Disrupting the Traditional: An Introduction To the Subscription Economy

  • 2 min read

Netflix, Canva, Masterclass, Medium, HBO Max, Spotify, Quartz, LinkedIn, etc. my list is exhaustively long. A quick look at my monthly bill gives away my weakness of pressing the "subscribed" button.

What is going on? What is the reason behind the rise of subscription services?

I picked up "Subscribed", a bestseller by Tien Tzuo to decode the subscription model economy. I was a bit skeptic, to begin with Tien Tzuo is the CEO and co-founder of Zuora, an evangelist of the subscription economy. As Mark Twain said, to a man with a hammer, everything looks like a nail. A thought leader of the subscription economy is bound to exaggerate the rise of the subscription economy.

I am glad I persisted.

The book has two parts. The first part addresses the why, while the second part is all about how.

Part 1: Why is the new subscription economy important

The first part of the book packs up examples of consumer and business brands embracing subscription services — the subscription models across automotive, construction equipment, planes, trains, retail, etc.

Three important concepts that the book covers are:

  • Swallowing the fish: As a company shifts from counting stock-keeping units (SKUs) to subscribers, small recurring payments replace hefty up-front charges. The transition to subscription models involves the difficult task of swallowing the fish: absorbing an initial dip in top-line revenues below the operational expenses before the incomes rise again.
  • The end of ownership: For the new generation of consumers, access is far more valuable than possession. Why buy a CD when you can Spotify. Focussing on services instead of products is a survival strategy.
  • IoT and accelerating subscription: The infrastructure to gather, store and analyze user data has vastly transformed over the years. The Internet of Things (IoT) enables the traditional manufacturing organizations to offer solutions and outcomes to the customers instead of an undifferentiated product.

Part 2: How to succeed in a subscription economy

  • Staying in beta: The days of linear product lifecycle of introduction, growth and maturity are long over. Successful subscription companies listen to customer feedback, test continually and make improvements. Work in progress is a fixture at companies running a thriving subscription model.
  • PADRE model: A successful subscription model will require re-looking at the company structure. The PADRE structure suggests developing teams around five competencies: Pipeline (awareness), Acquisition, Deployment, Run (maintenance), Expansion.

The journey of counting subscribers instead of SKUs is not an easy one. Yet, the companies that have been early adopters of subscription-based models grew eight times faster than S&P 500 companies between 2012 to 2017.

If you are:

(i) An entrepreneur looking to start a new business

(ii) A leader working on strategic direction for your company

(iii) Or like me, just curious about why your credit card bills are swelling with the recurring subscriptions; Subscribed is an excellent introduction to the complex world of the new subscription economy.

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