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The subscription business model is a
business model A business model describes how an organization creates, delivers, and captures value,''Business Model Generation'', Alexander Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries, self-published, 2010 in economic, social, ...
in which a
customer In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange for ...
must pay a recurring price at regular intervals for access to a
product Product may refer to: Business * Product (business), an item that serves as a solution to a specific consumer problem. * Product (project management), a deliverable or set of deliverables that contribute to a business solution Mathematics * Produ ...
or service. The model was pioneered by publishers of
book A book is a medium for recording information in the form of writing or images, typically composed of many pages (made of papyrus, parchment, vellum, or paper) bound together and protected by a cover. The technical term for this physical arr ...
s and
periodical A periodical literature (also called a periodical publication or simply a periodical) is a published work that appears in a new edition on a regular schedule. The most familiar example is a newspaper, but a magazine or a journal are also examples ...
s in the 17th century, and is now used by many businesses, websites and even pharmaceutical companies in partnership with the government.


Subscriptions

Rather than selling products individually, a subscription offers periodic (daily, weekly, bi-weekly, monthly, semi-annual, yearly/annual, or seasonal) use or access to a product or service, or, in the case of performance-oriented organizations such as
opera companies Opera is a form of theatre in which music is a fundamental component and dramatic roles are taken by singers. Such a "work" (the literal translation of the Italian word "opera") is typically a collaboration between a composer and a librett ...
, tickets to the entire run of some set number of (e.g., five to fifteen) scheduled performances for an entire season. Thus, a one-time sale of a product can become a recurring sale and can build brand loyalty. Industries that use this model include
mail order Mail order is the buying of goods or services by mail delivery. The buyer places an order for the desired products with the merchant through some remote methods such as: * Sending an order form in the mail * Placing a telephone call * Placing a ...
book sales club A book sales club is a subscription-based method of selling and purchasing books. It is more often called simply a book club, a term that is also used to describe a book discussion club, which can cause confusion. How book sales clubs work Each me ...
s and
music Music is generally defined as the art of arranging sound to create some combination of form, harmony, melody, rhythm or otherwise expressive content. Exact definitions of music vary considerably around the world, though it is an aspect ...
sales clubs, private web mail providers,
cable television Cable television is a system of delivering television programming to consumers via radio frequency (RF) signals transmitted through coaxial cables, or in more recent systems, light pulses through fibre-optic cables. This contrasts with broa ...
,
satellite television Satellite television is a service that delivers television programming to viewers by relaying it from a communications satellite orbiting the Earth directly to the viewer's location. The signals are received via an outdoor parabolic antenna comm ...
providers with
pay television Pay television, also known as subscription television, premium television or, when referring to an individual service, a premium channel, refers to Subscription business model, subscription-based television services, usually provided by multichan ...
channels, providers with digital catalogs with downloadable music or eBooks,
satellite radio Satellite radio is defined by the International Telecommunication Union (ITU)'s ITU Radio Regulations (RR) as a ''broadcasting-satellite service''. The satellite's signals are broadcast nationwide, across a much wider geographical area than ter ...
,
telephone companies A telephone company, also known as a telco, telephone service provider, or telecommunications operator, is a kind of communications service provider (CSP), more precisely a telecommunications service provider (TSP), that provides telecommunica ...
,
mobile network operator A mobile network operator (MNO), also known as a wireless service provider, wireless carrier, cellular company, or mobile network carrier, is a provider of wireless communications services that owns or controls all the elements necessary to sell ...
s, internet providers,
software publisher A software publisher is a publishing company in the software industry between the developer and the distributor. In some companies, two or all three of these roles may be combined (and indeed, may reside in a single person, especially in the case ...
s,
website A website (also written as a web site) is a collection of web pages and related content that is identified by a common domain name and published on at least one web server. Examples of notable websites are Google Search, Google, Facebook, Amaz ...
s (e.g.,
blogging A blog (a truncation of "weblog") is a discussion or informational website published on the World Wide Web consisting of discrete, often informal diary-style text entries (posts). Posts are typically displayed in reverse chronological order ...
websites), business solutions providers,
financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
firms,
health club A health club (also known as a fitness club, fitness center, health spa, and commonly referred to as a gym) is a place that houses exercise equipment for the purpose of physical exercise. In recent years, the number of fitness and health se ...
s, lawn mowing and snowplowing services,
pharmaceutical A medication (also called medicament, medicine, pharmaceutical drug, medicinal drug or simply drug) is a drug used to diagnose, cure, treat, or prevent disease. Drug therapy (pharmacotherapy) is an important part of the medical field and re ...
s, renting an apartment, property taxes, as well as the traditional newspapers, magazines, and
academic journal An academic journal or scholarly journal is a periodical publication in which scholarship relating to a particular academic discipline is published. Academic journals serve as permanent and transparent forums for the presentation, scrutiny, and d ...
s. Renewal of a subscription may be periodic and activated automatically so that the cost of a new period is automatically paid for by a pre-authorized charge to a
credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
or a checking account. A common variation of the model in online games and on websites is the ''
freemium Freemium, a portmanteau of the words "free" and "premium," is a pricing strategy by which a basic product or service is provided free of charge, but money (a premium) is charged for additional features, services, or virtual (online) or physical (o ...
'' model, in which the first tier of content is free, but access to premium features (for example, game power-ups or article archives) is limited to paying subscribers.


