-By Domenic Venuto, COO at Progress Partners
Something is going wrong with subscriptions. In March 2021, the investment bank UBS estimated the digital “subscription economy” would grow from $650 billion in 2020 to $1.5 trillion by 2025 (and still might). Yet commentators began to warn of “The subscription apocalypse” and “peak subscription” early in 2022. Netflix lost 1.2 million subscribers in the first half of the year, only to bounce back with 2.4 million new subscribers in Q3 and an ad-supported subscription debuting on Nov. 3. Even Amazon Prime, arguably the most valuable subscription around, saw growth stall.
Maybe the subscription economy is finally learning what legacy media already discovered: that over-dependence on one source of revenue is fragile. A subscription is a means to an end, not a business model.
If that is the case, then what is the core issue with existing subscriptions? What can and can’t be a subscription? And what, ultimately, is the purpose of the subscription in a more diversified business?
Subscriptions have grown too niche
Subscriptions set the expectation that a service will be continuously useful and used frequently. That is an incredibly high bar.
A spring 2022 survey by C+R Research found the average American spends $133 more on monthly subscriptions than they estimate—$219 versus $86. Tellingly, 42% said they had forgotten about a subscription they were paying for but not using; a third planned to cut back on subscription spending. In fact, a PYMNTS study estimated 46 million Americans canceled a subscription between March 2021 and March 2022, most citing cost as the reason.
In other words, subscriptions are underdelivering. Most are too narrow. You get one box of toilet paper. One box of coffee. One newsletter. One or a few podcasts without ads. One slightly better way to make to-do lists. One way to meditate. One box of beans—seriously, you can subscribe to receive “a curated selection of magic beans from special places” quarterly.
People can cut these subscriptions or find free alternatives without much loss of convenience. It’s not like buying beans and toilet paper is an arduous or daily occurrence (I hope). Too many subscriptions do too little to justify themselves.
Not everything can or should be a subscription
In July, news broke that BMW had introduced subscriptions for heated car seats ranging from $18 per month to $415 for “unlimited” access. The vehicle can heat your rear, yet BMW decided to shut off that feature unless owners shell out.
Removing a feature of value and charging for its return is plainly absurd. It doesn’t cost BMW anything extra if drivers use seat heaters (or auto high beams, advanced cruise control, and other would-be subscriptions). Those are available free on lower-cost cars, anyway. It’s a misuse of the subscription model.
The consumer thinks so too. Three-quarters of consumers in survey by Cox Automotive say they won’t pay for most of these automotive subscriptions; 92% felt that heated and cooling seats should be included in the purchase price.
Just because something can be a subscription, that doesn’t mean it should be. For most companies, charging a subscription fee should not be the end goal. The subscription needs a bigger purpose.
Triangular Business
A subscription gathers an audience eager to buy multiple products and services. It attracts advertisers who want access to that audience. And it builds community around interests, events and media. The subscription fuels a Triangular Business composed of commerce, advertising, and experience. Whereas most businesses overspend on customer acquisition for sake of selling a subscription, the Triangular Business overdelivers value in its subscription for the sake of acquiring customers.
When people pay $14.99 per month for Amazon Prime with free shipping, Whole Foods discounts and streaming content (experiences), they still pay for goods and enabled Amazon to make $31.2 billion in 2021 selling ads at a 75% operating margin. Amazon can brush off a slowdown in subscription growth because the business is triangular. For comparison, BMW wants to charge $18 per month—more than a Prime membership—just for seat warming.
Disney is getting more triangular with the concept for a membership that would combine Disney+ streaming with access to discounted and exclusive theme park experiences and merchandise. Spotify isn’t resting on subscription revenue alone. It recently began selling concert tickets and a la carte audiobooks. Not to be left out, Walmart realized their Walmart+ subscription was missing an experience component and added Paramount+ streaming service to become more Triangular.
Rethinking Subscriptions
If you run a niche subscription-based business with high customer acquisition costs, brace for tougher times ahead. Continued high inflation and market uncertainly this year will cause consumers to scrutinize their spending and question the value of single-service subscriptions.
To avoid a subscription apocalypse, now would be the time to consider acquiring commerce, advertising or experience businesses to affect a Triangular Businesses transformation. Alternatively, consider being acquired and plugging into another organization’s Triangular strategy before a buyer is presented with more opportunity of choice.
This could look like grocers combining meal kits, online culinary training and exclusive events; fashion retailers grouping clothing rental subscriptions, beauty boxes and fashion media; dog walking platforms, dog subscription boxes and pet insurance uniting.
Subscriptions are not a way to sell more toilet paper and beans. They are means to build a Triangular Business.
