As someone who has glacially moved on from ‘free aka pirated’ MS Office, provided liberally by the PC assemblers 15 years back in India, to subscribing to Office 365 for myself and my family, the benefits of subscription are obvious.
- Always on
- Always latest
- The provider is incentivised to keep developing (adding features)
As you may note, most of these points are relevant for the software world. Since they have been the pioneers of this in making it mainstream. In this article, we will see if the same model can be applied to certain other industries, with benefits to both – the provider and the consumer.
We have slowly seen the App economy on mobile phones move from one time payment to ‘subscription’. Users resisted it at first, however with time the benefits are obvious; unless ofcourse the developer moves from ‘lifetime buy’ to ‘subscription’ purely out of greed, without planning to improve the product and provide real value to customers.
Music (Spotify, Pandora, Apple Music etc.), Videos (Netflix, Prime) have all ushered an economy where ‘Entertainment’ is ‘subscribed to’ instead of ‘paid per piece’. Many years before these services became mainstream, I used to live in Amsterdam and they have a chain of movie halls by Pathe’. I used to love their monthly subscription for watching movies. Euro 18 per month and you could watch as many movies as you wanted. Bought individually, each movie cost Euro 9. So the benefits are obvious for an avid movie buff such as myself. That was 10 years ago and now ofcourse we have Move Pass.
So we have seen subscription economy gain foothold in software and entertainment. Lets explore a few other industries.
We go to restaurants, pay a la carte’ or for a buffet. But lets say we have a few favorite restaurants which we frequent often. Or even better, we have an aggregator that brings together a set of restaurants together on a shared model like a ‘consortium’. Together, they come up with a subscription model, something like follows:
- $ X for 0–5 times restaurant visits in a month
- $ Y for 5–10 times
- $ Z for greater than 10 times
- $ A for an annual subscription of upto 30 visits
- And other such options, maybe a family plan even
Now, we have an app where we can reserve a table at one of these restaurants in the consortium and the aggregator distributes the income accordingly.
I can imagine it is not very difficult to arrive at the economics of this once we have the data in place and with a few years of experience, the model can be refined. At a micro level, there can be options of say ‘house wine’ vs ‘premium wine’, at different price points and so on.
This is a high priced industry worldwide. It needs disruption. AirBNB is one but not enough. A similar model as F&B can be adopted here. Either a specific brand can come up with subscription options or a group of hotels (smaller brands) can aggregate. In fact, this industry has witnessed loosely based subscription models for some time now. There are ‘loyalty’ points, ‘memberships’ than can be bought and redeemed against stay, food, facilities or a discount. However, one, these are ‘coupon’ mode options, two, economy of scale is completely absent, and three, they are high priced.
Imagine a hotel chain with 60% year round occupancy. Even if there are 10–20% repeat guests, I believe providing them with a subscription option will not just allow them to fill the remaining 40% occupancy, but even the repeat guests will increase. They wont really need loyalty programs anymore since the ones who subscribe are already ‘loyal’. They have already bought 10 or 20 night stays, paid the money and provided the hotel gives them the expected level of service, they will come back the next year and year after that. This will also allow the hotel or the chain to fight of the price competition to some extent, since the rooms are already sold off, on subscription.
I can imagine this will work better in an ‘aggregator’ model since that will give the consumers a much wider range of locations since every hotel chain cannot possibly be present across all the locations.
Airlines, Cars, Trains – Transport in General
A while back in India, Jet Airways had started the ‘coupon’ system. One could buy a coupon booklet with a certain fixed number of coupons for a price. Each coupon represented a ticket and irrespective of the price on a specific day, one could avail the coupon for a seat at no extra cost. This was good although it was mostly bought by corporates. Now one would argue that a traveler could purchase ‘miles’ which are fixed price and then redeem them against tickets, which again have fixed miles per sector. However all of us are aware that airlines restrict the number of seats available for redemption via miles since for some reason these are considered ‘free’ (whatever happened to loyalty). Anyway, with a subscription, this ‘limited seats’ practise needs to stop, else travelers wont buy. They will see right through it as a ploy to make more money while also make additional money by not providing reservations when most needed (price is high). Subscription will need to be treated at par with open market tickets and in fact subscribers should be given the highest priority in booking since they are the mosty loyal travelers. In practise the passenger should be able to reserve a seat and only at the time of payment should he reveal that he or she is going to use the subscription. I know the identity of the passenger will be revealed much earlier in the process and airlines can figure it out (that the person is a subscriber) so either the airline will need to take a lead with providing some kind of transparency or third party travel portals will need to step in for the same.
Again for trains, we have had monthly passes and annual passes for quite sometime. But long distance trains have no such program. Subscription can be used there. Ofcourse it will only work if the subscription is discounted against standard prices (standard train prices are typically fixed in India for a year).
Cars for hire are a standard across many countries and so are cabs. In such cases, again we could have subscriptions rates for ‘number of kilometers/miles’ per month/year. Or even an annual subscription where a customer is allowed to change their car every X months with no mileage restrictions. This business model can be run either by the car companies themselves or by aggregators. BMW has recently initiated this model in Nashville where for a monthly fee of $3700, one could rent a top tier car for a month.
There is an alternative though for travel that may work better. Committed spend.
Amazon Pay is a good example of committed pay – If I add a certain amount to Amazon Pay, it is assured that I will spend the money there. The company gets a fair ‘visibility’ of what my minimum spend is going to be over the next few weeks.
Since ‘revenue visibility’ is the primary aspect that we are trying to tackle here, ‘committed spend’ might be a better option since it benefits the travelers while not penalizing the travel companies by not allowing them to benefit from ‘peak demand’ rates.
But what is in it for travelers? Discounts.
If a traveler spends from the committed spend wallet, they get X% discount ‘everytime’ irrespective of the price, without any cap on the benefit amount. So basically if a traveler spends 1000 and the provider promises 20% discount, the traveler can avail of services worth 1250 during the period.
Subscription in other industries:
Similar models – ‘subscription’ or ‘committed spend’ can be used across various other industries; anything where there is a service to be availed or a product is high priced; it will save the customers hefty capital spends and provide the companies with what they need most – revenue predictability or ‘lock in’.
A win-win if executed properly.