Firstly a confession – I love subscription businesses, they remove a great deal of latency or indecision and massively improve the predictability of your business, and I am constantly interested in businesses or new innovations that use subscription based models to grow.
There are some great examples of these in both the US and UK. I thought I might name a few I really liked:
Such a simple service, turning a massively complex product range into a simple and convenient service. Pay a subscription every month and through your door pops a film every few days or weeks which you can watch at your convenience. I personally prefer the actual physical DVD model as some of the complexity of streaming and choosing is taken away and there is MUCH more choice by DVD than streaming.
Part of the success is the proposition, not only is the service convenient but it gives you lots of choice at the same price of buying a single DVD every month. My only issue is that recruitment costs I am sure will be high (and higher now that Netflix have launched in the UK) and average revenue per customer will be relatively low, meaning that the payback on customer recruitment will take a while.
The key things you are looking for in my mind is:
Choice being a barrier or switching issue
Something you use multiple times (think of products or services you use every day/week)
Reasonable contribution in terms of margin (ideally greater than 50%)
Diet Chef has all the above characteristics, and investors love this.
I have recently noticed that there is a number of subscription sample services popping up – especially in the cosmetics industry. These offer a subscription of samples of new or emerging beauty brands that you gain samples every month. I assume that these samples are given to the subscription company free or at a very low cost, the issue is that you are not really “using” the product your are sampling it, and there is friction between getting the sample and then building loyalty to the product. I would also argue that the value is slightly being transferred to the brand owner rather than you building a brand yourself. The customer is going to build loyalty for the delivery service but I don’t think these will be big businesses and there will be a LOT of competition if they start to take off (think Groupon) so consolidation will happen in the future.
Looking around the BA flight that I am currently on the obvious good examples are:
Newspapers (lots of reading these as services on iPads)
Books (Kindle readers)
Contact lenses – especially daily disposables