One of the biggest business trends around, I believe the subscription and servitization model will shape the businesses of the future. Let’s delve into what this trend means in practice and explore some brief examples of companies that have embraced this business model.
The “as a service” revolution
Apple is a great example of a company that has transitioned from a straightforward product manufacturer to a subscription-based business – via services like Apple News, Apple TV, and Apple Music. This trend is something I’m seeing across all markets now, probably because it presents such an exciting business opportunity. In fact, research shows that subscription businesses achieve five times faster revenue growth than the S&P 500.
A subscription or servitization business can be defined as any business that sells its products or services on a scheduled basis (such as monthly). In essence, then, this trend is all about moving from a traditional business model, where the customer buys a product or service as and when they need it, to one where they sign up to receive that product or service regularly. The customer benefits from convenient auto-renewals and a deeper connection with the brand (which learns more and more about what they want). Meanwhile, the business generates predictable revenue and enjoys all the business benefits that come with boosting customer engagement.
There are several models that fall under subscription/servitization, with some of the most common ones being:
· Streaming/content services. Known as the “Netflix model,” for obvious reasons, this is where the organization provides content that subscribers can access anywhere, anytime via a channel or platform. And this doesn’t just apply to movies and TV; from online learning courses, online fitness or yoga classes, music streaming services, and ebook or audiobook subscription services, almost any kind of content can be offered as a service these days. Typically, the content provider will use personalized recommendations to keep customers coming back for more.
· Technology as a service. This is where the vendor provides access to software (through a cloud interface) or computing infrastructure (such as cloud storage) for a monthly or annual fee. So instead of purchasing hardware and software outright and then having to purchase new versions in the future, the customer pays for continued access to the tools they need. “As a service” is now the go-to business model for software and computing providers.
· Subscription boxes. This model proves that products – not just services – can be sold via a subscription model. With this model, pretty much any product, however, niche, can be offered as a subscription and delivered direct to the customer’s door (in a box, hence the name) on a regular basis. The Dollar Shave Club is a great example. Often there is some sort of customization element involved, where the contents of the box can be personalized to the customer’s preferences.
· Products with added subscription services. Increasingly, when you invest in a product, you can tap into additional services available as a subscription. A great example is the Amazon Ring home security camera. With the Ring Protect paid-for plan, you can store footage from Ring cameras and access them 24/7.
Samsung embraces the subscription model
Companies like Netflix and the Dollar Shave Club may have been built around the subscription model from day one, but Apple shows us that even established businesses can pivot to a subscription-based offering. In 2020, Samsung also announced that it would be introducing a monthly subscription offering.
The service, which is initially being offered in Germany, allows Samsung customers to effectively rent certain products from the Galaxy S20 series directly from the manufacturer. So instead of buying a phone (whether outright or via a contract financing option), customers can choose a rental plan that works for them (one, three, six, or 12 months) with no deposit or cumbersome paperwork. At the end of the rental period, customers can simply hand the product back and choose a new one, or extend the rental or even buy the device.
This example shows how you can now subscribe to almost anything. It’s also a sign that access to products and services is becoming more important than outright ownership. In the future, I believe we’ll hardly own anything at all. Everything from cars, phones, and clothes, to music and movies, and even housing … it will all be offered “as a service” via inclusive monthly payments. It’s the way the world is going, and businesses that ignore this major trend could find themselves at a serious competitive disadvantage.
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