 | This article possibly contains original research .(June 2020) |
The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of books and periodicals in the 17th century, [1] and is now used by many businesses, websites [2] and even pharmaceutical companies in partnership with governments.
Rather than selling products individually, a subscription offers periodic (daily, weekly, bi-weekly, monthly, semi-annual, yearly/annual, or seasonal) use or access to a product or service, or, in the case of performance-oriented organizations such as opera companies, tickets to the entire run of some set number of (e.g., five to fifteen) scheduled performances for a whole season. Thus, a one-time sale of a product can become a recurring sale and build brand loyalty. [3]
Industries that use this model include mail order book sales clubs and music sales clubs, private web mail providers, cable television, satellite television providers with pay television channels, providers with digital catalogs with downloadable music or eBooks, audiobooks, satellite radio, telephone companies, mobile network operators, internet providers, software publishers, websites (e.g., blogging websites), business solutions providers, financial firms, health clubs, lawn mowing and snowplowing services, pharmaceuticals, renting an apartment, property taxes, as well as the traditional newspapers, magazines, and academic journals.
Renewal of a subscription may be periodic and activated automatically so that the cost of a new period is automatically paid for by a pre-authorized charge to a credit card or a checking account. A common variation of the model in online games and on websites is the freemium model, in which the first tier of content is free. Still, access to premium features (for example, game power-ups or article archives) is limited to paying subscribers. [4]
In addition to the freemium model, other subscription pricing variations are gaining traction. For instance, the tiered pricing model is frequently used in software as a service (SaaS) platforms, offering customers different access levels and features based on their subscription tier. This model is particularly effective for tailoring services to customer requirements. Another approach is the usage-based pricing model, which calculates charges based on the extent of service or product utilization by the customer. This model is becoming increasingly prevalent, especially in services where customer usage varies significantly. [5]
There are different categories of subscriptions:
In publishing, the subscription model typically involves a paywall, paysite, or other "toll-access" system (named in opposition to open access). As revenues from digital advertising diminish, a paid subscription model is being favoured by more publishers who see it as a comparatively stable income stream. [8]
In the field of academic publishing, the subscription business model means that articles of a specific journal or conference proceedings are only available to subscribers. Subscriptions are typically sold to universities and other higher education institutions and research institutes, though some academic publishers also sell individual subscriptions or access to individual articles.
In contrast with other media such as newspapers, subscription fees to academic publishers generally do not go towards supporting the creation of the content: the scientific articles are written by scientists and reviewed by other scientists as part of their work duties. The publisher does not pay the paper authors and reviewers. In this light, the subscription model has been called undesirable by proponents of the open access movement.
Academic publications that use the subscription model are called "closed-access" in opposition to their open-access counterparts.
Businesses benefit because they are assured a predictable and constant revenue stream from subscribed individuals for the duration of the subscriber's agreement. Not only does this greatly reduce uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, and concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires. [3]
In an integrated software solution, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably more significant than the revenue from simple one-time purchases. Some subscription schemes (like magazines) also increase sales by not allowing subscribers to accept or reject any specific issue. This reduces customer acquisition costs and allows personalized marketing or database marketing. However, the system requires that the business have an accurate, reliable, and timely way to manage and track subscriptions.
