Life of the Subscription Model

The subscription model is nothing new. This method of payment has been used by cable companies, utility providers, fitness clubs, magazines and more for years. Though, lately, it has been introduced in more interesting ways. You may have noticed it with Manpacks, the service that delivers men’s essentials to your door, or with Birchbox, Glossybox, and Loose Button’s Luxe Box. If you’re a pet lover, it could have been with Toys4Tails or Barkbox. Subscription commerce for products other than Teleco’s and fitness clubs are making a grand entrance.

The subscription model feeds on the novelty and convenience in automatically receiving products or services. It’s a ‘high’ to open your mailbox to the newest subscription of Fast Company or to turn on Netflix to find some old favorite movies. The surprise and delight is why people love discovering a new pair of shoes from ShoeDazzle, a new snack from Healthy Surprise or a great new combination of food from Foodzie. It’s an instant and disposable fix, knowing that something new will show up again next month.

This isn’t just an experimental concept. In fact, companies are pulling in respectable amounts of funding (Birchbox just got $10.5 million) and revenue (just multiply the # of subscribers by the subscription fee, like Elizabeth Knopf does here) using the subscription model. The numbers don’t lie: Trunk Club (personalized designer clothing for men shipped monthly) has raised $11 million and Manpacks is backed by Dave McClure’s 500 Startups.  In 2011, subscription-based online business received funding of over $112.97 million. It looks as though VCs and other investors are interested (to say the least). Sean Percival, founder of WittleBee and former VP of MySpace, explains: “Personally I love the model so I’m bullish on the opportunity here. I am going to both build and invest into the space…”, in terms of online consumers, on one hand, many are consistently seeking convenience and removing the pain of shopping for mundane goods. On the other hand, people are looking to discover something new each month, with which the automated at-your-door delivery is appealing.

Why are businesses that embrace subscription commerce so successful? Mike Myatt phrases it succinctly: “Disruptive business models focus on creating, disintermediating, refining, reengineering or optimizing a product/service, role/function/practice, category, market, sector, or industry.”

Essentially, subscription services combine a sample club, a store and a marketing data source into one box that gets delivered to your door every month. These companies are creating a unique experience by having the stuff you hate to shop for (man essentials like boxers and condoms) or the new trends you love to discover (shoe styles at ShoeDazzle) delivered right to your door.

 

Is the Subscription Model Still Disruptive?

 

 (Image from @percival)

I’ve only mentioned a few of the many businesses using this model to generate healthy revenue (and a consistent stream of cashflow) by introducing new products to people. But now, more than ever, it seems there are many more who are testing it out (Meundies.com was recently introduced). Has the subscription model started reaching its tipping point? Are people getting subscription fatigue?

Sure, maybe in media popularity. Mashable, for example, has stopped writing about it as it’s been an overly discussed topic. Perhaps it’s a fad? I am sure, in due time, Pinterest will get old too. But for now, it’s still debatable whether or not companies are just jumping on a popular bandwagon or the model is really sustainable. As we can see, some startups have surpassed one and two year anniversaries and, since most companies fail within the first year of operation, proof is in the pudding that things are working in the subscription world.

Sure, many will still enjoy the simple convenience of picking up items when they need them. It comes from the unconscious shopper’s high we get after purchasing something. Ever heard of retail therapy? Or seen the movie In Her Shoes? The thrill of shopping will always prevail, but automating the mundane errands will provide more convenience, and time to shop for the things people love most.

 

What’s the Future of the Subscription Model?

Will this type of business model guarantee sustained success? Not at all. Not too many companies can successfully implement a subscription-based approach to differentiate themselves from their competitors. The company has to offer goods or services people need over and over again. Socks, non-perishable food and underwear make sense. Even fashion trends like shoes can fit into this model. Car tires, gas and windshield washer fluid? It’d be pretty difficult to pull off.

How do you feel about subscription based businesses? Are you subscribed to any of the mentioned companies? If so, what are your thoughts?

One Comment

  1. Specific to this post today, is an answer in Quora to How do niche e-commerce services like One Kings Lane and Manpacks handle inventory fulfillment.
    http://www.quora.com/E-Commerce/How-do-niche-e-commerce-services-like-One-Kings-Lane-Manpacks-and-Dollar-Shave-Club-handle-the-inventory-fulfillment-side-of-their-business/answer/Matthew-Carroll

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