The real subscription trap
For the last couple of decades, business schools and investors have sung the praises of the subscription economy, a strategy hailed as the holy grail for recurring revenue. Platforms offering video streaming, cloud storage, software, music and now AI have redefined business success by charging a monthly fee. We know that we’ve hit “peak subscription” when car companies are getting into the act starting with digital subscription services, but they went too far and had to backtrack after one company tried to charge monthly fees for heated seats!
For providers, it’s ideal, providing predictable income without the constant hustle of selling. For customers, though, the question is whether subscriptions are the win-win they’ve been claimed to be? And it’s not just consumers, business and government has moved en masse to Software as a Service (SaaS) subscriptions but are finding that they often buy far more than they actually use.
Simplifying the process to exit unwanted subscriptions is a priority for US, UK, European and Australian governments amongst others. As important as these initiatives are, they miss the underlying issue, the subscription business model should just be one of a number of competing approaches to the consumption of microservices such as content and infrastructure. The internet was always going to offer a chance to shift to these sorts of arrangements as it allowed intellectual and physical assets that previously had to be owned outright to be shared.
The shift to subscriptions gained momentum in the early 2000s as broadband internet became ubiquitous. Before that, paying for the internet by the hour was the norm. Flat fees opened the door to an era of endless digital possibilities. As smartphones became indispensable, subscriptions surged further, offering services at the touch of a button. The model seemed perfect. But was it inevitable? In the early days of the web, another idea briefly flickered: micropayments.
Back in the 1990s, the internet felt like uncharted territory. For a while, the only practical way to navigate it was through “Telnet,” which allowed users to log into remote computer systems. Then came “Gopher”, a graphical interface reminiscent of Windows File Explorer, which gave way to the World Wide Web. The Web was an innovation so transformative that it reshaped how we communicate, work, and play. Despite the opportunity that the Web opened-up, it took a tool called “Hot Dog”, the first popular HTML editor, created by Steve Outtrim, to democratise web design, making it possible for non-programmers to build a site. But Outtrim had a bigger vision, to add commerce to the internet via micropayments, where users could pay small amounts for individual pieces of content and services. It was a bold idea where we would just pay for the services that we consumed. Ultimately, though, micropayments failed to take off as people were wary of unpredictable spending even if the individual amounts were small.
Now, decades later, we’re grappling with subscription fatigue. Most of us juggle multiple services, from streaming platforms and fitness apps to software tools and cloud storage, too many of which go under or unused. It’s too easy to click subscribe and too hard to remember the password to unsubscribe (or even notice the small monthly credit card charge). Worse, for business, most don’t even know what products and services their people have actually committed them to, and even where procurement is centralised, they often have more subscription licences than they can possibly use.
But even those services we use all the time may not really provide the value we think. Take the ubiquitous video streamers. If you only watch a few episodes or movies each month from each service, you might be better off paying à la carte, renting shows as needed for a fraction of the subscription price. The same logic applies to AI tools. A flat monthly fee seems reasonable, but many users could achieve similar results by accessing pay-as-you-go models or tinkering with open-source solutions at a fraction of the cost. And, for business, the flexibility of licence and service subscriptions may often be better challenged by tailored combinations of open source and purchased software.
This raises a crucial question: should we revisit the idea of paying only for what we use? Disaggregation offers a promising alternative. News disaggregating providers like the Dutch service Blendle and credit-based Zette have explored and pioneered various forms of this model to access paywalled news articles on a pay-per-view basis. Similarly, some software platforms like business communications solution Twilio, are trying to attract business users keen to only pay for what they use. However, all are hitting some of the same challenges that derailed Outtrim’s original vision and they are tending towards blending subscriptions with charging for usage through various credit models. It is, perhaps through this sort of hybrid model that the next generation of platforms will emerge.
For any new model to work, consumer behaviour needs to change away from the comfort of “all you can eat” style subscriptions. The DIY approach demands more effort, tracking usage and managing costs, but offers more control over spending. Perhaps the opportunity is for platforms that monitor this for the user ensuring that the aggregate charges are within bounds and certainly less than comparable subscriptions.
However, every disruption comes with unexpected trade-offs. Gym owners are arguably the originators of modern subscription models, selling capacity often a year in advance through memberships. Disruptors such as ClassPass have offered to sell excess gym class capacity, but have undoubtably encouraged users to move away from more profitable membership, hurting small business gym owners in the process.
Subscriptions have become the backbone of modern business, but their dominance shouldn’t mean we blindly accept them as the best option, that is the real subscription trap. Maybe innovative disaggregation is the new business opportunity for future disruptors in a competitive economy!