Subscription Service Model: Then and Now

By Chris Labrey, managing director, Econocom UK & Ireland

The subscription as-a-service model of today is booming, with the average person spending £60 a year on subscriptions to everything from entertainment packages and beauty products to cars and technology. However, having been around since the 1860s when deliveries from milkmen were first introduced, followed by magazine subscriptions in the late 1800s, subscriptions aren’t a modern phenomenon. While the milk and magazine subscriptions of old may have waned in popularity as convenience stores and supermarkets made buying such items both easier and cheaper, these types of subscription services acted as the precursors for the model we have today. Overtime, there has been an evolution of the subscription model, with these services offering the convenience of those first incarnations but on a much broader and larger scale.

How have subscriptions evolved?

In the more than a century since subscriptions were first introduced, the landscape has changed considerably. Now, e-commerce subscriptions tend to fall into one of three categories, each offering their own benefits. Firstly ‘subscribe for replenishment’ saves consumers both time and money, while ‘subscribe for curation’ surprises consumers with product variety. Lastly, ‘subscribe for access’ gives consumers exclusive access to items such as clothes or food. Therefore, while the model remains the same, the products and services on offer can differ greatly and be chosen to best suit the needs and lifestyle of the individual.

In fact, consumers can now get items ranging from snacks and books to clothes and makeup delivered directly to their front door as frequently as they desire. In the UK, these services are proving ever-popular with 12% of people subscribed to healthy snack subscription service Graze and 8% regularly receiving beauty subscription Glossybox. Subscriptions now also exist to cover the cost of delivery charges for clothes and groceries with almost 10% of UK consumers signing up to next unlimited and 9%for ASOS Premier. Meanwhile, as frequently as once a week, customers of HelloFresh and Gousto receive a box of fresh ingredients and recipes tailored to their requirements. This surge in demand for subscription services is set to continue with the subscription box market expected to be worth over £1bn in 2022 – a 77% increase from 2017’s £583m. However, without a doubt, the most popular subscriptions are to streaming services as almost half of UK homes are revealed to subscribe to the likes of Netflix, Amazon Prime Video or Apple TV+.

As the range of subscription services on offer has increased, so too has their appeal and it’s no longer just consumers who are benefitting from these models. Businesses are now also signing up to subscription models for everything from fruit and milk deliveries to office furniture, printers and laptops.

What is the value of subscription models for businesses?

Subscription models offer businesses a number of significant benefits. In the past, most large organisations would purchase any required technology ‘outright’ and then depreciate it over time on their balance sheet. Today, many businesses don’t have the cash flow to fund large scale technology transformation projects upfront or they may not want to have such visibility on the balance sheet. However, as subscriptions have evolved, they have offered a solution to this problem, allowing organisations to obtain the resources they require without significant investment.

Technology can provide a competitive edge to all manner of industries and businesses when deployed effectively. However, for large operations, getting sign off on budget can be a long and laborious process. With subscription services, there is a reduced waiting time and even existing legacy technology can be added to the solution. In addition, in times of uncertainty organisations can feel insecure about funding their technology transformation projects without damaging cash flows. This is something we have seen with Brexit as analysis of data from the Office of National Statistics shows that businesses have invested £22bn less in the last two and a half years because of the uncertainty it has caused. While this might be financially prudent, businesses still need to operate as usual and maintain their competitive edge in a global market. Technology is a critical component of this — not only is it crucial in supporting staff, operations and customer interactions, it can also improve business agility and responsiveness to changing market conditions.

Therefore, using a subscription model can ease the burden of any upfront technology investment, whether it is needed for business-critical reasons or not. It can balance the investment by relieving the burden on capex while delivering on the business’s objectives. This then frees up the company from the challenge of diverting funds from other services over technology to remain operational and agile. Additionally, many organisations will already be accustomed to this type of model as they use them to provide the funding for large purchases such as cars and furniture.

What’s next for subscriptions?

It’s clear that we’re currently seeing a resurgence of the subscription model with McKinsey finding that the market has grown by more than 100% a year over the past five years, and this is likely to continue as new services launch and existing ones strengthen. While the subscription service of today is a far cry from the initial concept introduced back in the 1800s, the fundamental principle remains the same – convenience. Nowadays, subscription models enable both individuals and businesses to obtain the goods or services they require in an ongoing and easy fashion. In an unpredictable economic climate, subscription models help businesses continue to access much-needed resources, allowing them to remain agile and competitive, without having to make substantial investments. Further to this, subscription models provide an excellent way to respond to challenges, changes in market conditions and the needs of both employees and customers in a risk-free manner. And, with the side effects of Brexit still unknown, this could be more valuable than ever. As more companies begin to offer subscription models, the range of items and services businesses will eventually be able to access through this method will be endless.