Subscription models have become the new normal in our economy. The average U.S. households, have twelve subscriptions in the entertainment space alone, such as on-demand video, magazines, music, and many more.
While there are many benefits of subscription models, there are equally impactful disadvantages too. These disadvantages are sadly not top of mind, which is why I have outlined the most important ones below:
Too many subscriptions cause subscription fatigue
Subscription fatigue occurs when a consumer isn’t using a subscription to its full potential, or feels that the service is too complicated. The result in many cases over time is that the person will unsubscribe the subscription service.
Did you know that pre-covid, the average household had twelve subscriptions distributed across the media & entertainment space? These can be anything, from subscribing to a music service, to magazines or video on the demand. That is an interesting number especially considering what the impact of so many subscriptions can be on a consumer.
Frankly with an average of twelve subscriptions per household, a lot of individuals in this household will get to the point where they’re getting tired for having so many subscriptions. Or simply feel that they do not to pay for more subscriptions.
Which means that the consumer might think about cutting down the number of subscribed services or decides that more subscriptions are really not necessary. consider which service is no longer worth paying for.
This tiredness or boredom of subscriptions is defined as having subscription fatigue. This means that consumers are getting bored and tired of subscriptions, and do not want to add more subscriptions to their portfolio – they likely decrease the number of active subscriptions.
To give you two examples how and why people reach this subscription fatigue stage:
- The subscription is too complicated.
- There are too many products, and I can’t use them all.
You never own – you merely rent a product/service
Purchasing a product or service then, gave you ownership over it. Today, you merely rent a product or service, regardless of how much money you’ve paid over the years. Access can be taken away in an instant.
The world a decade ago looked quite different than it does today. Back then, the idea of renting a product or service and not owning it, would have simply been discarded as a hoax. The normal way of doing business then, was that people would purchase a product or service, and then own it forever.
For many physical products, this concept still applies today as well, a product once purchased, makes the owner responsible for it. Meaning, the owner needs to take care of its maintenance, repair, and generally checks if the product is still functioning properly.
Again, this still largely applies to quite many products today, such as cars, which are still largely relying on exchanging money, paying the full price once (or with a loan), but then actually owning the car.
Back then the same also applied to software products where you simply go to the store, buy the CD, and then install the software on your computer.
If you’d want updates, or better versions of the software, then in many cases you would have to pay for said update or newer version later. It also meant that you’d have to manually update or reinstall the new software.
However, this entitled you to use and install the software wherever and however you see fit. Obviously not on dozens of devices, or that you could post it online and make it available to anyone, but you had a much higher degree of freedom.
With the rise of subscriptions today for practically anything, from things such as video streaming services, bike rental, construction machines, parasite removal, food boxes or even cars – anything is possible.
And yes, while there are some benefits to that, the fact of the matter is, that a significant amount of people did/do not want to pay a monthly fee, to keep using a service or a product. This is especially true for the boomer generation who grew up with an ownership model.
People felt heavily betrayed when organizations started switching service and product prices, which previously always had a fixed price point, to a subscription model with a monthly fee.
One such organization was Adobe with their design tools such as Adobe Photoshop. Previously purchasing photoshop was a one-time payment, and the newest version of Photoshop, would last you the next couple of years, if not longer.
However, the organization decided that the current model wasn’t lucrative enough, so they changed their offerings to a subscription service. Again, not everyone was against this, but quite many people did feel a little betrayed by that.
Especially common with subscription services is that, once you decide to “unsubscribe” you will typically loose access immediately, no matter how much money you’ve previously paid.
Audible (a place to listen to audiobooks), offers a subscription for $10 (at the time of writing), where you receive one credit every month, which can be exchanged for one audiobook.
If you haven’t exchanged that credit for, say the next three months and you decide you want to cancel the subscription – all previously purchased credits, which you could have exchanged for audiobooks – are gone as well.
A significant disadvantage of subscription models for some people, looking from a consumer point of view.
