Business models established on subscriptions are based on the concept of selling a product or service with the intention of receiving recurring revenue each month or yearly for the product or service sold. Customer retention is more important to them than acquiring new customers. Subscription models have been prevalent and majorly successful for a very long time now. However, a question arises: What is the future of the subscription economy? (WIP)
The first ones to jump on the “online subscriptions” train were the entertainment industry, with companies like Netflix and Amazon Prime Video willing to give users quality TV shows and movies for a monthly or yearly price. According to the newly issued FICCI-EY Media & Entertainment Report 2023, the number of households in India paying for at least one subscription video-on-demand (SVoD) service would increase from 45 million to 52 million, a meagre 7 million, by 2025 if present pricing is maintained. This diminishing rate is due to the price pocket of the consumer remaining the same, unlike the prices and options of OTTs, which are increasing rapidly.
The only solution till now that seems viable to both the consumer and the producer is that of the freemium model, wherein consumers have access to some content for free while most of it is locked behind a paywall. The second iteration of the Freemium model has free users having to watch ads in between. Some services are experimenting with both of these variations too. “If you want to be a business of scale and be a big boy in India, you have to go ad-supported. Subscriptions can be 20–30 percent of your revenues,” said Nachiket Pantvaidya, former CEO of ALTBalaji.
The next ones in line to join the club were those providing apps. In 2021, global user expenditure on the top subscription applications on the App Store was 13.5 billion US dollars, compared to only 4.8 billion dollars on the Google Play Store. In fact, the revenue of the top 100 subscription apps increased by nearly 41%, reaching an impressive $18.3 billion. The subscription model in apps is forked into three major versions: Pay to UPGRADE, Pay to USE, and Pay to SAVE.
Pay to UPGRADE- Apps like Spotify and YouTube provide additional features and access to users who have subscribed to them. However, the free users are still able to use the basic and important features for which they downloaded the app.
Pay to USE- Apps like Fabulous and Feel Better are free to download, but their core functionality is locked behind a paywall subscription. The majority of these apps are free to use for a short period of time, but then they ask you for money if you wish to use them for an extended period of time.
Pay to SAVE- Amazon and Flipkart offer premium services that allow users to save money on miscellaneous items like delivery and shipping. Amazon offers Amazon Prime, which is a bundle of Prime Video, Amazon Music, and free delivery. Users find these kinds of bundles to be a great deal and, hence, buy them.
The subscription economy has expanded by 435 percent in the last decade, according to Subscription Economy Index research. It is predicted to expand even more, reaching a market size of $1.5 trillion by 2025.
It appears that the subscription economy is here to stay. But why? Why are users opting for the subscription model?
Subscription Models Are Convenient: Users only have to sign up for the payment once. The next dues are automatically debited from their bank accounts with zero effort.
Subscriptions Are Attractive: You have the option of buying a car for ₹10 lacs either in one go or paying for it monthly. You will most likely choose the monthly payment as it is affordable and under budget for your monthly salary. The same applies for any subscription.
Why is every producer opting for the subscription model?
Lower CAC (Customer Acquisition Cost): In a subscription model, the producer has to retain a consumer rather than acquire a new one. This automatically reduces the cost for the producer.
Reliable Recurring Revenue: A subscription model is more likely to convert a new consumer into a lifetime consumer than any other model. This promised a reliable revenue stream, and no producer would ever hate that.
What does the future hold for the subscription model?
78% of international adults currently have subscription services (71% in 2018). And 75% believe that in the future, people will subscribe to more services and own less physical ‘stuff’.
Subscription businesses have consistently grown 5-8x faster than traditional businesses, according to the SEI report. In 2020, they demonstrated revenue growth at a rate of 11.6%, while revenues of product-based peers declined, changing -1.6%.
These statistics are rock-solid evidence that the subscription model is not going anywhere but upwards in the future.