The subscription model invades everything

The subscription model has existed long before Netflix: newspapers, insurance, club memberships are old forms of the same principle. But the combination of digital payments, automatic billing and low marginal cost of digital products caused the model to expand explosively over the last fifteen years. Today there are subscriptions for software, music, films, books, video games, professional software, prepared meals, clothing, cosmetics, cars and even toilet paper.

From the business perspective, the model has obvious advantages: recurring and predictable revenues, higher customer lifetime value, ability to invest in user acquisition with greater tolerance for payback periods. The metrics that define the health of a subscription business — MRR (monthly recurring revenue), churn rate and LTV (customer lifetime value) — became the common financial language of much of the digital economy.

For consumers, the equation is more ambiguous. The flexibility of paying a monthly fee instead of buying a product is attractive when usage is intensive. It becomes a trap when subscriptions accumulate and the total monthly spend exceeds what ownership of the same product would cost. Consumer behaviour studies show that people systematically underestimate how many active subscriptions they have and how much they spend on them per month. The deliberately opaque design of cancellation processes is part of the business model, and is beginning to generate specific regulation in the European Union and in several US states.