Sharing isn’t possible anymore
The concept of sharing isn’t intended anymore today. For example, borrowing a game was easier then, since there were no logins and such to proof who the owner of the game is. Today, accessing a game from another person will require you to sign up to the service as well.
Do you remember the time where you could simply go and ask your friend or your neighbor if you could borrow a music CD? Or when you were borrowing PlayStation 1 games from your friends, which you can then play through, an entire weekend. Good old Crash Bandicoot times.
Well, this kind of exchange was normal, more than two decades ago somewhere around 2000 – 2010. Today, not so much. With the rise of the internet, and the concept of a subscription model, sharing a piece of software or a simple CD is simply not possible/intended anymore.
The organization who creates these services or products, benefit from this, because they reduce the number of pirated music tracks of software licenses. Today a consumer needs to be enrolled in a plan to have access to the software, e.g. Adobe.
So again, this makes complete sense from a company point of view, to prevent any unfair treatment of their intellectual property. Like giving an Antivirus software which, the organization has developed to a bunch of friends.
From a consumer point of view, well I quite liked to exchange music CDs back then, listen to it for some time and then give it back. This ultimate benefit as a consumer is no longer possible.
Subscription offers are irresistible
Organizations have mastered the art of crafting enticing sign-up offers to get users to subscribe. Combining this with the ease of how simple it is to start using many subscription products or services, can make it difficult to say no to.
One key feature of a subscription is usually the low barrier to sign-up/entry. Which makes sense, you as a consumer, want to have the easiest and least expensive experience, to first give the product or service a try. Organizations do this by creating simple low/barrier offerings, typically low priced or even free, to make a consumer give the service or product a try.
- Small sign-up fee
- No sign-up fee
- Pay less for x amount of months
- Receive sign up bonuses
All these models try to get a consumer to subscribe and use the product. If the consumer has used the product and is satisfied, he will continue paying for it – which is of course great, especially if all parties are happy. The consumer might not have tried the service if he’d have to pay the full price from the start, since this might feel too much of a commitment.
Because these subscription services are so easy to subscribe to, it makes it for many people impossible to resist the urge to just try it. In many cases you might not even need the subscription, but the low barrier to entry was reason enough to give it a go. If you then loose track, you might become stuck with dozens of subscriptions. I hope you can cancel at least anytime.
If you’re curious let me quickly explain the previously mention ways an organization set the barrier to entry really low:
Having a small sign-up fee
This is a customary practice for a lot of organizations. Amazon is doing this in such an intelligent way that you just must sign up.
As a consumer you can have access to Amazon Prime (premium shipping) for $1.99 and use it for seven days to trial it. If you are happy with the service, or if you forget to unsubscribe you start paying the full price of Amazon Prime for the next month.
The price tag of $1.99 is so incredibly low, that many people simply sign up to see how the offering is. Frankly having access to all of Amazons products (Prime Video, 1-day shipping, etc.), is in many cases convincing enough that people stick to it.
However, a lot of people might not have given it a go, if they’d have to pay the full monthly price right from the start to test Amazon.
No sign-up fee – it doesn’t cost anything
Even better the no sign-up fee example. Organizations pursuing this model want to give consumers a way to trial the software or the product, without having to worry that they waste any money at all.
This is another way to set the barrier for consumers to sign-up as low as possible. Ultimately increasing the chance that consumers will continue using the subscription service.
Side note: This is in many cases not the best model because it sets the barrier for a consumer to low. If a consumer is not willing to pay for the service at all, not even $1 then how likely is it that he/she will pay the service later.
Which is why prompting a small sign-up fee can be in many cases better since it is weeding out people who’re not going to become a subscriber later anyway. This saves resources on the organizations end.
Pay less for x number of months – and then full price
This is a model you are certainly familiar with if you’ve ever signed up for a cell phone contract. What many cell phone carriers are doing is that they convince you to join because of a low-price tag, which you must pay for 12 months.
After the 12-month period has ended, your costs are going to increase for the next 12 months. The last part is usually written in small letters somewhere on the offer.
This makes sense because it doesn’t look like such an expensive price tag at first, so more people will sign up. The only downside is that 12-months from now your wallet will feel the pain.
