Friday, March 14, 2008

Free Subscription?

A few years ago I noticed that more and more companies are trying to move from a transaction to a subscription based consumer business model. Transaction based models only focus on selling single transactions to consumers, whereas subscription based models focus on long-term relationships to consumer with an ongoing financial commitment. Famous examples are Netflix versus Blockbuster, Salesforce.com versus Microsoft, or Sports Franchises who sell more and more or their tickets to season pass holders instead of selling tickets game by game.

Quite a few companies have struggled with finding the right price that consumers are willing to pay for an ongoing subscription model. A few weeks ago Chris Anderson, author of “The long tail” argues in “Wired” that the price for a lot transactions should be free. He has some strong arguments that make a good case for a free model for basic transactions instead of hanging onto an universe where a brand charges small transactional fees. His thinking of an economy of “free” is pretty compelling.

I think that his arguments have quite a few applications for a free subscription based model, especially for marketers who are thinking about building long-term profitable relationships to consumers:
  • Any free subscription allows a brand to collect data about a consumer and use this information to target more efficiently its products and services. The savings of replacing dumb mass marketing vehicles with more cost efficient direct communication vehicles will decrease an overall marketing budget quite significantly. The core benefit here is cost savings due to smarter Marketing Investments.
  • Chris Anderson points out that the revenue of targeted advertising can be as strong and powerful as the pure transactional value that most brands rely on. The benefit is incremental advertising revenue that can replace some of the lost transactional revenue.
  • A free subscription enables the build out of a community of joint interest that might be able to take on tasks that a corporation is used to perform, starting from R&D to Design to Marketing. The subscribers can become the loosely connected outsourced provider of several value steps. It is really the combination of a smart crowd-sourcing model with a subscription based community model. The core benefit is cost savings through outsourcing to free labor.

A lot of brands, especially in the technology and services industry should consider much more seriously of how we can transform old fashioned transactional fee based business models into free subscription relationships. It might be more sustainable and profitable than we ever thought.

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