It seems subscription commerce is now supplying unexpected answers to all kinds of business challenges, even those that have haunted the music industry for some time now. Remember the golden age of controlled content and record profits before demand shifted from compact discs to MP3 singles? The bottom fell out when Napster disrupted things back in the late 1990s and it’s been a continual problem ever since then.
Pandora, Spotify, and Rdio attempt to address the problem with a mixed revenue model: free content subsidized by ad revenue combined with premium service for paid subscribers. Unfortunately, they compete with each other as well as underground file sharing services. The result is that these Internet radio suppliers struggle to achieve profitability, caught between listeners and recording companies with high expectations. Consumer adoption of these services has been tremendous, but the business potential points to either a cut-throat race to the bottom with already thin profit margins or widespread consolidation.
Recent rumors and news from two huge new players, Apple and Google, will almost certainly upset the current shaky balance. Apple is expected to launch iRadio as early as this summer, leveraging licensing agreements and a massive user base from iTunes. Seemingly out of nowhere, Google shows up with news of All Access. Available in some areas now, All Access offers unlimited streaming music for $9.99 a month. What strikes me as noteworthy is that both of these services are based entirely on subscriptions. They take a hard left turn away from the standard free option supported by ad revenue.
So why is all of this happening now? Why does a notable uptick in news from major companies rolling out new subscription services keep coming every week? Is this the dawning of a subscription commerce era? I believe this tectonic shift is not unlike past business evolutions. Consider these notable examples:
- At its invention, the telephone, though a clever device in and of itself, was mostly a novelty and a luxury. Operators making manual connections were labor-intensive and expensive. The appearance of the automatic switch made the process more efficient and less costly, and demand followed. Widespread deployment made the telephone part of the modern way of life.
- Before credit cards, revolving credit was specific to a particular merchant. By centralizing all aspects of credit approval, working with thousands of merchants, and combining charges into a single bill, Bank of America revolutionized an ancient element of doing business. The initial launch of the BankAmericard stumbled, costing the bank a great deal of money, but management adapted both their business model and operations to achieve success.
In both instances, three key factors were at play: technology, infrastructure, and business agreements all converged, creating potential for a new market. A new but robust revenue model provided a path for growing profits. Not coincidentally, both of these past examples utilized recurring revenue streams. Finally, there is social acceptance of the product and, at last, an emergent, growing demand.
I contend we are seeing a fundamental shift towards businesses developing subscription commerce solutions because all three of these factors are present. Brand-name giants are recognizing the advantages of predictable revenue streams and the possibility to maximize long-term profits. Customers are agreeable to, and even prefer, planned costs spread out over time, while cloud-based billing software makes the ongoing relationship efficient and consistent.
It now appears as if a subscription-based model can even solve the long and ever-evolving dilemmas of online music distribution. Who knew?
– Andy Eliopoulos, Aria Systems
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