Hooked with a sign-up bonus
Another common approach to set the barrier to entry as low as possible, is that organizations offer a sign-up or loyalty bonus. Many times, a sign-up bonus is a discount where you are signing-up likely due to a marketing promotion, or a friend simply invited you to subscribe, and the both of you receive a coupon or some money, which you can spend on the company’s services or products.
Another way lays in handing out the sign-up bonus later. Meaning you receive the bonus after you’ve been a customer for say 6 months. Energy provides sometimes do this, by handing out cash awards three, or six months into the subscription. It’s convenient and makes you happy as a consumer, that the overall cost has been reduced, plus your brand loyalty has been rewarded.
Subscriptions can result in an addiction
Subscription offers such as receiving recurring subscription boxes, pose a threat of turning into an addiction. The continuous thirst of getting another thrill from receiving a package and the many options of subscription to sign up to might lead to burning a person’s fortune.
Millenials and the Gen Z population are primed with a need for instant gratification. That is in many cases what they want and what they have gotten used to. Think of the convenience of Netflix and on-demand video. Watching your favorite Tv Shows wherever and whenever you want. Or Amazon Prime with it’s one day or even same day delivery offering.
If you’ve experienced a service like this then you might not be able to imagine your life without it – waiting two or more days for shipping is crazy. Amazon Prime and Netflix are examples of subscriptions which are viewed as essential to everyone’s life.
Developing an addiction for continuous purchases, or a need for more movies and TV shows is bad enough. However, what the industry sees and what happens increasingly, is that people start getting addicted to the thrill of continuously receiving packages.
There are two options to these packages, you subscribe to a subscription box where you know the content, or you subscribe to a subscription which sends you products without you knowing it at all.
To give you more perspective check out this real-life experience where a person has had a subscription box addiction and describes this in more detail: Post.
These subscription boxes can contain everything from food, to clothes or simple beauty products. The thrill comes from not knowing what is going to be in the box. So, a person might start to fever for the next box to arrive – especially in a time where there is not much else to do during the pandemic these small gifts to yourself do sound like a fun change of the day-to-day routine.
This can however become an addiction quickly if you’re not able to afford purchasing these subscription boxes months after months, but you absolutely must, otherwise you feel empty and bored and such. What’s worse is that there are thousands of subscription boxes which you can subscribe to as well.
Of course, not everyone will experience this but just keep in mind that this can become a subscription model disadvantage, which we need to be aware of.
Repeatedly paying, but not using the subscription
Many consumers fall into the trap of signing up for a subscription but cannot manage to actively use the service or product. Which will result in frustration and a waste of money.
You’ve read that right. Have you ever signed up, paid even, for a product or service which you’ve then never used? You know, something like a gym membership which you’ve continuously paid for? Well, I did, for years. I’m apparently not alone with this, at least when it comes to the gym membership.
It is thought that 80% of people who do have a gym membership, are not going to the gym. Which can be a reason approximately 80% of people who did sign up for a gym membership are not making it past the 5-month mark back in 2012. Combining this with the usually 12 months minimum contract many people must sign up to, then – well, might as well burn the money to heat up your apartment in winter.
The concept of the gym membership can be applied to all sorts of products or services. The sad part that once you signed up, the organizations might simply not care if you use the service. Not all organizations, but many.
Which means once you opt-in to the, “set it and forget it” benefit of a subscription you will get billed every month. Again, it doesn’t matter if you use it or not.
Another notable example is the hype about subscription boxes. You can sign up and pay a fixed amount per e.g., month to receive a random collection of items – think of a variety of different beauty products and such.
The value you pay for the subscription box might even roughly match the actual cost of the products. And the real excitement of these boxes usually lays in the excitement of receiving a package without knowing what’s inside, every month. It’s like a small birthday gift.
However, in many cases the time it takes to consume every item in the subscription box, is usually not enough for the next box to arrive. If you receive five different shampoos and you only manage to finish one or two until your next box arrives. Then you’re paying again for something you are not using.