Types and examples

There are different categories of subscriptions: to *A subscription for a fixed set of goods or services. ** Periodicals, such as a newspaper or magazine, have several types of subscriptions: *** Paid circulation *** Non-paid circulation ***
Controlled circulation A magazine is a periodical publication, generally published on a regular schedule (often weekly or monthly), containing a variety of content. They are generally financed by advertising, purchase price, prepaid subscriptions, or by a combinatio ...
** Subscription boxes contain a variety of consumables *** Community-supported agriculture ***
Meal delivery service Retail food delivery is a courier service in which a restaurant, store, or independent food-delivery company delivers food to a customer. An order is typically made either through a restaurant or grocer's website or mobile app, or through a foo ...
***
Meal kit A meal kit is a subscription service–foodservice business model where a company sends customers pre-portioned and sometimes partially-prepared food ingredients and recipes to prepare homecooked meals. Services that send pre-cooked meals ...
delivery service *A subscription for unlimited use of a service or collection of services. Usage may be personal and non-transferable, for a family, or under certain circumstances, for a group utilizing a service at one time. In the publishing industry, a subscription to a bundle of several journals, at a discounted price, is known as a "big deal". **
Software as a service Software as a service (SaaS ) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as "on-demand software" and Web-based/Web-hosted software. SaaS is con ...
*A
pay-as-you-go Pay as you go or PAYG may refer to: Finance * Pay-as-you-go tax, or pay-as-you-earn tax * Pay-as-you-go pension plan * PAYGO, the practice in the US of financing expenditures with current funds rather than borrowing * PAUG, a structured financia ...
subscription where you subscribe to purchase a product periodically. This is also known as the convenience model because it is a convenience for the customer to not have to remember to go find their product and buy it periodically. This model has been popularized by companies like Dollar Shave Club, Birchbox, and OrderGroove. Based on their success, many other retailers have begun to offer subscription model services. ** For example, a subscription to a rail pass by a company may not be individualized but might permit all employees of that firm to use the service. For goods with an unlimited supply and for many luxury services, subscriptions of this type are rare. *A subscription for basic access or minimal service plus some additional charge depending on usage. A basic telephone service pays a pre-determined fee for monthly use but may have extra charges for additional services such as long-distance calls, directory services and pay-per-call services. When the basic service is offered free of charge, this business model is often referred to as
Freemium Freemium, a portmanteau of the words "free" and "premium," is a pricing strategy by which a basic product or service is provided free of charge, but money (a premium) is charged for additional features, services, or virtual (online) or physical (o ...
. *A online subscription for supporting content creators using
Crowdfunding Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of crowdsourcing and alternative finance. In 2015, over was raised worldwide by crow ...
. Fans can interact and send a tip to the content creator but also have access to exclusive paid content. Popular examples are
Patreon Patreon (, ) is a membership platform that provides business tools for content creators to run a subscription service. It helps creators and artists earn a monthly income by providing rewards and perks to their subscribers. Patreon charges a co ...
and
OnlyFans OnlyFans is an internet content subscription service based in London, United Kingdom. The service is used primarily by sex workers who produce pornography, but it also hosts the work of other content creators, such as physical fitness experts ...
.


