In my last trends piece for Econsultancy I talked about the age of subscription. I think it’s really interesting how all the focus recently has been on so-called ‘unicorns’ (startups that have acquired a sizeable valuation in a short space of time) and yet much of the disruption in various sectors actually comes from a raft of early-stage and more mature startups ‘unbundling’ product or sector portfolios by nibbling away at specific product or service areas or offerings. CB Insights have a range of neat graphics showing the unbundling of a broad range of sectors. One of the more interesting is the unbundling of Procter & Gamble’s portfolio through a range of smaller competitive businesses and startups that are using digital capability in new ways to usurp the incumbent way of doing things. Disruption, it seems, is hitting every sector including ones characterised by physical products like consumer packaged goods.
A good example of this came recently when Unilever bought Dollar Shave Club for a billion dollars. There was a lot of coverage of the deal that posited that it reflected the renewed strength of e-commerce-based operations, but perhaps the most insightful analysts pointed out that the reason that Unilever paid so much for the upstart business (more than five times earnings) was because it had built such a powerful brand in the space of only four years. The value in Dollar Shave Club came not just from e-commerce but from a subscription-based model that enabled it to develop a unique, ongoing, loyalty-based relationship with a sizeable audience of men, that was empowered by digital. The business had of-course upended the industry's traditional models through a subscription service selling and shipping blades for as little as $3 a month.
Unilever’s acquisition may well be a sign of the broader outsourcing of innovation that can go on when big businesses buy-in innovative small start-ups and bring scale and repeatability to their model. But I think it’s also interesting to reflect on the value that is being derived from digitally-enabled subscription models. And whether, as one of the slides in this Zuora presentation posits, we are now not only in a customer-centric world, but increasingly a relationship-centric one. The value in ongoing relationships of-course is in the data. As Zuora also point out, a simple customer record may give you contact and basic demographic and behavioural data but in the world of the single customer view the value is increasingly in the rich data from ongoing relationships - product, payment and purchase history, lifetime value, geo-specific data over time, promotions response, usage metrics, renewal value, up-sell and cross-sell potential, other behaviours.
This is of-course not a new idea, but it seems to be taking on a deeper and wider significance in the digital world. Think about all things you subscribe to now - personally I’d struggle to name them all there’s so many. The masters of this now are of-course Amazon, through Prime (Consumer Intelligence Research Partners have estimated that as of late June Amazon had 63 million Prime members in the US, up 19 million year-on-year). This year’s annual Prime Day, was it’s biggest ever with orders rising more than 60 percent year-on-year. They’ve been slowly expanding the footprint of their Prime Now service beyond major conurbations in the US and UK to provide an exclusive one-hour delivery capability on thousands of products.
And Amazon also unveiled the first in their planned fleet of new cargo jets, a Boeing 767 emblazoned with ‘Prime Air’, one of 40 that it has agreed to lease. A recent Deutsche Bank report predicted that Amazon’s unprecedented logistical operation will soon stretch direct from factories in China to customers in the US and Europe via its fleet of cargo planes, network of logistical centres, but also self-driving trucks and drones. The report noted that they already have a patent for what they call “anticipatory package shipping” technology, which for example will anticipate what a Prime subscriber is needing to buy and ship the goods to local distribution centres ahead of their order to ensure prompt delivery. That’s another layer of value that comes from being relationship-centric rather than customer-centric, and one that has the potential to create a huge competitive advantage.
Already we’re seeing some interesting side-effects. A recent 2000 person survey commissioned by the e-commerce startup BloomReach found that 55 percent of online shoppers start their product searches on Amazon rather than Google (up from 44 percent from the same survey a year ago). The value is in being the gateway. And as more and more products turn into services, the value of subscription as a model can only increase.