Trendspotting: Welcome to the Subscription Economy

NewsWire: 5/12/21

• Whether it’s Netflix, Patreon, Peloton, or Amazon Prime, subscriptions are taking over our lives. It’s not an exaggeration to say we’re edging closer to a “subscription economy” that’s increasingly based on services instead of goods. (Vox)
• NH: Rise and shine! As this e-mail hits your inbox, millions of Americans are starting their mornings with a class on their Pelotons. Said inboxes are filling up with Substack newsletters and updates from their Patreon projects. A notification pops up from Amazon Prime reminding them that it’s time to reorder vitamins. Done! 
• After work, they’ll sink into the couch and relax by firing up a movie on Netflix. Or maybe it’s a Hulu or HBO Max night? What about streaming the latest releases on Spotify? Oh, there are new games available on Xbox Game Pass? So many subscriptions, so little time.
• We’ve written often about the rise of subscription streaming services. (See “Can Cord-Cutters Cut Costs?” and “Covid-19 Helps Netflix Win Streaming Wars.”) But entertainment is just one of many industries that has struck gold by adopting a subscription business model. Among the things you can subscribe to now are online fitness classes; software and apps; delivery services; boxes of snacks, meal kits, books, makeup, or dog treats; individual content creators; and travel agencies and restaurants (see “Is the Future of Travel and Leisure Members-Only?”).
• Each of these sectors is growing fast. Patreon, which connects content creators with fans, was recently valued at $4 billion--more than triple its value in September. A 2018 McKinsey study reported that the subscription e-commerce market had grown by more than +100% a year over the past five years. The most popular of these retailers racked up more than $2.6 billion in sales in 2016, up from just $57.0 million in 2011.
• In the subscriptions economy, one-time purchases are increasingly being replaced by long-term relationships. Potential customers are usually invited to try out a service for free before being asked to subscribe. Behind the shift from products to services is a long list of demographic drivers, including urbanization, a slowdown in new household formation among Millennials, convenience, and declining interest in material goods. (See “The Immaterial World.”) Most recently, the pandemic has pushed many businesses to offer subscriptions to make up for lost foot traffic.
• There are also generational drivers. Millennials prefer to cultivate trust in a brand over time after evaluating how well it responds to their changing needs. More than older generations, Millennials find ownership risky: Why risk everything up-front on a purchase you may later regret? Also more than older generations, they don't mind being dependent on others. Do you really care whether you own your music, your books, your phone, your back-up memory, your auto, or (for that matter) your residence? If you do, you're probably one of those free-agent survivalists born before 1970--all prepared for the zombie apocalypse that just might happen at any time.
• While subscription services are more popular than ever before, the concept of paying a monthly fee to a business isn’t new. What is new is the ability to subscribe to a person, whether it’s through Patreon, Substack, or OnlyFans. The huge jump in Patreon’s valuation reflects the belief that the so-called “creator economy” is the future of subscriptions--or in other words, that people are the new brands.