Publishing

In publishing, the subscription model typically involves a
Paywall A paywall is a method of restricting access to content, with a purchase or a paid subscription, especially news. Beginning in the mid-2010s, newspapers started implementing paywalls on their websites as a way to increase revenue after years of ...
,
Paysite A paysite or pay site, in the adult entertainment industry, is a website that charges money to become a member and view its content, and often produces original adult content. They can be contrasted with "free-sites", which do not charge a members ...
or other "toll-access" system (named in opposition to
open access Open access (OA) is a set of principles and a range of practices through which research outputs are distributed online, free of access charges or other barriers. With open access strictly defined (according to the 2001 definition), or libre op ...
). As revenues from digital advertising diminish, a paid subscription model is being favoured by more publishers who see it as a comparatively stable income stream.


Academic journals

In the field of
academic publishing Academic publishing is the subfield of publishing which distributes academic research and scholarship. Most academic work is published in academic journal articles, books or theses. The part of academic written output that is not formally publ ...
, the subscription business model means that articles of a specific
journal A journal, from the Old French ''journal'' (meaning "daily"), may refer to: *Bullet journal, a method of personal organization *Diary, a record of what happened over the course of a day or other period *Daybook, also known as a general journal, a ...
or
conference proceedings In academia and librarianship, conference proceedings is a collection of academic papers published in the context of an academic conference or workshop. Conference proceedings typically contain the contributions made by researchers at the conferen ...
are only available to subscribers. Subscriptions are typically sold to
universities A university () is an institution of higher (or tertiary) education and research which awards academic degrees in several academic disciplines. Universities typically offer both undergraduate and postgraduate programs. In the United States, t ...
and other
higher education institution Higher education is tertiary education leading to award of an academic degree. Higher education, also called post-secondary education, third-level or tertiary education, is an optional final stage of formal learning that occurs after completi ...
s and
research institute A research institute, research centre, research center or research organization, is an establishment founded for doing research. Research institutes may specialize in basic research or may be oriented to applied research. Although the term often i ...
s, though some academic publishers also sell individual subscriptions or access to individual articles. In contrast with other media such as
newspaper A newspaper is a periodical publication containing written information about current events and is often typed in black ink with a white or gray background. Newspapers can cover a wide variety of fields such as politics, business, sports a ...
s, subscription fees to academic publishers generally do not go towards supporting the creation of the content: the scientific articles are written by scientists and reviewed by other scientists as part of their work duties. The paper authors and reviewers are not paid by the publisher. In this light, the subscription model has been called undesirable by proponents of the
open access Open access (OA) is a set of principles and a range of practices through which research outputs are distributed online, free of access charges or other barriers. With open access strictly defined (according to the 2001 definition), or libre op ...
movement. Academic publications which use the subscription model are called "closed-access", by opposition to their open-access counterparts.


Effects


Vendors

Businesses benefit because they are assured a predictable and constant revenue stream from subscribed individuals for the duration of the subscriber's agreement. Not only does this greatly reduce uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires. An integrated
software Software is a set of computer programs and associated documentation and data. This is in contrast to hardware, from which the system is built and which actually performs the work. At the lowest programming level, executable code consists ...
solutions, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably greater than the revenue from simple one-time purchases. In some subscription schemes (like magazines), it also increases sales, by not giving subscribers the option to accept or reject any specific issue. This reduces customer acquisition costs, and allows
personalized marketing Personalized marketing, also known as one-to-one marketing or individual marketing, is a marketing strategy by which companies leverage data analysis and digital technology to deliver individualized messages and product offerings to current or pr ...
or
database marketing Database marketing is a form of direct marketing using databases of customers or potential customers to generate personalized communications in order to promote a product or service for marketing purposes. The method of communication can be any addr ...
. However, a requirement of the system is that the business must have in place an accurate, reliable, and timely way to manage and track subscriptions. From a marketing-analyst perspective, it has the added benefit that the vendor knows the number of currently active members since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates
customer relationship management Customer relationship management (CRM) is a process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information. CRM systems compile data from a ra ...
to a large extent because the analyst knows who is an active customer and who recently churned. Additional benefits include a higher average customer lifetime value (ACLV) than that of nonrecurring business models, greater customer inertia and a more committed customer base as it transitions from purchase to opt-out decisions, and more potential for upselling and cross-selling other products or services. Some software companies such as
Adobe Adobe ( ; ) is a building material made from earth and organic materials. is Spanish for ''mudbrick''. In some English-speaking regions of Spanish heritage, such as the Southwestern United States, the term is used to refer to any kind of e ...
and
Autodesk Autodesk, Inc. is an American multinational software corporation that makes software products and services for the architecture, engineering, construction, manufacturing, media, education, and entertainment industries. Autodesk is headquartered ...
have moved from a perpetual licensing model to a subscription model, known as "
software as a service Software as a service (SaaS ) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as "on-demand software" and Web-based/Web-hosted software. SaaS is con ...
". This move has significant implications for sales and customer support organizations. Over time, the need to close large deals decreases resulting in lower sales costs. However, the size of the customer support organization increases so that the paying customers stay happy.


