Why the subscription model is unsustainable
Updated: May 13, 2020
£4.99 per month, doesn't sound like a lot right? A coffee a month is the analogy often used - but the cost adds up. As more and more companies opt for the subscription model, there has to be push back.
The subscription model is becoming a controversial topic in the start up world. They used to be reserved to visionary brands like Netflix and Spotify, who spotted the trend against advertisements; but today, subscriptions are used for all kinds of every day stuff: food, clothes and shaving cream? Developers and manufacturers love the model, because it gives them what they value most: recurring revenue.
But while producers love the subscription model, in the eyes of the user, it will soon reach the point of implosion, with growing unease at the way the costs add up…
The rise in subscriptions can be attributed to an increase in the number of businesses across nearly all industries wanting to offer recurring services. According to the Zuora® Subscription Economy Index™, this business model strategy has proved that subscription businesses grow revenue nearly nine times faster than the S&P 500.
Subscriptions have moved beyond just media and entertainment consumption and have expanded to include grocery shopping services, attracting nearly 2 million consumers, in-car apps counting 650,000 subscribers in the UK, and beauty and grooming subscriptions like men’s shaving subscription services have over 1.3 million British monthly subscribers. Dramatic growth of online data storage services like Google Drive and Dropbox with 7 million UK consumers. The healthcare sector is also experiencing the same shift with 12 percent of British adults choosing to pay monthly for prescriptions and private healthcare services.
What’s more, this trend is set to continue along its growth trajectory as an estimated 25 percent of UK adults predict that they will be subscribing to more services over the next five years.
In 2017, the average person in the UK spent three times more per month on subscription services than the previous year, with the figure rising to £56 per month compared to £18.49 per month. Today, around nine in 10 UK consumers subscribe to at least one subscription service – and many may not be getting value for their money.
The subscription model only works if it is reserved for a minority of services, not a majority.
On top of the financial burden, consumers lack control over their subscriptions. Cancelling can be hard, and optimising subscriptions to get the best deals is often too painful and confusing for users to bother.
Citizens advice reports that over 2 million people a year in the UK get their cancellation requests denied for subscriptions that have unknowingly been signed as 'long term contracts', with clauses that prevent cancellation before a certain given point in time.
The trend must be reversed, and will be reversed. For this to happen, British consumers need to be made aware of the amount of the money they are wasting. On average, the British consumer wastes £20 per month, or £240 per year on subscriptions that they don't use! Not to mention being wrongly double charged for subscriptions, or forgetting to cancel free trials.
From 2020 onwards, our prediction is that the trend will move towards consuming less, not more. For subscriptions, that means more control over cancellation, and it means more services moving back towards the 'one-time buy' model, which has survived the test of time, and will continue to thrive, regardless of what Silicon Valley tells us.