Hope for the best, plan for the worst
In today’s digital world owning books, CDs and DVDs has become meaningless. It is more important nowadays to have instant access to the goods we want at the most convenient time and place. We don’t need to own some physical items if there is a replacement service which makes life easier. Why drag a heavy bike into London on a crowded train when you can pick a rental one up when you arrive?
The so called ‘sharing economy’ should mean we have less possessions and therefore less of each item is needed - all the better for the environment. All the better for the companies providing the goods and services too as a multitude of opportunities to sell on a subscription basis have emerged - the holy grail of commerce models.
The FT says “consumers value access over ownership and experiences over assets”. This trend has accelerated rapidly, moving quickly from digital products to physical products. According to IOTA ‘anything with a chip in it can be leased in real time’. As we move to subscription based transactions the way we engage with companies changes too. Zuora calls this the ‘subscription economy’.
First came the digital revolution
When I was at university everybody was judged on their stack of CDs, the bigger collections taking up huge amounts of space. Music, followed soon after by books and films moved to digital formats, stored on progressively smaller and smaller digital containers. Then storage devices or players disappeared completely as digital media joined our contacts, photos and games in our phones or were streamed from cloud services such as Spotify. Now we don’t care where the files are held, we only care if the song, video or document is available and how quickly we can get at it.
Physical goods and services join the party
It was inevitable that products which can take a completely digital form would quickly succumb to a subscription model, regardless of the efforts of the traditional players in the market. However, many thought physical products could not be disrupted in the same way. But any item which can be shared can be subscribed to. From tool libraries to clothing rental to car space sharing to accommodation, lots of items or places can now be used without having to actual own them.
Many services are also ideal for a subscription - laundry, dog walking, car valet and handyman services have all sprung up offering a relationship-driven approach with multiple engagements sold up front. Even well established markets such as food delivery have been disrupted by new entrants adopting different approaches and platforms taking interactions with customers beyond individual transactions.
Transport is evolving fast
Bike sharing such as Santandar Cycle, ride sharing eg. blablacar and car rental firms like Zipcar are now well established. In the not too distant future autonomous vehicles will further reduce our need to own our own vehicle. If a proven, safe self-driving vehicle service can guarantee an appropriate vehicle at short notice many people will opt to stop driving altogether.
Not a new idea
Acquiring space, be it hotel, home or office has always had a rental model. Getting food delivered and a handyman in to help has always been possible and we have never had to own a train or a bus to use them. This is not a new concept. But what we are seeing today is a different way of offering those services. The disruptors are using new digital capability to their advantage, focusing on superior customer experience and all in the context of a long term relationship. And for many, many more products and services. Subscribing is now normal, people are used to having a variety of different regular payments.
New rules of engagement
Because the relationship between consumers and companies also changes in a subscription-based world, the operations of service providers must also adapt. One-off purchases are replaced by long term relationships. Customer experience and after sales service are increasingly important to ensure customer satisfaction is high and subscriptions are renewed. Focusing on retention is crucial for a subscription-based company.
Yet despite owning the experience and the relationships, often the new service providers do not own the products either. Airbnb do not own any property and Uber do not own any vehicles. So experiences can become convoluted with several parties involved. Given they do not own the key assets (which allows them to grow much more quickly) the key differentiators are their brands, the customer experience and their platform - the underlying technology has matured leading to cost advantages over more traditional models.