The subscription economy gets an online marketplace
The subscription model, once reserved solely for magazines sales and premium TV channels, has exploded in popularity. From Netflix to Amazon Subscribe and Save to Dollar Shave Club, subscriptions have become a familiar fixture of e-commerce. A startup called Cratejoy is combining this popular way of paying with an online marketplace.
CEO Amir Elaguizy states on the Cratejoy site that his mission is to "bring the best business model in the universe to everyone on the planet."
Cratejoy makes big promises for subscription services interested in being listed as merchants. The site reads, "We’re going to directly help you get more customers. There’s no special feature or trick here. We’re just marketing on your behalf. We’re using every tool in our arsenal to drive as much traffic as possible to Cratejoy.com. Then we send that traffic to Cratejoy merchants."
Cratejoy is not the only player trying to establish itself as a built-in part of the emerging subscription economy’s infrastructure.
Zuora, a startup founded by former employees of WebEx and Salesforce, sells a billing and commerce platform specifically geared towards businesses using a subscription model. The company recently received a $115 million injection of investment capital.
Source: cratejoy.com
Zuora CEO and co-founder Tien Tzuo is also an advocate of the subscription model as the next big thing. In an interview with TechCrunch, he mentioned a discussion with Salesforce CEO Marc Benioff in 2007 about the emerging subscription economy.
"Benioff [recognized] every company was going through a similar transformation. Stop selling products and start serving subscribers," Tzuo told TechCrunch.
But while there are certainly more subscription services than there were a decade ago, it’s not clear that every business is suited for the model, or that customers always prefer it. An article in Inc. from 2014 makes the bold claim that the subscription model will become the de facto one for any business hoping to grow, but it hardly seems that cut and dry.
For instance, in 2013 Adobe experienced some backlash to its subscription-only plan for Photoshop.
"Paying Adobe rent for the rest of my life is absurd," said Nick Scott, whose comment on a Change.org petition was quoted in ComputerWorld. "I’ll definitely be looking elsewhere next time I need to upgrade."
Discussion Questions
What are your thoughts on the potential of the subscription economy? Does the marketplace model mesh with the growing number of subscription services?
Poll
BrainTrust
Max Goldberg
President, Max Goldberg & Associates
Ian Percy
President, The Ian Percy Corporation
Some products and retailers lend themselves to subscription models and others don’t. Subscriptions are not a panacea for retail. Subscriptions work for products that buyers consume on a regular basis, razor blades, pet food, diapers, etc. They won’t replace occasional purchases. Retailers should consider consumer purchase patterns before diving into a subscription model.
Nick Scott seems to have the most sane perspective in this discussion. At what point do these strategies, like the subscription strategy, exhaust themselves? The subscription thing is already a tired strategy and yet it’s being touted as the “emerging” future. There is so much of it out there that I tend to ignore all of it. Sounds like desperate noise to me.
The shortsighted thinking is that it’s only $10, $20 or more a month and who can’t afford that? But as someone once said, “It’s not the lions that drive you out of the jungle, it’s the mosquitoes.” These subscriptions nickel and dime you to death and at some point you’ve just had enough.
Now if what you’re subscribing to is dynamic (rather than static), like an online newspaper subscription where you’re getting fresh and useful information every day, it could be worth it to you. But to “Stop selling products and start serving subscribers?” Forgive me, but if you’re not selling a product a customer is looking for, exactly what “service” do they need from you? Most of the world seems to be going “self-service” but we’ll let that go for now.
At this time the subscription model for non-traditional items (like magazines and newspapers) works. Typically it reduces financial stress by spreading payment over the year. And for the business, the renewal is high. That said, as subscription models become more and more common, consumers will start noticing all of these smaller charges on their statements and start looking for where they can save “a little here and a little there.”
Want to see how a powerful subscription model works? Check out the Dollar Shave Club. Just brilliant!
Subscription is a viable way for many manufacturers to address the ongoing power shift to the retailer (and ultimately to the consumer), but it must be selectively applied, as noted. The concept is more viable in not only certain categories but also geographies — like urban. Hard to carry a 12-pack of paper towels along with other groceries on the bus in the city. Nice to save a trip to the home center for furnace filters if you don’t have a car. Population concentration also makes the last mile of delivery more economical.
Another good application of the subscription model is in the gift or curated product area. Beer of the month clubs have been around for decades, and have now been extended to most consumables. This can be a particularly nice avenue for smaller niche items to gain awareness and trial.
Subscription is here to stay and, like most concepts, will be subject to over-extension as entrepreneurs and corporate teams push the limits of what the consumer will bear. That’s a good thing.
Subscription-based services may work for certain “don’t let me run out” products like shavers and diapers, where consumption is somewhat predictable. A smart innovator could probably work out which products those are and try to build a service around those.
Subscriptions offer certain conveniences, but they also impose a different type of burden on the consumer, since they add an additional online account to manage, with ID, password, payment account, purchase parameters and delivery acceptance to consider.
Take a two-week vacation and you have to remember to inform your online retailers to suspend deliveries? Not my preference, but there’s probably a slice of the market that’s OK with that.
This is a topic that holds the greatest opportunity for demonstration just how stuck in the mud retailers are. Much of the problem that exists in e-subscription sales is the fault of the old style technologies used. The latest means of designing, streaming and displaying media are forsaken for reasons that shouldn’t exist. The new stuff arrives in a format that is incompatible with current versions/application software and requires complete retraining of the existing artists and support team membership. The user is then stuck with slow and clumsy software that was old fifteen years ago.
In the information age, was and is good enough isn’t good enough for the consumer. This is validated by skidding interest and sales. Another retail support industry with similar dilemma is coupons. Both are desperate to hold on to what simply isn’t working.
Online curated subscription services are definitely appealing, and because these companies can go to market so quickly, it’s a matter of the curation that drives consumer adoption. The UPS Pulse of the Online Shopper 2014 study, showed us that while only 7-10% of consumers have adopted subscription for categories like BMVD, Apparel and Health/Beauty, almost half of consumers will consider enrolling in these categories as well as food and drink. We expect these numbers to increase. The bundling of certain brands, the ability to conduct trial with new, unique emerging products, and the surprise and delight aspects of online shopping experience will likely help the playing field to advance on share of wallet and help some of these providers like cratelove to continue to penetrate the market.
Contrary to the Inc. article which lauds the virtues and omits the vices, subscription businesses are not for the faint of heart. Operational challenges include the following:
For these reasons and others, it’s much easier to start a subscription business than reinvent a traditional business into one. Fortunately, there’s more capital available for start-ups than at any time before. But marketplaces should think carefully before taking on customer operational issues like the above for their clients.