In the 15 years since Tien Tzuo of Zuora introduced the concept of the "subscription economy," a remarkable transformation has swept across the global commerce landscape. Businesses have transitioned from being mere product providers to solution-oriented entities. This shift embodies a move from transactional to circular relationships, signaling a change in how consumers interact with businesses. I wrote about this change here and here or you can find more information on Subscribed.com.

From Transactional to Circular Relationships

The old model of commerce was primarily transactional, focusing on pushing products to market and maximizing unit sales. However, the digital era ushered in a paradigm where consumers crave outcomes over ownership and customization over standardization. They seek continuous improvement rather than settling for planned obsolescence. The emphasis has shifted towards fostering enduring relationships, encapsulated in the subscription economy.

The Subscription Economy Principles

The subscription economy hinges on a few core principles:

1. Customer-centricity: Successful businesses now start with the customer, focusing on the jobs to be done, and striving to execute them better, cheaper, and faster. By engaging in continuous dialogue with customers, companies can innovate and tailor solutions, thereby enriching the relationship.

2. Outcome-oriented: The goal has shifted from merely selling products to ensuring desirable outcomes for clients. This outcome-oriented approach has birthed a new era where services trump products, reflecting a shift from a one-size-fits-all to a bespoke, customer-centric model.

3. Continuous Improvement: The subscription model facilitates a culture of continuous improvement, as feedback loops between businesses and customers are shorter and more interactive. This dynamic allows for iterative enhancements, aligning with the consumers' evolving needs.

Failures in The Journey So Far

The voyage into the subscription economy, while transformative, hasn’t been without its share of turbulences. While many thrived in this new landscape, others met with less favorable outcomes, particularly when venturing into markets driven by demand generation rather than genuine consumer needs. Here are two emblematic instances:

1. Subscription Box Services: The allure of subscription boxes, particularly in low-value, high-margin markets, led to a proliferation of such services. However, many of these subscription box ventures couldn’t sustain themselves in the long run, finding it hard to maintain a steady subscriber base amidst a sea of similar offerings. The market saturation, coupled with often superficial demand, led to the demise of numerous subscription box services.

1. Missteps in Pricing and Packaging: The automotive sector’s foray into subscription models highlighted some misadventures in pricing and packaging strategies. A case in point is the packaging of features like heated seats in subscription models. Consumers found it hard to justify paying a recurring fee for features traditionally included in the car's upfront price. This mismatch in value perception and pricing strategy showcases the delicate balance required in structuring subscription offerings.

Successes in The Journey So Far

The subscription economy has been a harbinger of success across various domains, embodying a consumer-centric ethos that caters to the modern-day demand for flexibility, accessibility, and continuous value delivery. Here are the key areas where the subscription model has notably flourished:

1. Streaming Services: The transition from DVD rentals to streaming services exemplifies the triumph of subscription models. Platforms like Netflix and Spotify have replaced the erstwhile model of physical DVD rentals and purchases, offering an endless, ever-updating library of content at the fingertips of consumers. This shift not only revolutionized content consumption but also set new standards in customer experience with personalized recommendations and seamless access across devices.

2. Software as a Service (SaaS): The SaaS model has redefined software accessibility and monetization. Gone are the days when software was purchased on DVDs with hefty upfront costs. Now, services like Microsoft 365 and Adobe Creative Cloud offer software as a subscription, ensuring users always have the latest features, security updates, and support at a predictable and often lower overall cost.

3. Product-as-a-Service (PaaS): The Product-as-a-Service model represents a significant stride within the subscription economy, extending the subscription ethos to physical products. Here are some use cases illustrating this evolution:

• Automobiles: Companies like Volvo, through their "Care by Volvo" service, provide vehicles on a subscription basis, wrapping up insurance, maintenance, and other services into a single monthly fee. This not only simplifies car ownership but also aligns with consumer preferences for flexibility and reduced upfront financial commitment.

Care by Volvo

• Bicycles and Scooters: Urban mobility has been transformed with the advent of bike and scooter-sharing services. For a monthly subscription fee, individuals can access a fleet of bicycles or scooters, promoting sustainable urban transportation and providing a solution to the "last mile" problem many urban areas face.

• Home Appliances: Certain home appliance manufacturers are offering their products as a service, ensuring that consumers always have functioning, up-to-date appliances without the hassle of ownership. This includes maintenance, repairs, and upgrades, providing a hassle-free solution to consumers. Like Nespresso famously did with their 1 Euro for a machine offer which each monthly subscription.

• Office Equipment: Businesses can subscribe to get the necessary office equipment, like printers and copiers, as a service (printje.com). This model includes maintenance and supplies, allowing businesses to focus on their core operations while reducing capital expenditure.

The PaaS model showcases a maturation of the subscription economy, where the principles of continuous service and customer-centricity are being applied to a broader range of products, creating a win-win scenario for both businesses and consumers. Through these various use cases, the essence of the subscription economy – delivering continuous value and fostering long-term relationships – is vividly brought to life.

What Lies Ahead?

The path ahead for the subscription economy is laden with both opportunities and challenges. The core of future advancements lies in personalization, leveraging data analytics, and AI to tailor offerings to individual preferences and needs.

1. Deeper Customer Engagement: Businesses will continue to deepen their engagement with customers, evolving with their needs and preferences. This engagement will be driven by insights garnered from data analytics, fostering a culture of continuous improvement and innovation.

2. Sustainability: As global sustainability concerns escalate, the subscription model plays a pivotal role in promoting responsible consumption. By fostering long-term relationships with consumers, businesses can encourage sustainable practices, aligning with broader circular economy principles.

3. Collaborative Consumption: The notion of collaborative consumption is gaining traction, where communities share access to products and services through subscription models, further blurring the lines between ownership and access.

The subscription economy’s evolution over the past 15 years underscores a dynamic and responsive commercial landscape. As businesses continue to refine their subscription offerings and as consumers become more discerning, the principles laid down by Tien Zhou will continue to resonate, shaping commerce's future contours.

I will be in for the next 15 years, where will you be?

About the author

Johan Trip is a founder and digital leader specializing in subscription-based offerings. With a track record of growing subscription revenue from 0 to 40M and 0 - 500k subscribers at Philips, he's an advocate for business model innovation.

Learn more about subscriptions and as-a-service business models, and connect with Johan to learn what it takes to thrive in the subscription economy.