A subscription based business model can be highly lucrative for a business, but a growing burden for the consumer. As monthly subscription rates drop to prices “less than you spend on your morning coffee”, consumers jump on the idea of a product or service helping them. Businesses are betting on the low cost/benefit analysis of their subscription to build an enormous customer base. Both are adding a grain of sand to their monthly cash flow. The question is when is enough, enough?
Interesting question. As a business owner, we have a beach in mind. We want piles of clean sand, scattered smoothly across a scenic environment. A manageable beach, not overrun by vegetation or litter. A safe environment that provides a great amount of benefit to everyone.
Then the size of the beach starts to grow. It attracts more sand, more users, and more support services. The dollars continue to climb as if they are blown into the area by the wind. This is the most enviable position for a business owner in the subscription based model. Build a beach everyone wants to enjoy.
The consumer has a different dilemma. The attractiveness of a beach draws them in. Some users take full advantage of the beach and frequently use all of the features it has. Others put down their blanket by buying a subscription, but never engage in any of the activities. Meaning that when the price of the subscription is low, some consumers will take a chance on a product or service. Over time, they may have dozens of subscriptions active, using some every day, and others never at all. Every subscription based company has this wide range of users.
In part, that is the hope of the subscription based company. It encourages viral ability and gets you noticed in a web of applications. Consumers also love the model. They can try new things with very little risk. They collect subscriptions, enter the credit card, and pay little mind to the cost. They also know that they can cancel at any time. They continue to collect and accumulate on the credit card each month with very little noticeable impact on the person. It’s like they have sand on the bottom of their shoe. As more and more applications are bought, the impact of the purchases are felt and seen on the credit card statement. The consumer then does what we all do when we go to the beach and get sand in our shoe. We dump it out. They begin canceling subscriptions and start with a clean slate.
The subscription model has so far proven effective for both the company and the consumer. Inevitably, more companies are trying it. In fact, I just saw where Amazon was beginning to offer premium channels in an ala carte basis, to their Amazon Prime members. This means I don’t have to buy a bundled cable package to watch a show on Showtime and pay $100 dollars or more. I can buy the channels I want for only $8.99 per month. This is very attractive, until I subscribe to 100 channels! I won’t, but it highlights the current mood of the market.
The bottom line is: a subscription based business can be the path to success for the business owner, but the abundant nature of low cost monthly subscriptions can be an annoyance to the consumer. Too much sand in your clothes can be frustrating. Therefore, if you are going to enter the subscription business model, make sure that your product is sticky. The sticky, or valuable, applications usually withstand the cancellation cycle when the consumer cleans the slate.