Our world, economic life, and daily routines are always changing. And something that affects every person reading this (more than it’s often admitted) is the shift from one-time purchases and payments to subscriptions.
Software is a perfect example. Five years ago, I could buy Adobe Lightroom for about $100. Not anymore. I have to pay around $100 every year just to use the latest version. The same goes for Microsoft Office. Five years ago I could buy Office for a single price in stores. Not any more. To have the latest version, I have to pay an annual subscription (hence Microsoft “365”).
Because these can add up fast, I have tried to be enthusiastic about saying “no” to subscriptions every chance I get. Yet, in our household, we still have a number of subscriptions, such as: (1) Down Dog yoga app; (2) Dog GPS tracker app; (3) Amazon Prime; (4) Microsoft 365, and probably some others I can’t remember. If I said “yes” to every subscription service offer that I have-way considered, my annual expenses would easily swell to $12-16,000 per year. That’s crazy.
And it’s getting worse. It’s hard to find any software that isn’t subscription based these days. And my thoughts on this trend are always the same: those who are already squeezed financially are going to be squeezed even more—and eventually something has got to give. But that’s obviously not how businesses think of subscriptions. Not yet. In their view, it’s a simple calculation oriented towards revenue: why charge a one-time fee when I can charge customers every single month or year?
But this is terribly short-sighted. By entering the subscription market, businesses are making themselves less competitive. Consumers are starting to realize the drag subscriptions have on a person’s budget and overall financial health. A few dollars a month sounds like nothing…until you multiply it by a few dozen. So the demand for non-subscription services is going to grow more and more.
Does this mean the clock will turn back and things will go back to one-time payments? Probably not. I suspect, however, that something new and more competitive will come along—perhaps something like three payments instead of one. That way, consumers can avoid the sticker-shock of the lump sum, but also don’t feel like their getting married to whatever they’re buying. (There’s a good reason why the words “in perpetuity” to describe a deal on Shark Tank tend to scare people!”)
Until then, we’re approaching max-cashflow for households. The salesforce blog noted that “By 2020, all new software companies will offer subscription-based business models — so will 80% of legacy software vendors. They're responding to a huge trend. Over the past five years, the subscription ecommerce market has grown by more than 100% every year.” And how will that square with a COVID economy? Or square with a pre-COVID economy where nearly 40% of Americans can't cover a surprise $400 expense?
We discussed in earlier essays the ever growing problem of insolvency, and it’s pertinent here: needless subscriptions suck away every last drop of cashflow from consumers’ budgets. And the overall cost of living gets higher and higher. We can expect, then, that an over-subscribed consumer base is going to start canceling the extraneous services entirely. And the only businesses that can safely command a long-term subscription service are those that are in higher demand (and more inelastic). Newer services should reconsider a subscription model lest they get sidelined completely by a consumer base that’s more and more payment-aware and suspicious of the subscription game.
Dr. Jamin Andreas Hübner is the CEO of Efficient Business Consulting LLC and a professor of economics at Western Dakota Tech. For comments, questions, or corrections, write to firstname.lastname@example.org
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