for things like vertical farming, farm drones, robotics, and even biotech.
The subscription business model in health and fitness
For those concerned about how their eating habits affect their health, countless apps and subscription services now exist to track diet, weight loss goals, activity levels and more.
Many of these go far beyond diet. Virta Health, for example, helps people with Type 2 Diabetes reverse the condition’s effects by constantly tracking blood sugar levels and symptoms, and sharing them with a health team available 24/7 through an app. Virta Health claimed a spot on CNBC’s Disruptor 50 list.
Even higher on the list is Peloton, the on-demand workout provider. With membership prices that compete with brick-and-mortar gyms at $12.99 or $39.99 a month, it may not be long before gyms go the way of music stores.
Sleep, steps and even pain can be tracked and managed with the help of subscription software and wearable devices. As some employers and insurers work to reward people who put in the effort to stay in good health, these services may soon see large-scale adoption.
Subscribing to entertainment
Music stores may have all but disappeared thanks to cloud storage and streaming services, but radio is still hanging in there. But many wonder what effect subscription services to Spotify and Pandora may have long-term.
Then there’s television. In 2014, a survey by Leichtman Research Group found that 84% of U.S. TV-watching households had paid TV subscriptions. By 2018, it was down to 78%—a drop of over 4 million people. Meanwhile, movie theater attendance is down 28% since 2002.
It doesn’t take much research to figure out the cause of this change. Anyone with an internet connection can rattle off a list of subscription based streaming services offering commercial-free shows and movies on demand. Most recently, Disney joined the competition with Disney+, which already has 28.6 million subscribers.
The effect of the subscription business model on shipping and transportation
Many of these services create demand for regular shipping. Most shipping happens by sea, and the amount of marine cargo shipped has increased every year since 2009, from just over 8 billion tons to nearly 12 billion tons.
The pressure to keep up isn’t just felt in shipping: the internet of things (IoT) and telematics have enabled the transportation sector to grow in leaps and bounds. So much so, that the Environmental Protection Agency has created a program, SmartWay, to help freight businesses be more environmentally friendly and sustainable.
Filling in gaps in freight and fleet management offers major opportunities for new, digital-first companies. Doft, for example, provides a way for drivers and shippers to cut out middle-man brokers to connect. The business also recently rolled out an in-demand, single-click “book now” option to its service. In other telematics service providers that track driver safety and route efficiency in real-time, and it’s easy to imagine the changes ahead.
The subscription model as business
Software as a service (SaaS) surpassed a $100 billion run rate in just the second quarter of 2019. Businesses increasingly tap into SaaS for automation and artificial intelligence.
Marketing, customer relationship management, subscription management software and billing automation platforms, for example, are just a few of the critical platforms subscription businesses now need to scale. As a result, subscription business models are changing the way we do business from the inside.
Take MailChimp, for example. Once a platform strictly focused on email marketing, as of May 2019 the subscription software now gives users the ability to create landing pages, Facebook Ads, Google remarketing ads and even snail-mail postcards. This takes the email marketing platform into spaces dominated by HubSpot and Marketo.
As SaaS businesses continue to gather customer data and refine their methods accordingly, expect more of this kind of competitive expansion. The businesses with the best data are likely to win.
Just as consumers become familiar with the ability to upgrade, downgrade or switch subscription providers on a whim, so will business leaders. As a result, subscription businesses will need to work towards flexiblity, with a hyper-focus on customer retention by accommodating customer needs.
Subscription services as a part of daily life
As consumer and business cultures evolve, the data collected by businesses will be the differentiator between who sinks and who swims. And the subscription businesses model has a huge advantage.
SaaS businesses in particular have a few extra aces up their sleeves. With cloud-based products, there are no shipping costs associated with acquiring or upgrading customers, and these businesses also have open access to the global market.
What does this mean for the future? Expect increasingly personalized subscriptions in nearly every part of day-to-day life. And who knows—perhaps we’ll soon be subscribing to a service that identifies and automatically subscribes us to the services we need to work and live our best.
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