June 23, 2018
Recently, I’ve been involved in a startup. It’s a small company, still in software development mode. In looking at the finances, the company has two expenses—people, and software services. Each month there’s a bill for AWS, Slack, CircleCI, GitHub, Pivotal Tracker, Quay… at last count, eleven bills in all. Plus the annual subscriptions desktop software, things like Sketch, Word, Photoshop and other desktop apps that only a few years ago you’d buy outright but now cannot. I officially have subscription fatigue.
And that’s just fatigue for work. Then there are personal subscriptions: Amazon Prime, iCloud, Dropbox, Netflix, Spotify, home internet, mobile phone, my my wife’s ClassPass, those razors that come every three months… I lose count there are so many… double subscription fatigue.
While subscriptions have been around since the advent of the printing press and the newspapers that paid for them, increasingly subscriptions appear to the the savior for every technology-related revenue challenge. Collapsing banner ad revenue for news sites? Paywalls. Software license sales hell? SaaS. Expensive cable bundles? Netflix. Tired of grocery shopping? Prime Now. Declining movie attendance? MoviePass (sort of). The antidote to data collection? Facebook as a paid service (we wish!). The list goes on.
The value to companies offering a subscription is clear: amortizing a fixed-cost investment over large numbers of subscriptions; the low initial price point lowers customer acquisition costs; and subscriptions foster competitive lock-in and recurring revenue. As a result, for many companies and sectors, turning a product into a service through subscriptions is nothing short of transformative.
On the surface, subscriptions are similarly compelling for buyers. Think of ownership as paying a one-time fee for the fully-transferrable right to exclusively use a specific item in perpetuity. For many items, ongoing usage isn’t enough to warrant the upfront investment, and even more items lack easy resell ability to recoup some of the initial cost. In those scenarios, subscriptions become the more compelling choice.
Enter subscription fatigue. For buyers, each subscription can no longer be evaluated on its own merits; it must be evaluated in the context of the other subscriptions already active. Each additional subscription has lower marginal value for simple reason that it is another thing to manage. At some point we literally forget what services we have, how to access them and which service has which fragment of information we need. Even if they all theoretically talk to each other. Not to mention every service spamming you as if they’re your new best friend.
Until there’s a SaaS to manage all my SaaSs (which probably is already a thing), we’re left with a race for attention. Which class of services are so important that people will subscribe no matter what (mobile connectivity), and which services are lower down on the list, where the headache of a subscription may not be worth the benefit (razors that never stop arriving, no matter how many you have)?
The battle for an individual company is therefore two-fold. First, can they move their category as a whole up in mindshare, so the category is deemed so important that a subscription to something in the sector must be procured? And, for a given a given category, there’s probably room for one, maybe two, subscriptions a consumer will tolerate without them feeling tedious or redundant.
For example: the New York Times and Washington Post have been somewhat successful in building a subscriber base for news. They have a double challenge: first, consumers have to be convinced that it is worth paying for a subscription to an online news service, when they’ve been trained that it is free. Then, they must convince consumers that they’re the service to spend money on… after all, how many people will really pay for more than one or two sources of news? And once they are a subscriber, how many would consider switching? It means news organizations have a race to build the market (news subscriptions), and then a second race to have a coveted slot in the marketplace before they’re all snapped up.
This rationale can explain the the high-stakes mergers in the media space over the last few months. If consumers only have appetite for one, maybe two entertainment subscription services, and Netflix has already captured one of those spots, what’s a (video) media company to do? A media company’s core job is financing and distributing content; without the distribution they’re just another company selling content to Netflix. So we have Disney’s acquisition of Fox in a bid to produce a library strong enough to be #2; AT&T potentially trying to evolve HBO into a Netflix alternative; and all the other remaining independents scrambling to be relevant.
Limited attention also makes bundling a very compelling strategy for those who already have a large subscription market share for a given category. By creating value-added services and add-ons, the subscription’s hold on attention is increased, and the average subscription price goes up. For this reason we see Comcast working to strengthen the legacy cable subscription with more digital offerings, and Amazon Prime adding new free services and incremental paid offerings to content libraries like Showtime. The same rationale applies to niche subscriptions: yes I may pay for razors by the month, but certainly not to toothpaste, electric toothbrush heads and ten other separate subscriptions. At some point there will be only one dominant household subscription for a household, which would replenish all household items.
Extrapolate to all categories and we’re likely to see a rebirth of old, much-aligned cable bundle: a few massive subscription franchises co-opting formerly niche offerings, and not much of anything else. In enterprise software we see this with not only with AWS, Salesforce and Shopify’s success in building marketplaces; in consumer services we see Apple and Google getting more serious about building alternatives to Prime. In the end, it may seem limiting for companies or consumers to once again get locked a small number of massive (subscription) ecosystems, but it beats countless $2.99 charges hitting your credit card every month.