In this day and age, it’s possible to subscribe to everything from groceries and entertainment packages to cars and technology. It’s no wonder then that the average person spends £60 a year on subscriptions. Yet, while subscriptions are currently extremely popular, the subscription model has been around for more than a century and what we’re seeing now is a resurgence. In fact, in the UK, subscriptions to deliveries from milkmen were introduced as far back as the 1860s, while magazine subscriptions began in the late 1800s. These first subscriptions were largely about convenience, allowing individuals to regularly have goods delivered straight to their doorstep.
While milk deliveries remained popular for more than 100 years, with consumers also eventually being able to receive other items such as lemonade, bread and eggs, their popularity began to wane towards the end of the last century. As convenience stores and supermarkets made buying milk both easier and cheaper, the percentage of milk delivered dropped from 90 per cent of the total consumed in the 1980s to just 3 per cent in 2016. However, despite the decline in these types of subscription services, they acted as the catalysts for the booming subscription as-a-service model of today.
The modern subscription model
In the 160 years since subscriptions were first introduced, the landscape has changed significantly, and the model has continually evolved. Now, e-commerce subscriptions tend to fall into one of three categories, each with their own advantages. One of the main benefits of the ‘subscribe for replenishment’ category is that it saves consumers time and money, while ‘subscribe for curation’ surprises consumers with product variety.
Lastly, ‘subscribe for access’ gives consumers exclusive access to items such as clothes or food. In short, with such a wealth of options open to them, consumers can now subscribe to services which regularly deliver everything from snacks and books to clothes and makeup, directly to their front door. These services continue to entice consumers with 12 per cent of people in the UK subscribed to healthy snack subscription service Graze, while almost 8 per cent regularly receive beauty subscription Glossybox.
Similarly, subscriptions for unlimited clothes deliveries are proving popular with consumers, with almost 10 per cent signing up to nextunlimited and 9 per cent to ASOS Premier. Meanwhile, individuals can sign up to the likes of HelloFresh and Gousto to receive weekly meal ingredients. Yet, streaming services come out on top with almost half of UK homes subscribing to the likes of Netflix, Amazon Prime Video or Apple TV+. This surge in demand for subscription services is set to continue with the subscription box market alone expected to be worth over £1 billion in 2022 – a 77 per cent increase from 2017’s £583 million. As the range of subscription services on offer has increased, so too has their appeal.
Consequently, businesses are now also signing up to subscription models for everything from fruit and milk deliveries to office furniture, printers and laptops.
What can businesses gain from subscription services?
For businesses, there are a number of significant benefits to subscription models. In the past, most large organisations would purchase any required technology ‘outright’ and then depreciate it over time on their balance sheet. Today, many businesses don’t have the cash flow to fund large scale technology transformation projects up front or they may not want to have such visibility on the balance sheet. However, as subscriptions have evolved, they have offered a solution to this problem, allowing organisations to obtain the resources they require without the burden of large upfront investment.
Technology can provide a competitive edge to all manner of industries and businesses when deployed effectively. However, for large operations, getting sign off on budget can be a long and laborious process. With subscription services, there is no waiting time and even existing legacy technology can be added to the solution. In addition, in times of uncertainty organisations can feel insecure about funding their technology transformation projects without damaging cash flows. This is something we have seen with Brexit as analysis of data from the Office of National Statistics shows that businesses have invested £22bn less in the last two and a half years because of the uncertainty it has caused. While this might be financially prudent, businesses still need to operate as usual and maintain their competitive edge in a global market. Technology is a critical component of this — not only is it crucial in supporting staff, operations and customer interactions, it can also improve business agility and responsiveness to changing market conditions.
Therefore, using a subscription model can ease the burden of any upfront technology investment, whether it is needed for business-critical reasons or not. It can balance the investment by relieving the burden on capex while delivering on the business’s objectives. This then frees up the company from the challenge of diverting funds from other services over technology to remain operational and agile. Additionally, many organisations will already be accustomed to this type of model as they use them to provide the funding for large purchases such as cars and furniture.
The future of the subscription model
Without a doubt, the last decade has seen a real resurgence of the subscription or as-a-service model with the market having grown by more than 100 per cent a year over the past five years, according to McKinsey. This popularity is likely to continue as new services launch and existing ones continue to strengthen.
While the current iteration of the subscription service is a far cry from the initial concept introduced back in the 1800s, the basic principle remains the same – convenience. Subscription models enable both individuals and businesses to obtain the goods or services they require in an ongoing and easy fashion. In an unpredictable economic climate, subscription models help businesses continue to access much-needed resources, allowing them to remain agile and competitive, without having to make substantial investments. Further to this, subscription models provide an excellent way to respond to challenges, changes in market conditions and the needs of both employees and customers in a risk-free manner.
And, with Brexit on the horizon, this could be more valuable than ever. As more companies begin to offer subscription models, the range of items and services businesses will eventually be able to access through this method will be endless.
Chris Labrey, managing director, Econocom UK & Ireland