Subscription Blog Series – Episode 1: The rise of subscription models

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The rise of subscription models explained.

Subscription explained.

Recently, there has been a fundamental change in consumer behavior; the societal trend towards individualization has resulted in the rise of the so-called subscription economy. Customers increasingly prefer the continuous and flexible use of services to purchasing and owning a product. In subscriptions, a customer pays a recurring price at regular intervals to receive or access a product or service.

One step back in history

Across industries, we are observing a rising number of very different types of subscriptions with drastically increasing usage for the most popular services such as Netflix, Spotify, or Amazon Prime. The rise of the subscription business model is often closely associated with these players, although the roots of subscription go far back in history – the timeline in Figure 1 provides you with some examples.

Subscription Blog Series

Figure 1: Subscription evolution

It becomes clear that a subscription for a product or service is nothing new. But digitalization and the advancement of computers and smartphones have fundamentally changed the way these products and services can be delivered to customers. At the same time, a more service-demanding customer has developed, allowing subscription models to gain new momentum.

Cross-industry subscription

Today, we come across a large variety of subscription models in manifold industries – from entertainment, media, gaming, food, consumer goods, cloths, furniture to software and mobility.

But which industry and player is the most successful? Players such as Netflix and Spotify come to mind – and looking at the number of subscribers, revenue, or market capitalization, it becomes pretty obvious that they constitute the benchmark in developing highly successful subscription businesses. The number of Netflix users has grown by about 700% in the past nine years, to 148 million paying subscribers globally in Q1 2019.[1] Similarly impressive is Spotify, whose user base has tripled within the last four years to around 217 million users today.[2]

Beyond these staggering numbers, the entertainment industry is merely one of many with subscription models on the rise. Figure 2 provides an overview of selected examples of brands in different industries engaging in subscription-based offers.

Subscription Blog Series

Figure 2: Cross-industry subscription offerings

But why are subscription models so successful? What makes customers engage in subscription models? What changed customer needs and expectations drive the described development? And what are the success factors and challenges in designing a subscription for a product or service?

Outlook

We will attempt to answer these questions in a series of blog articles, following this kick-off article, with a special focus on mobility. Our industry focus is based on our conviction that the automotive industry could be fundamentally disrupted by subscription models as they pick up on the shift away from vehicle ownership and potentially serve today’s mobility needs better than traditional sales models. To complement our industry experience and to dig deeper into the pain points and desires of customers regarding mobility, we have conducted a survey with x customers in y markets.

Our next article will provide an introduction to the success factors of subscription models and illustrate how the mobility industry is currently responding to evolving customer expectations.

 

[1] statista (2019) – number of Netflix paying streaming subscribers worldwide from 3rd quarter 2011 to 1st quarter 2019.

[2] statista (2019) – number of Spotify monthly active users (MAUs) worldwide from 1st quarter 2015 to 1st quarter 2019.

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