THE EVOLUTION OF SUBSCRIPTIONS

Chris Labrey, managing director, Econocom UK & Ireland

 

The subscription model has become increasingly popular over recent years with McKinsey finding that the subscription e-commerce market has grown by more than 100% a year over the past five years. Nowadays, active subscribers hold a median of two subscriptions, while 35% have three or more as these services become available for everything from groceries and entertainment packages to cars and technology. However, what we’re currently seeing is a resurgence of the subscription model, whose origins can be traced back more than a century.

The first subscription services made available to consumers were for deliveries from milkmen which people in the US could subscribe to as long ago as the 1780s and became mainstream in the UK from the 1860s. These subscriptions were largely about convenience, allowing individuals to regularly receive goods delivered straight to their doorstep. Delivery services from milkmen remained popular for more than 100 years with consumers also being able to receive other items such as bread and eggs. However, over time, the popularity of these services began to wane and in the UK the amount of milk consumed that was delivered to people’s doorstep dropped from 90% in the 1980s to just 3% in 2016 as convenience stores and supermarkets made buying milk both easier and cheaper. While these services haven’t stood the test of time, they acted as the inspiration for the booming subscription as-a-service model of today.

 

Chris Labrey

The modern subscription service

Thanks to an evolution of this model, consumers can now access subscriptions which regularly deliver products and services to their door, including snacks, books, clothes and makeup. Subscriptions to streaming video services prove to be among the most popular, with a third of internet users subscribing to platforms such as Netflix and Amazon Prime Video. As the range of subscriptions on offer has increased so too has their appeal, which is no longer limited purely to individuals. In fact, as these models allow consumers to access items including fruit and milk deliveries, office furniture, printers and laptops, signing up to subscription services can be hugely beneficial for businesses.

 

Subscription services for businesses

In the past, most large organisations would purchase any required technology ‘outright’ and then depreciate it over time on their balance sheet. Today, many businesses don’t have the cash flow to fund large scale technology transformation projects up front or they may not want to have such visibility on the balance sheet. However, as subscriptions have evolved, they have offered a solution to this problem, allowing organisations to obtain the resources they require without significant investment.

Technology can provide a competitive edge to all manner of industries and businesses when deployed effectively. However, for large operations, getting sign off in terms of the budget can be a long and laborious process. With subscription solutions, there is a reduced waiting time and even existing legacy technology can be added to the solution. In addition, in times of uncertainty organisations can feel insecure about funding their technology transformation projects without damaging cash flows. This is something we have seen with Brexit as analysis of data from the Office of National Statistics shows that businesses have invested £22bn less in the last two and a half years because of the uncertainty it has caused. While this might be financially prudent, businesses still need to operate as usual and maintain their competitive edge in a global market. Technology is a critical component of this — not only is it crucial in supporting staff, operations and customer interactions, it can also improve business agility and responsiveness to changing market conditions.

Therefore, using a subscription model can ease the burden of any upfront technology investment, whether it is needed for business-critical reasons or not. It can balance the investment by relieving the onus on capex while delivering on the business’s objectives. This then frees up the company from the necessity of diverting funds from other services over technology to remain operational and agile. Additionally, many organisations will be used to this type of model as they use them to provide the funding for large purchases such as cars and furniture.

 

Will the popularity of subscription services last?

While the latest iteration of the subscription service is a far cry from the initial concept introduced back in the 1800s, the basic principle remains the same – convenience. Whether for individuals or businesses, subscription models enable them to obtain the goods or services they require in an ongoing and easy fashion. It’s for this reason that the as-a-service model is likely to continue to go from strength to strength over the coming years. In an unpredictable economic climate, subscription models help businesses continue to access much-needed resources, offering them increased agility and enabling them to stay competitive. Further to this, subscription models provide an excellent way to respond to challenges, changes in market conditions and the needs of both employees and customers in a risk-free manner. As more companies begin to offer subscription models, the range of items and services businesses will eventually be able to access through this method will be endless.

 

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