Though subscription-based business models have been around for decades, they have evolved into an increasingly popular approach for many successful unicorns.
While they still revolve around the same concept – selling a product or service in exchange for a paid monthly or yearly fee – they are being repackaged and repurposed to meet the demands of today's consumers.
Examples of Subscription-Based Business Models
To illustrate this, and to better help business owners and entrepreneurs understand the potential of this structure, we have highlighted six key subscription-based business model examples below:
Previously, consumers were invited to purchase Adobe's Creative Suite (including Photoshop, InDesign and Illustrator) for a one-time fee of around $1,299. However, in recent years, the San Jose-based software giant has switched their business plan to that of a subscription model, where users make a monthly payment of around $50 to access the same services. Though it may seem like an unprofitable move at first glance, a quick calculation shows that after two years and one month, users would be surpassing the amount that they would have spent with Adobe's previous one-time fee. Adobe's market cap has increased by over 87% between this 2012 change and May 2018.
More commonly known as software as a service (SaaS), this approach is now a standard business practice, adopted most notably by Microsoft for their Office suite.
2. Dollar Shave Club
Going up against traditional giants such as Gillette and Wilkinson Sword, the Dollar Shave Club's mission revolves around the notion that everyone who needs a razor should pay the same – men and women alike. With free shipping over $30, a 30-day money-back guarantee, and the ability to cancel at any time, the company has managed to bridge this gap, with the business acquired by consumer goods giant Unilever for around $1bn in 2016.
With a list of explicitly personalised products on offer, Dollar Shave Club is aligned with the latest consumer trends. It has also diversified its product base, offering beauty "tool" kits as well as a variety of shower products, including facial cleansers, shampoos, and soaps; by selecting their favourite products, subscribers can choose how often they want their products delivered to their front door. Shoppers can also add and remove products as necessary, enabling them to find the right combination of products that they need for their daily routine.
Built around the concept of packing eight to ten beauty or wellness products into a beautifully packaged box and sending them to subscribers four times per year, FabFitFun has become something of an online phenomenon, conducting carefully planned social media campaigns to great effect. There is value for customers, too, with the company putting $200 worth of products in each box, at the cost of $50 for subscribers.
Consumers have the opportunity to pay seasonally for boxes, never committing to more than one at a time, or paying for an annual subscription for an even more substantial discount. This "curated bundle" model has translated into numerous niches, too, and can be adopted successfully in any industry.
With Netflix becoming a household name and millions of people across the globe utilising its services, Netflix is a keystone example of the potential of the subscription-based model. Indeed, with such a large number of viewers paying a monthly fee of what is currently around $13 per month for a standard plan, it's no surprise that the likes of Amazon, Apple and Disney are all looking to get in on the act.
Netflix has been able to diversify, too, expanding into the production of its own hugely successful and critically acclaimed original content, as well as repurposing existing content. Indeed, the carefully-marketed exclusivity of its own creations – such as Stranger Things, You and 13 Reasons Why – provide continual value for subscribers, while the immediate streaming release of several Oscar-nominated films (including The Irishman, Marriage Story and Roma) suggest significant changes over the coming decade for how we consume new cinema releases.
If Netflix is the king of the video streaming model, then Spotify is its audio streaming equivalent. Although as much a freemium model as a subscription service, it can be argued that the free version is essentially an ongoing trial: the paid version contains no in-app advertising, and allows users to listen to music and podcasts offline. With 75 countries currently able to stream music, and licensing agreements in place with hundreds of record labels and their artists, Spotify has managed to bridge the gap between piracy and overpaying for music in the notoriously volatile music industry.
The numbers add up, too; the company has around 100m premium subscription customers worldwide, resulting in a profit of $1.69bn in 2019 alone.
Owning a vehicle can become expensive, particularly when you do not plan on using it regularly, and insurance and maintenance fees are rising. Car rental company, Zipcar, offers a subscription model whereby drivers can pay a small fee of around $7 each month to have access to a wide variety of cars that can be rented by the hour or by the day. Because this subscription includes insurance, 124 miles (200km), and a complimentary gas card in each car, Zipcar has solved a big problem for occasional drivers.
The company's marketing extends beyond the occasional driver looking to get around, too, appealing to a growing number of environmentally conscious consumers seeking alternatives to owning a vehicle. After all, with Zipcar's 12,000 vehicles resulting in an estimated 156,000 fewer cars on the road, and each of these cars serving 80 people (while eliminating the need for 13 personally owned vehicles), it is undeniably the greener choice.
When considering the above six subscription business model examples, it becomes evident what a robust and flexible method it is. By delving into the reasons as to why each of these companies is successful, you can develop ways to expand your own business plan and implement elements of this approach. After all, by acknowledging where, why, and how others are prosperous, you can adapt their techniques to best suit your niche.
Which of these subscription-based business model examples are you most enthused over? Do you think this business model would work well for your own company? Let us know your thoughts in the comments below.