Written: January 28, 2017
Go back ten years, and almost everything we consumed was purchased or rented – DVDs from Blockbuster or Netflix, software from Microsoft or Adobe, music from iTunes or the local CD store. But in the last few years, we’ve seen all these content industries – software, TV, movies, music, and more – shift from purchase and rental to subscription models. Though Marc Andreessen likes to say software is eating the world, subscriptions are the business model that’s eating the world.
This trend goes beyond content too – Amazon’s Prime service is one of the most popular subscription services and although it has a content component it began life as a subscription shipping service for Amazon.com purchases. Wireless carriers in the US and elsewhere have moved from subsidy models for smartphones to installment plans, and Apple and other device makers are now offering what are effectively subscription plans for smartphones too.
As this happens, companies are either adapting or being left behind – Netflix launched its subscription service ten years ago this month, and has seen its business radically shift from DVD rental by mail to streaming, and is perhaps the best example of embracing the subscription transformation. Apple, on the other hand, resisted the subscription model for many years when it came to content, focusing on iTunes purchases and rentals for music and video, even as competing services like Netflix and Spotify began to eat into its revenue streams. Though it has now embraced the subscription model for music, it still doesn’t have an entry in the subscription video market. It has, however, embraced subscriptions elsewhere, as with its paid iCloud storage tiers.
Subscription models have significant upside for providers – they create predictable revenue streams with regular monthly or annual revenue. But they also create downside for users, as monthly commitments quickly balloon, with none of the flexibility of one-off purchases or rentals. In addition, lower-income families and individuals are often less able or willing to make those monthly commitments and therefore often lose out on the savings they offer versus single purchases. But it’s fairly clear at this point that we’ll increasingly buy everything from hardware to content to software through subscription models, and that the companies that offer the best bundles will lock up predictable revenue streams from an increasingly loyal base of users.