Customers

Consumers may find subscriptions convenient if they believe that they will buy a product on a regular basis and that they might save money. For repeated delivery of the product or service, the customer also saves time. Subscriptions which exist to support clubs and organizations call their subscribers "members" and they are given access to a group with similar interests. An example might be the Computer Science Book Club. Subscription pricing can make it easier to pay for expensive items since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customers from subscribing. Fixed price may be an advantage for consumers using those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been. In addition, subscription models increase the possibility of
vendor lock-in In economics, vendor lock-in, also known as proprietary lock-in or customer lock-in, makes a customer dependent on a vendor for products, unable to use another vendor without substantial switching costs. The use of open standards and alternat ...
, which can have fatally business-critical implications for a customer if its business depends on the availability of a software: For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or in particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business thereby leaving the customer without a chance to renew the subscription and access his own data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades). Also, consumers may find repeated payments to be onerous. Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of
privacy Privacy (, ) is the ability of an individual or group to seclude themselves or information about themselves, and thereby express themselves selectively. The domain of privacy partially overlaps with security, which can include the concepts of a ...
. A subscription model may be beneficial for the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller. This is in contrast to many one-time transactions when customers are forced to make significant commitments through high software prices. Some feel that historically, the "one-time-purchase" model does not give sellers incentive to maintain relationships with their customers (after all, why should they care once they've received their money?). Some who favor a subscription model for software do so because it may change this situation. The subscription model should align customer and vendor toward common goals, as both stands to benefit if the customer receives value from the subscription. The customer that receives value is more likely to renew the subscription and possibly at an increased rate. The customer that does not receive value will, in theory, return to the marketplace.


Environment

Because customers may not need or want all the items received, this can lead to waste and an adverse effect on the environment, depending on the products. Greater volumes of production, greater energy and natural
resource consumption Resource consumption is about the consumption of non-renewable, or less often, renewable resources. Specifically, it may refer to: * water consumption * energy consumption ** electric energy consumption ** world energy consumption * natural gas c ...
, and subsequently greater disposal costs are incurred. Subscription models might also create the opposite effect. This can be illustrated by subscribing to a service for mowing lawns. The effective use of a single mower increases when mowing for a collection of homes, instead of every family owning their own lawnmower which is not used as much as the service providing mower, the use of resources for producing lawnmowers, therefore, decreases while lawns stay cut.


See also

*
Payment system A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, instruments, people, rules, procedures, standards, and technologies that make its exchange possible.Biago ...
*
Index of accounting articles This page is an index of accounting topics. {{AlphanumericTOC, align=center, nobreak=, numbers=, references=, externallinks=, top=} A Accounting ethics - Accounting information system - Accounting research - Activity-Based Costing - ...
*
Outline of economics The following outline is provided as an overview of and topical guide to economics: Economics – analyzes the production, distribution, and consumption of goods and services. It aims to explain how economies work and how economic agents ...
* List of financial accounting topics *
Outline of marketing The following outline is provided as an overview of and topical guide to marketing: Marketing – social and managerial processes by which products, services, and value are exchanged in order to fulfill individuals' or groups' needs and wants ...
*
Rent-seeking Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment. Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effi ...
*
Pay to play Pay-to-play, sometimes pay-for-play or P2P, is a phrase used for a variety of situations in which money is exchanged for services or the privilege to engage in certain activities. The common denominator of all forms of pay-to-play is that one mus ...


References

{{DEFAULTSORT:Subscription Business Model Business models Mass media industry Bundled products or services Types of subscription services Subscription services Revenue models