From a marketing-analyst perspective, the vendor has the added benefit of knowing the number of currently active members since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates customer relationship management to a large extent because the analyst knows who is an active customer and who recently churned. [9]
Additional benefits include a higher average customer lifetime value (ACLV) than that of nonrecurring business models, greater customer inertia and a more committed customer base as it transitions from purchase to opt-out decisions, and more potential for upselling and cross-selling other products or services. [10]
Some software companies such as Adobe and Autodesk have moved from a perpetual licensing model to a subscription model, known as "software as a service". This move has significant implications for sales and customer support organizations. Over time, the need to close large deals decreases, resulting in lower sales costs. However, the size of the customer support organization increases so that the paying customers stay happy. [11]
Consumers may find subscriptions convenient if they believe they will buy a product regularly and might save money. The customer saves time for repeated delivery of the product or service. [3]
Subscriptions which exist to support clubs and organizations call their subscribers "members" and they are given access to a group with similar interests. [3]
Subscription pricing can make it easier to pay for expensive items since they can often be paid for over time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, which may prevent some customers from subscribing. Fixed prices may be an advantage for consumers who frequently use those services. However, it could disadvantage a customer who plans to use the service frequently but later does not. The commitment to paying for a package may have been more expensive than a single purchase. In addition, subscription models increase the possibility of vendor lock-in, which can have fatally business-critical implications for a customer if its business depends on the availability of software: For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business leaving the customer without a chance to renew the subscription and access his data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades). Also, consumers may find repeated payments to be onerous. [3]
Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists), and this raises issues of privacy. [3]
A subscription model may benefit the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can leave the subscription to expire and find another seller. [12]
Because customers may only need or want some of the items received, this can lead to waste and an adverse effect on the environment, depending on the products. Greater volumes of production, greater energy and natural resource consumption, and subsequently greater disposal costs are incurred.[ citation needed ]
Subscription models also create the opposite effect. This can be illustrated by subscribing to a service for mowing lawns. The effective use of a single mower increases when mowing for a collection of homes; instead of every family owning a lawnmower that is not used as much as the service-providing mower, the use of resources for producing lawnmowers, therefore, decreases while lawns stay cut.[ citation needed ]
Freeware is software, most often proprietary, that is distributed at no monetary cost to the end user. There is no agreed-upon set of rights, license, or EULA that defines freeware unambiguously; every publisher defines its own rules for the freeware it offers. For instance, modification, redistribution by third parties, and reverse engineering are permitted by some publishers but prohibited by others. Unlike with free and open-source software, which are also often distributed free of charge, the source code for freeware is typically not made available. Freeware may be intended to benefit its producer by, for example, encouraging sales of a more capable version, as in the freemium and shareware business models.
Shareware is a type of proprietary software that is initially shared by the owner for trial use at little or no cost. Often the software has limited functionality or incomplete documentation until the user sends payment to the software developer. Shareware is often offered as a download from a website. Shareware differs from freeware, which is fully-featured software distributed at no cost to the user but without source code being made available; and free and open-source software, in which the source code is freely available for anyone to inspect and alter.
Video on demand (VOD) is a media distribution system that allows users to access videos, television shows and films digitally on request. These multimedia are accessed without a traditional video playback device and a typical static broadcasting schedule, which was popular under traditional broadcast programming, instead involving newer modes of content consumption that have risen as Internet and IPTV technologies have become prominent, and culminated in the arrival of VOD and over-the-top (OTT) media services on televisions and personal computers.
In marketing, product bundling is offering several products or services for sale as one combined product or service package. It is a common feature in many imperfectly competitive product and service markets. Industries engaged in the practice include telecommunications services, financial services, health care, information, and consumer electronics. A software bundle might include a word processor, spreadsheet, and presentation program into a single office suite. The cable television industry often bundles many TV and movie channels into a single tier or package. The fast food industry combines separate food items into a "meal deal" or "value meal".
Web syndication is making content available from one website to other sites. Most commonly, websites are made available to provide either summaries or full renditions of a website's recently added content. The term may also describe other kinds of content licensing for reuse.
Pay television, also known as subscription television, premium television or, when referring to an individual service, a premium channel, refers to subscription-based television services, usually provided by multichannel television providers, but also increasingly via digital terrestrial and streaming television. In the United States, subscription television began in the late 1970s and early 1980s in the form of encrypted analog over-the-air broadcast television which could be decrypted with special equipment. The concept rapidly expanded through the multi-channel transition and into the post-network era. Other parts of the world beyond the United States, such as France and Latin America have also offered encrypted analog terrestrial signals available for subscription.
Affiliate marketing is a marketing arrangement in which affiliates receive a commission for each visit, signup or sale they generate for a merchant. This arrangement allows businesses to outsource part of the sales process. It is a form of performance-based marketing where the commission acts as an incentive for the affiliate; this commission is usually a percentage of the price of the product being sold, but can also be a flat rate per referral.
