Episode #221: The Subscription Business Model, Part II

Ed and I continue our exploration of the subscription business model. Check out our first episode in this series from November 9, 2018 (Episode #217).

In this episode, we discussed the book, The Automatic Customer: Creating a Subscription Business in Any Industry, by John Warillow (2015).

The history of the subscription model dates back to the 1500s, when European map publishers subscribed to future editions. Newspapers and magazines began in 17th century Europe. Ron’s first book, The Professional’s Guide to Value Pricing, which was published by Harcourt Brace initially, was sold on a subscription model.

Vijay Ravindran, from Amazon Prime: “It was never about the $79. It was really about changing people’s mentality so they wouldn’t shop anywhere else.” Nothing has been as successful in getting people to shop in new product lines

Nine Subscription Business Models

  1. The Membership Website Model—Wall Street Journal, New York Times, The Economist, Financial Times, etc.

  2. The All-You-Can-Eat Library Model—Spotify, Rdio, Rhapsody, Netflix, etc.

  3. The Private Club Model—Ongoing access to something rare (networking clubs, etc.). Disney’s Club 21 [and Club 33] at Disneyland.

  4. The Front-of-the-Line Model—Priority access to a group of your customers  (turnaround time, etc.).

  5. The Consumables Model—A product that needs replenishing (razors, diapers, socks).

  6. The Surprise Box Model—a curated package of goodies, sometimes samples (wine, cholates, etc.). Requires big supply chain, variety products, etc.

  7. The Simplifier ModelHassle Free Home Services takes care of your home maintenance, $350/month. Bigger jobs are provided, 50% of revenue. Don’t need to bundle all your services, just the ones your customer needs regularly (Q&A, tax, compliance, etc., in professional firms). Check out the Porschepassport.com—you can subscribe to a car company!

  8. The Network Model—Partial access to expensive infrastructure, value increases as more people subscribe (Zipcar, acquired by Avis).

  9. The Peace-of-Mind Model—Insurance against something your customers hope they’ll never need. Tagg is a pet tracking service, or IRS audit representation offered by accounting and law firms, Turnover Insurance, LoJack for laptops and Alzheimer’s sufferers, etc. You earn an underwriting profit, which is equal to the premiums less claims paid, plus the investment of float). Calculating risk biggest challenge, so go slow, only offer to handful of customers, limit your coverage to a dollar amount (# incidents, etc.), reinsure.

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Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.