The overall cost is higher
Purchasing a sole product can seem more expensive as signing up to a subscription service. However, the longer a person is signed up to a service, the more likely it becomes that the overall cost to use the services overtakes the one-time purchase cost.
Imagine that you want to watch a Star Wars Movie – let’s say Star Wars Phantom Menace. You go to a store and buy the movie for say, $10 on a DVD/Blu-ray – a physical disc – which you manually insert into a DVD/Blu-ray player, to be able to watch the movie (crazy I know).
The benefit is that you own the disc, which means that you had a one-time cost in acquiring the movie but no recuring costs thereafter. The downside is that you can only watch that one movie. What if you’d want to watch the other movies of the Star Wars franchise?
There are currently nine Star Wars movies, and some more additional movies out there. Priced e.g., each at $10, and you wanting to buy them all, would put you at $90 for the main plot movies. Not optimal either.
This is how subscription models come into place, by offering an affordable recurring cost such as $10 per month, for the ability to watch every single Star Wars movie, in the organization’s movie library, e.g., Netflix. You can watch all the movies of Star Wars and the ones from let’s say Lord of the Rings, without paying anything extra. Pretty nice.
Now, say you’ve been subscribed to a service for the last 12 months, which costs you every month $10 dollars, so a total of $120 per year. Of course, factoring in the benefit of being able to watch dozens, if not hundreds of other movies, does make a compelling case for paying more than what you would have just paid for owning nine Star Wars movies.
However, the fact is that over time subscriptions will cost you more than if you’d have purchased the product in the first place. Now you probably screamed already, when I mentioned that Star Wars is on Netflix, I know it isn’t.
This brings us to the more dangerous aspect of subscription costs – signing up for multiple subscription services to receive a different kind of content or quality for example.
See the Star Wars brand is owned by Disney, which has their own movie library to offer for a I think $8 a month. So, if you want to watch Star Wars, but also keep watching Lord of the Rings you’ll have to sign up for another video streaming service.
This behavior is incredibly common for example in the United Kingdom, the following statistics gives you an indication about, how many people are subscribing to more than one service in the younger generation:
UK Netflix subscriber’s crossover with other services by age
| Services | % of 16+ streamers | % of 16-34 streamers |
| Netflix only | 25% | 22% |
| Netflix + Amazon Prime | 29% | 26% |
| Netflix + Disney Plus | 6% | 10% |
| Netflix + Amazon Prime + Disney Plus | 18% | 26% |
16+. Base: online adults 16+ who subscribe to at least one of Netflix, Amazon Prime Video or Disney+.
This behavior becomes dangerous because these smaller costs can rack up quite significantly over time. Subscribing to Netflix ($8.99), Amazon Prime ($12.99), and Disney Plus ($8) on a monthly basis can cost you $347 a year – if not more depending on the packages you choose.
Not everything should be a subscription
Organizations are incentives by the economy to use a subscription model. Which leads to many organizations trying to take their products or services and simply offer them as a subscription. Which results in a usually poor offering and unhappy customers.
With more organizations realizing that a subscription model brings in a recurring revenue stream, the added side effect of being able to understand how customers are using a service over time, by analyzing their behavior, does make a compelling argument for organizations to jump on the subscription model train.
Just looking how the Apple store is currently compensating app creators, can give us another angle on where the economy as a whole could be headed.
The Apple store, keeps, at the time of writing this, 30% of the revenue when you purchase an application. This means, if you purchase an application for $1, you give Apple 30 cents, and you pay the developer/creators 70 cents.
Whereas when you sign up and pay a monthly fee to a subscription-based application on the Apple store, Apple keeps only 15% of the revenue per month and the developers/creators receive 85%.
These incentives and many more, force a lot of organizations into changing their business model. In many cases the resulting subscription services are poorly implemented, due to many factors. One example is that an organization took their product which was worth $120 and offered it as a subscription which costs $10 a month.
Taking an existing product and making people pay overtime is not the way to be successful in the subscription business – sadly with the massive benefits of subscription models, we as consumers must learn how to spot these offers more quickly.