The Subscription Economy is here to stay

By April 22, 2016

An increasing number of companies from all sectors are now moving towards a business model based on creating a long-term relationship with the customer.

California-based enterprise software company Zuora has just held its annual event dedicated to the ‘subscription economy’, aptly named ‘Subscribed’. This year’s event will be remembered for a confident turn of phrase pronounced by the company’s founder and CEO Tien Tzuo during his opening speech, which was widely taken up by the speakers and attendees: ‟The Subscription Economy is here to stay.

The Subscription Economy came into being with the advent of telecommunications. Long established in the press world, this way of doing business started to take hold in other sectors over the last ten years or so and is nowadays having an impact on the whole economy. This represents a paradigm shift which means that the company-customer relationship no longer revolves around one-off purchases of goods or services. The new business model is much more about establishing a long-term relationship in which the customer transfers amounts of money regularly, receiving in return a continuous flow of services and/or support.

The Subscription Economy is not just about paying a monthly charge in exchange for a service. The challenge for the company is to forge a real relationship with the consumer and re-invent its business model so as to provide him or her with a different, more satisfying experience,” stressed Tien Tzuo during a round table discussion which served as an introduction to the Subscribed event.

Surf Air offers unlimited flying for a monthly fee

A trend affecting all sectors

Movie fans and TV series addicts can now satisfy their cravings unstintingly by paying a monthly subscription to Netflix. Similarly Spotify, Apple Music, Tidal and Soundcloud enable music lovers to listen in on an unlimited basis by paying a flat rate fee. Nowadays however the Subscription Economy is beginning to affect a wide range of fields, including education – the Curious World platform developed by Boston-based educational publisher Houghton Mifflin Harcourt provides access to fun educational material for children; and physical fitness – New York-based ClassPass opens the door for subscribers to thousands of fitness studios across the United States

Meanwhile in the health sector MyECG from the Paris-based Visiomed Group provides a connected electrocardiogram service plus experts available 24 hours a day to help. In the energy sector, General Electric now offers a range of software programmes and services allowing users to pay a rate tailored to their consumption habits. In the world of computers, the core business of IBM is no longer selling computers but providing expert data analysis. In the food sector, companies such as New York-based Blue Apron provide a regular service which involves sending their subscribers boxes of meal ingredients and the recipes for cooking them.

Not least, in the aviation sector Surf Air offers unlimited executive-standard flying for a monthly membership of $1950, priding itself on being a club where conviviality and the community spirit are a big part of the customer experience. Behind all these new services lies a common logic: “Designing, producing and selling goods and services is no longer enough,” Tien Tzuo told the Subscribed audience. “Customers expect a personalised experience. They want us to know their tastes and preferences, feel that we’re taking good care of them. And that’s how we can transform the customers into subscribers,” he underlined.

A number of catering specialists provide a regular service sending their subscribers ingredients and the recipes for cooking them

From selling products to rolling out services

Companies working in the ‘Internet of Things’ sector can use a Subscription Economy model to generate revenue from services based on data gathered by connected devices. Olivier Hua, Managing Director of Visiomed, explained to the conference how, in addition to selling smart medical devices, his firm now provides longer-term services.

Visiomed customers can subscribe to the BW Check-up service which makes a digital nurse available 24/7. A patient can take his/her temperature using a connected thermometer, and then go on to the BW Check-up platform, where artificial intelligence software automatically retrieves the data from the thermometer and will then ask the patient additional questions about his/her state of health in order to decide whether or not the condition requires treatment and, if so, whether s/he should make an appointment to see a doctor or go to the A&E at the local hospital. The artificial intelligence software might also ask the patient to gather some extra data using another connected device. MyDoc – another Visiomed service – collects all this health information in a database, which then becomes immediately available to the doctor when the patient makes an appointment, giving him/her a comprehensive picture of the patient.

We’ve moved from being a product-based firm to a product-plus-services firm,” Olivier Hua pointed out. Moreover, rolling out these services has enabled the company to get to know its customers better, and to respond to their needs that much more effectively. “As we were selling our products in to pharmacies, we had no actual contact with our end-users. Switching to the Subscription Economy has enabled us to talk with them directly,” underlined the Visiomed Managing Director.

Legal mentions © L’Atelier BNP Paribas