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The Power of Subscription-based Business

Consumers like a deal, and they are willing to subscribe to a service to get it. They don’t want to be tied down by bundled services or limited choices. They want scaled subscription options tailored to their needs. This is why you’ve seen an explosion of companies adopting subscription-based business models. One company that has become wildly successful using this model is Netflix, a company that earned $1.48 billion in revenue in the 4th quarter of 2014! In this post, we’ll dive into how several companies are excelling using subscription-based services.


netflix versus hbo

Netflix has single-handedly changed the face of entertainment, with its cheap subscription options for unlimited streaming videos. In fact, other companies are struggling to keep up and some of the big networks are about to be left behind. Netflix has now surpassed HBO in subscription revenue. Why? Here’s what we think:

  • Netflix offers scaled subscriptions – This means that customers can choose how much or how little of the service they want.
  • HBO offers bundle-only access – On the other side, HBO was one of the few reasons people kept their onerous cable bundles. I say was, because they FINALLY decided to open up a streaming-only service, available this month.
  • Netflix caters to customers – It is affordable, tailored to customers’ interests, and they are able to watch it on multiple devices at no extra cost.
  • Subscription-based billing is better – Subscription-based billing (especially scaled) is something customers want, but it’s also better for many companies. It ensures a constant stream of revenue and customers are more willing to pay several smaller amounts than one big amount.

HBO is still more profitable than Netflix with $548 billion versus Netflix’s $71 billion. Only time will tell Netflix will continue to rise and if HBO made the changes soon enough.

tesla does what

Tesla is even getting into the subscription SaaS (Software as a service game). Teslas Model S service plan looks a lot like a subscription business, plus software updates will come to the vehicle not unlike a phone OS update. Will this sell? At $600 a year it’s hard to tell. So far, Tesla has been completely successful and popular (for people who can afford the cars) and investors love the company. Here is what the subscription would offer:

  • Inspection
  • Replacement parts like brake pads and windshield wipers
  • 24-hour roadside assistance
  • System monitoring
  • Remote diagnostics
  • Software updates

There service is a little-less company friendly than Netflix though. If customers don’t pay for the $600 (it’s cheaper if prepaid) service plan, their warranty is void!


razors in the mail

Proctor & Gamble is taking a stab at the subscription razor delivery market. Companies like the Dollar Shave Club have had a corner on that market for a while now. Traditionally, consumer items like these have been brought in the store on an as-needed basis, but subscription services like these save the customer a trip to the store and create welcome revenue for companies. Here is why it’s popular:

  • Saves time
  • Refill reminders make it easy to remember
  • Saves money (in some cases)

All of these services have something in common – subscription-based sales models. However, one important business theme for 2015 is customer-oriented service. If you always have the customer in mind and make it as easy for them as possible, they will come back and re-up that subscription when the time comes. As the competition gets fierce for these types of businesses, I think whether or not they put the customer first will be the difference between success and failure. Either way subscription billing models are powerful.

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