6 Key Shifts Driven by the Subscription Economy
I’ve previously established that the rise of the Subscription Economy has been a key factor in reshaping consumer expectations, which has led to increased comfort with and preference among donors for monthly recurring giving to charities.
Donors are increasingly “subscribing” to giving monthly to causes they care about. This has led to the rise of a phenomenon that I call Subscription Philanthropy.
Today, let’s examine several key shifts that we can learn from the rise of the Subscription Economy and apply to the world of Subscription Philanthropy. Then I’ll share a personal story that illustrates how these shifts have played out in an area I’m guessing you are familiar with.
Six Key Shifts Driven by the Subscription Economy
Robbie Kellman Baxter is one of the world’s leading experts on subscriptions. She is the author of The Forever Transaction: How to Build a Subscription Model So Compelling, Your Customers Will Never Want to Leave and has worked with organizations like Netflix, Fitbit, Microsoft, and Consumer Reports. In her book, she writes about the shift to subscriptions leading to shifts in value:
It means moving from an ownership model to one of access, from a single payment to multiple recurring payments, from an anonymous transaction to a known relationship and from one-way – or even two-way – communication to a full community gathered under the umbrella of the organization.
– The Forever Transaction, Robbie Kellman Baxter
In the excerpt above, Baxter identifies four key shifts brought on by the Subscription Economy. In my research, I’ve added two others:
From transactions to engaging experiences.
From ownership to access.
From anonymous buyers to known customers.
From periodic interaction to ongoing value.
From single purchases to recurring payments.
From one- or two-way communication to community.
Let me share a story that illustrates how these shifts have played out in an area that many will be familiar with… and that I could hardly have imagined would be as wholly transformed – music ownership.
From Music Ownership to… Music Rental?
If you had come up to me in the late 1990s and said, hey Dave, in the future, there are going to be services that you pay for, every month, that give you access to the world of music – I would have said NO THANK YOU. I don’t want to rent music from anyone. I want to own my music, thank you very much.
You might be able to relate. Maybe you collected CDs or cassette tapes. There was nothing like the experience of discovering and acquiring an album, then adding it to your library. People would display their record collections proudly – living room extensions of their personal identity and taste.
Later, the thing to do was to amass a digital library of music MP3s via a service like Napster or iTunes. (Does anyone remember Winamp? Just me??) While the format changed to digital, the principle was still the same – acquire and build a personal collection of music, one song or album at a time.
From Pandora to Spotify – the Journey from Cassettes, CDs, and MP3s to Music-as-a-Service
Having grown up in the 80s and 90s, there were two primary ways in which one got exposed to music:
Listening to the radio
Purchasing music
One often led to the other. You would hear an artist or a song on the radio and think, “That’s great; I’d love to have that single or listen to the rest of the songs on that album.” Then you would go to the store and buy that single or that album on a cassette tape or, later, a CD.
It was a virtuous cycle. You would hear something you liked and wanted to be able to listen to on your own time, so you purchased it in whatever medium. The radio station, artist, and label made money, and you got the ability to listen to the music as much as you liked. Those were simpler times.
As digital music downloads became a thing and the medium changed, fundamentally the way music was discovered, purchased, and experienced remained unchanged:
Get exposed to music via a mass medium.
Purchase said music via a single transaction.
Add music to an existing owned library and enjoy.
Repeat.
The mass medium in #1 above might have been radio or MTV, and later on websites like MySpace and YouTube. But the primary way to experience music on your own time and in your own way required purchasing that music.
Then someone had a brilliant idea. What if we create a music subscription service? For one monthly fee, we could enable customers to listen to a library of music. In a way, it was like renting access to music.
I still remember some of the early music subscription services coming out. For about $10/month, you could get access to a vast library. You could listen all you wanted, but the catch was if you stopped paying, you lost all access.
I remember strongly resisting the idea of renting my music, as did millions of other fans. I couldn’t stand the thought of losing access unless I kept paying. No, I didn’t want to rent my music - I wanted to own my music library. No one was going to take my library away!
Then along came Pandora Radio, and changed the game.
A New Way to Experience Music
In 2005, Pandora had a novel idea. They would enable listeners to create their own internet radio stations, which could be personalized by giving “thumbs up” and “thumbs down” ratings to songs and artists they liked or disliked. It was based on a technology called the Music Genome Project, a recommendation engine based on classifying songs by musical traits. The original plan was to license the technology to other companies, but when that fell through, they decided to launch an internet radio service to consumers in 2005.
As listeners would use the service, it would learn their preferences and introduce new music that was like the music that they liked. They couldn’t dictate exactly which songs or artists they listened to, but the experience was delightful, and the mental model of a radio station helped the lack of control make sense.
I still remember experiencing Pandora in those early days and being blown away by the idea of software being smart enough to recommend music that I might like based on a few songs I had liked previously.
💡 Takeaway: Subscription Economy Shift #1
From transactions to engaging experiences. Pandora changed the process of buying an album or track to a delightful, engaging experience of discovery.
Pandora offered a subscription option. For $36/year or $3/mo, you could eliminate ads that would play every couple of songs and get unlimited “skips” (the free version only allowed something like three skips every 30 minutes, so it felt a lot like playing roulette!). But I wasn’t ready to pay up just yet.
I didn’t know it then, but the value proposition for purchasing and engaging with music started to shift for me. If a service like Pandora could provide a surprise-and-delight experience by introducing me to new music, but it did so as a hosted service that I streamed from the internet, then did I really need to own music?
Another benefit I grew to appreciate about the service was the ability to listen anytime, anywhere, on multiple devices. Via streaming, I could fluidly switch listening on a work laptop to my phone and a home computer.
💡 Takeaway: Subscription Economy Shift #2
From ownership to access. The music service offered access to a huge music library and gave users ongoing access anywhere and anytime on many different devices.
The more I listened, the more Pandora understood me – my preferences, likes, and dislikes. The more they understood me, the more they could appeal to my sensibilities. This enabled them to deliver personalized, tailored value.
This was a new kind of virtuous cycle. The more a user listened to Pandora, the more likely they would listen because of how well the service could tailor the experience. This was only possible because users were known customers.
💡 Takeaway: Subscription Economy Shift #3
From anonymous buyers to known customers. Unlike the old days when record buyers were unknown to the record store or label, in setting up an account directly with the music service, Pandora would gain powerful data on each customer, giving them access to those customers and their preferences.
To recap what we’ve learned so far – subscribing to music-as-a-service extends beyond moving from owning music to renting music. It starts with compelling, engaging experiences. It moves from ownership to access, anywhere and at any time. And it is powered by the shift from anonymous buyers to known customers, enabling deep personalization.
Next week, we’ll unpack the rest of the story and final three shifts - moving from periodic interactions to ongoing value, leading to the decision to subscribe on a recurring basis, and led to a community-empowered experience. It was no longer renting music but subscribing to a new kind of thing — Music-as-a-Service.
Then along came Spotify and changed the game again.
Until next week… Surfs Up! 🌊
- Dave
About the Author | Dave Raley
Consultant, speaker, and writer Dave Raley is the founder of Imago Consulting, a firm that helps non-profits and businesses create profitable growth through sustainable innovation. He’s the author of a weekly trendspotting report called The Wave Report, and the co-founder of the Purpose & Profit Podcast — a show about the ideas at the intersection of nonprofit causes and for-profit brands.
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