Business Models are in the Eye of the Beholder

Jen van der MeerBusiness Model Practice

Subscriptions are the Future! Subscriptions are Antiquated!

What can we read into the counter trends in subscription models? In the nearest future, will can extrapolate and see everything we used to own being delivered, via drones, our door, while we consume all of the media we want for “free” in exchange for native advertising?

In the West Village, where I live, recycling night is a chance to learn about the latest trends in consumption. Each week there are less magazine and newspaper piles, but more subscription economy boxes.

A recent tour revealed the rise in what we’re willing to receive, boxed up, each week or month, on a continuous basis: Birchbox, BarkBox, Blue Apron, Frank and Oak, Stitch Fix, Hello Fresh, Rent the Runway, Nature Box, and for each one of these boxes count about thirty for Amazon Prime.

Why subscription?  There are a number of cultural trends driving adoption of these new models:

From things to services: in an attempt to simplify and declutter, we seek experiences that are temporary, rather than assets we have to store (especially in an urban apartment)

From shopping as pleasure to shopping as a time suck: especially for daily needs like food and beauty products, we want time-saving convenience which reduces our cognitive load

From ownership to rentership: especially for 20-30 somethings who grew up during the recession, cars, mortgages and other big ticket items are seen as a risk rather than investment

From lump sums to monthly fees: we perceive a cost savings in a monthly subscription, and that the value of convenience, simplicity, and time savings is worth the value

Clearly startups are innovating to turn everything we consume into a subscription model.

So why do so many people in media still herald the death of subscriptions?

“Subscriptions are antiquated” – Elise Layton, Director of Revenue Operations at Apartment Therapy said at an Economics of Digital Media event a few weeks ago. Young guns on the “business side” of new digital media companies, Apartment Therapy, Gawker, Yahoo and Medium, spoke about their strategies to make money.

Yet there are tradeoffs in the advertising-supported models, particularly the tradeoff between ad customers and the audience interested in the content. These digital media companies admit to chasing page views, and an increasing reliance on programmatic advertising, those real time auctions that allow advertisers to buy guaranteed impressions but are known to deliver slow-to-load ads.

Native advertising, articles and videos that are created in the same format as the digital media property, was heralded as digital media’s savior. The only ad unit that seems to fit on a mobile phone, because it’s designed to be part of the core experience, native advertising also works in a culture aggressively adopting ad blocking technology. Gawker has a staff of 20 copywriters and designers creating these native posts, and Joe Purzycki from Medium spoke about a new metric for native advertising they’ve been testing: TTR for Total Time Read.

So where is subscription playing out in media, the industry that invented the business model hundreds of years ago?

Premier publications with long established credentials and niche well-to-do audiences with like FT.com, HBR, and The Economist have been able to charge subscriptions, offering a number of articles for free, and then setting up a paywall for full access.

But for newer digital media companies, those that have experimented with subscription have uneven results. The Daily Dish which was able to get to $1 MM before being shut down by its founder, Andrew Sullivan. GigaOm went bankrupt trying to figure out a more lucrative model behind the paywall that Business Insider is now attempting: subscription fees for research services. The Information charges $399 for promising the most valuable news in the tech industry, along with other hyper niche news sites and blogs, but doing so seems to acknowledge a much smaller user base.

The sexiest business stories in new media are companies like Vox and BuzzFeed who are chasing massive audiences and growing their advertising base. The upward expectation of growth drives even larger investment valuations. Time will tell if these companies have cracked the new media code, or if the ferocity of competition will limit growth.

 

Where should business model innovators focus their energies when testing and launching new ideas? What is clear is that business model trends are constrained by the dominant logic in any given industry. Consumer behavior is shaped by the offer available within a highly competitive sector like media. Investor expectations influence entire classes of companies to favor one business model over another.

The only answer: build your muscle memory and ability to think in terms of your own business model choices, not just product innovation or the valuation trend of the moment. 90% of all business model innovations recombine existing ideas and concepts from other industries, so constantly be on the hunt for unexpected ideas until you find what drives growth. How are you setting up experiments that you define and test to determine your company’s trajectory?

Read more about the subscription model at Reason Street’s Business Model Library, and our Business Model Journey Workshop to learn about emerging business models that are generating revenues, and which ones are generating profit (and which are not). Explore new sources of revenue, in new combinations with your existing business.

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Reason Street's Most Popular Business Models

Pay-Per-Use

In a pay-per-use business model, use of a product or service is metered, and customers are charged when they use the service. “Pay-per-view TV” and online journal publications, custom research firms, who sell access to high value content on a per use or per download basis.

Two-Sided Marketplace

A two-sided-marketplace business model is a platform for economic exchange between two distinct user groups that provide each other with the benefits of a large network.

Business Model: Subscriptions

The explosion of the “subscription economy” is upon us with everything from flowers to car sharing to data storage to beauty care products now being billed to us on a monthly basis.

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