Free-to-play video games are games that give players access to a significant portion of their content without paying or do not require paying to continue playing. Free-to-play is distinct from traditional commercial software, which requires a payment before using the game or service. It is also separate from freeware games, which are entirely costless. Free-to-play's model is sometimes derisively referred to as free-to-start due to not being entirely free. Free-to-play games have also been widely criticized as "pay-to-win"—that is, that players can generally pay to obtain competitive or power advantages over other players.
Software as a service is a cloud computing service model where the provider offers use of application software to a client and manages all needed physical and software resources. Unlike other software delivery models, it separates "the possession and ownership of software from its use". SaaS use began around 2000, and by 2023 was the main form of software application deployment.
Churn rate is a measure of the proportion of individuals or items moving out of a group over a specific period. It is one of two primary factors that determine the steady-state level of customers a business will support.
Freemium, a portmanteau of the words "free" and "premium", is a pricing strategy by which a basic product or service is provided free of charge, but money is charged for additional features, services, or virtual (online) or physical (offline) goods that expand the functionality of the free version of the software. This business model has been used in the software industry since the 1980s. A subset of this model used by the video game industry is called free-to-play.
A revenue stream is a source of revenue of a company, other organization, or regional or national economy.
Website monetization is the process of converting existing traffic being sent to a particular website into revenue. The most popular ways of monetizing a website are by implementing pay per click (PPC) and cost per impression (CPI/CPM) advertising. Various ad networks facilitate a webmaster in placing advertisements on pages of the website to benefit from the traffic the site is experiencing.
A paywall is a method of restricting access to content, with a purchase or a paid subscription, especially news. Beginning in the mid-2010s, newspapers started implementing paywalls on their websites as a way to increase revenue after years of decline in paid print readership and advertising revenue, partly due to the use of ad blockers. In academics, research papers are often subject to a paywall and are available via academic libraries that subscribe.
A la carte pay television, also referred to as pick-and-pay, is a pricing model for pay television services in which customers subscribe to individual television channels. For subscription distribution services, a la carte pricing contrasts with the prevailing model of bundling, in which channels are grouped into packages that are offered on an all-or-nothing basis.
A revenue model is a framework for generating financial income. There can be a variety of ways for revenue generation such as the production model, manufacturing model, as well as the construction model. A revenue model identifies which revenue source to pursue, what value to offer, how to price the value, and who pays for the value. It is a key component of a company's business model. A revenue model primarily identifies what product or service will be created and sold in order to generate revenues.
TV Everywhere refers to a type of American subscription business model wherein access to streaming video content from a television channel requires users to "authenticate" themselves as current subscribers to the channel, via an account provided by their participating pay television provider, in order to access the content.
Video game monetization is a type of process that a video game publisher can use to generate revenue from a video game product. The methods of monetization may vary between games, especially when they come from different genres or platforms, but they all serve the same purpose to return money to the game developers, copyright owners, and other stakeholders. As the monetization methods continue to diversify, they also affect the game design in a way that sometimes leads to criticism.
Software monetization is a strategy employed by software companies and device vendors to maximize the profitability of their software. The software licensing component of this strategy enables software companies and device vendors to simultaneously protect their applications and embedded software from unauthorized copying, distribution, and use, and capture new revenue streams through creative pricing and packaging models. Whether a software application is hosted in the cloud, embedded in hardware, or installed on premises, software monetization solutions can help businesses extract the most value from their software. Another way to achieve software monetization is through paid advertising and the various compensation methods available to software publishers. Pay-per-install (PPI), for example, generates revenue by bundling third-party applications, also known as adware, with either freeware or shareware applications.
In the video game industry, games as a service (GaaS) represents providing video games or game content on a continuing revenue model, similar to software as a service. Games as a service are ways to monetize video games either after their initial sale, or to support a free-to-play model. Games released under the GaaS model typically receive a long or indefinite stream of monetized new content over time to encourage players to continue paying to support the game. This often leads to games that work under a GaaS model to be called "living games" or "live games" since they continually change with these updates.
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