Unlock Editor’s Digest Lock for Free
Recently, almost everything has been repackaged as subscription-based services. It’s not just streaming services and magazines. From razor blades to clothing and imperfect produce, more and more companies are turning one-time sales of their regular products into subscriptions.
For users, the subscription economy promises convenience. For businesses, these automatic renewals are a source of stable, repeating revenue.
However, there is a huge difference between companies that have evolved to provide infrastructure in people’s lives and companies that aim to provide goods regularly.
Netflix, Spotify, Disney+ and others have successfully tested the inelasticity of their services’ demand, driving consecutive price increases without losing subscribers.
On Amazon, the number of US Prime members has increased from 112 million in 2019 to 194mn in 2024, according to Analytics Firm Consumer Intelligence Research Partners. The $14.99 a month they paid contributed to the $44.3 billion subscription revenues raised by Amazon last year.
It is much more difficult to sell regular products regularly. Blue Apron, a New York-based meal kit service, was released in 2018 with a valuation of just under $20 billion. It was acquired two years ago for just $103 million. Shares of competitor Hello Fresh are trading in less than a tenth of 2021. Curated toys, bark, which handles dog services, and Stitch Fix, a personalized clothing service, are both down about 95% from its peak.
The problem with selling “things” is that novel factors are exhausting, and a low barrier to entry means there is a lot of competition. High churn keeps the cost of customer acquisition and retention. Neither Stitch Fix nor Bark have made any profits in the last five years. Furthermore, the economy of packaging and shipping physical goods is much more difficult than the economy of streaming music.
The biggest streaming services require ample sustainability. Among them, members over 750mn are paying monthly fees. That’s reflected in their premium ratings, with Netflix’s forward revenue of 43x and Spotify’s 58x. Their size and vast content library should be placed at the bottom of the list of things consumers choose to cut. However, the gap between winners and losers can only be widened as financially bound consumers slim their sublists.
pan.yuk@ft.com
