Do you hate subscriptions? The Sucker or Saviour of Capitalism.
The subscription business model has replaced one-time purchases and ownership as the dominant business model. You might feel ripped off with subscriptions but could they also be a path to a brighter future?
Do you hate subscriptions? If so, you’re not alone! The subscription business model leaves you with the feeling that you’ve just been tricked. You subscribe, forget about it and pay forever. But you never really bought anything, except temporary access to a product. Has the subscription business model turned our lives into a dystopia?
The pay-once business model of the past
Today the past seems utterly appealing, almost too good to be true. You pay for something and you use it until it’s broken. Easy. Transparent. You’ll face a hard time making your decision but then it’s done and over with (unless you hit that cruel buyer’s remorse).
Nowadays more and more things turn from an ownership into a subscription model. We’re really just counting the days until the film In Time becomes reality. In Time pictures a new economic system that uses time as currency, and each person has a clock on their arm that counts down how long they have to live (please don’t pitch that to use, we have values).
Maybe ownership was the real deal. Or maybe we’re just romanticising the past?
Ownership isn’t really permanent
The ownership model paints a beautiful picture: Pay once and own it forever. But if you believe in the laws of physics then the heat death of the universe is inevitable. So nothing really is forever. With that established let’s look at a slightly shorter timeframe than one hundred quintillion years.
Your VW Gold II will decay slowly. The engine block will take about 500 years to rust away. Of course, it’ll be useless much, much sooner, in about 12 years on average.
Even though your Photoshop 7 licence amazingly still works on Windows 10 there will be a point where it’s rendered useless too. Not even owning land will save you once people stop believing and respecting laws or nation-states fall apart.
So ownership is not timeless or permanent. Rather it has a wide time horizon. This puts vendors into a tricky situation: They want their product to be good enough for you to buy but not good enough to last until the heat death of the universe. Enter planned obsolescence. Before you ask, yes Apple got caught again tinkering with their battery life.
Subscriptions as the evolution of a faulty business model
Planned obsolescence is the cover-up of a faulty business model. You have to make a trade-off between the longevity and attractiveness of your product. The same thinking does not apply to the subscription model anymore. In fact, you’re motivated to make your product continuously better. You have no incentive to make it “just crappy enough for people to buy”. In the subscription model, the vendor pays for bad longevity. This has tremendous consequences for a business.
Who pays the piper?
When a product turns useless before it is amortised the customer loses. But in a subscription model, the vendor has every interest to make the product as durable and efficient as possible, because it defines their profit margin.
So let’s take a very common ownership example: Cars. A brand new Porsche Panamera 4 costs about $100.000 to $120.000 and about $270 per month for insurance and roadside assistance. Maintenance is about $180 averaged over 10 years.
Alternatively, you could subscribe to the Porsche Passport and rent your Porsche instead for $2.800 per month. Let’s crunch the numbers:
120.000 / (2800-270-180) = 51 months or just over 4 years.
So after about 4 years, your subscriptions become more expensive than buying the Porsche. Uff, I should have picked a better example. If you just came here desperately looking for an argument to buy a Porsche — you’re welcome.
But wait! There’s more. If you don’t have $120.000 lying around to spend on a car you need a car loan which makes the subscription option more attractive, especially if you want to avoid consumer credit. If you do in fact have $120.000 then again you could invest the sum and use the returns to pay for parts of the subscription without ever owning a rapidly depreciating asset.
Comparing apples and oranges
This is getting really complicated. In reality, there are a lot more parameters we can factor into this comparison. But that only leads to the realisation that we’re comparing two completely different products.
Your usage of subscription or owned Porsche differs strongly. Each comes with different features, benefits and trade-offs. Your Porsche subscription car is cleaned and delivered at your doorstep when you want it to amongst other things. On the other hand, you could lend your Porsche to friends and family and it's always there and resell it after 4 years for half the price.
The sharing economy isn’t all about money
The different approaches to ownership aren’t merely a numbers game. The business model changes the product. And the product attracts different customers with different mindsets. Ownership emphasises security and certainty. Subscriptions signify flexibility and carefreeness. If you come to a conclusion in a buy vs. rent discussion it only says something about yourself, not the product or economy.
Generational shifts of consumerism
Past generations have grown up with ownership. They mostly worked the same job in the same company until they retired. But millennials and Gen Z’s have grown up with the boom of the sharing economy and subscriptions and a lot of uncertainty for their careers and lives. On average their mindset prefers flexibility over certainty.
Choose a life. Choose a job. Choose a career. Choose a family. Choose a fucking big television. Choose washing machines, cars, compact disc players and electrical tin openers — Ewan McGregor in Trainspotting
So in a way, the difference between ownership and subscriptions is the same discussion as it is with boomers and millennials.
Car sharing reduces waste
A big problem with ownership is that you might not use your stuff all that often (ask my bread maker). Your car is typically parked ~96% of the time. With car sharing the number is certainly lower. Research states it could reduce the required parking space by 22%. What would you do with 22% of free space in your city? Trees, playgrounds or bars? That’s why the work of car sharing platforms like ELOOP can be an important part of our future. Powered by subscriptions.
The subscription business model can be poison
I have no intention of picturing the subscription business model as the white knight in this story. There are lots of shady practices and dark patterns around subscriptions too. Businesses make it easy to subscribe but then let you jump through hoops if you want to cancel or raise the cost of switching by making your data hard to access.
As an example take the recent launch of Inflow (YC ’21). They want to help people manage their ADHD in just 5 minutes a day. Unfortunately, their opt-out subscription model exploits exactly the mental deficit of the customers they vow to help.
On the other side, there are businesses who understand that subscriptions empower customers because their purchase decision is happening more often, in shorter intervals and outstanding products and support are the surest way to score loyal customers. As an example of this: Waking Up has a “full refund, no questions asked” policy. And they mean it (I tried it myself after forgetting to unsubscribe, thanks Sam Harris).
Subscriptions could be a building block of a brighter future
The subscription business model is neither good nor bad. It has some advantages over traditional ownership, most of all transparency. Your buying choice becomes more predictable because of the shorter timespan until the next renewal. What’s clear is that the subscription business model is here to stay. It’s up to customers to demand fair and transparent practices and vote with their money and it’s up to conscious businesses to put sustainability and customer relationships over short-term profits.
What subscriptions mean to trive studio
We at trive studio don’t necessarily deem the subscription business model as evil. In fact, we see it as a tool to bring our values to life. These are the questions we ask ourselves when we consider a subscription business model.
Sustainability: Can we erase some inefficiencies and waste compared to pure ownership?
Democratising access: Does it enable access to a wider audience that otherwise couldn’t use the product at all?
Product quality: Does it fuel product improvements to make it better over time?
Ease of use: Can we improve the customers' experience, simplify the buying decision and enable flexible usage?
However, we don’t believe that subscriptions are simply a solution to maximise profits at the cost of the customer. That’s why at Emma Wanderer we’re closely collaborating with businesses and individual customers if and how subscriptions can fulfil their needs.
What’s your opinion on the subscription business model? We want to hear from you — comment right here or drop me an email at andre.schweighofer@trive.studio.
