A subscription is a business model in which a customer must pay a recurring price at regular intervals for access to goods or services. Most subscriptions require a customer to sign a contract or agree to set terms and conditions, which may outline the length of the subscription, a renewal procedure, cancellation policy, payment terms, and usage or quality limits. The subscription model was introduced by book and periodical publishers in the 17th century and is now used by many companies.
The subscription model has become increasingly popular in the 21st century. What used to be a magazine, local gym, or cable package subscription has now flourished into a subscription model for a range of goods and services. TV shows, music, food, clothing, and household items are just a few examples of industries that offer subscriptions. The benefits that drive consumers to subscriptions include:
- Price: In many cases a subscription model is cheaper than buying a product in store.
- Convenience: With a subscription, items are shipped directly to a consumer’s door, which beats going to the store every two weeks to grab the item.
- Personalization: Many subscription packages can be personalized. A food subscription company, for example, allows customers to choose what kinds of food they like best.
- Curation: Many subscription packages curate for customers, meaning someone is pulling together pieces for the customer to create something tailored. For example, Spotify curates music playlists for each individual user based on their music preferences.
Cloud and software subscriptions
Subscriptions are at the heart of cloud services. Software as a Service (SaaS) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. CRM is one software application often delivered to customers as a SaaS solution. Customers of subscription-based software typically pay an initial subscription upfront and are entitled to use the software during the subscription term. The subscription payment includes a software license, access to support services, and new versions of the software as they are released.
Cloud-based infrastructure can also be used to host an application or to provide compute power in place of or in addition to on-premises hardware and software (a “hybrid cloud” model). A cloud provider, such as AWS, Azure, Google, or IBM, needs to be determined in order to accommodate the software applications and computing needs. Each has their own protocols, specifications, and characteristics. In choosing a cloud provider:
- Identify the elements that are going to be contracted with subscriptions
- Subscribe to compute services for processing applications and data
- Subscribe to a specific storage program and capacity
- Choose a database engine to store data
- Contract the network used to manage a cloud environment
- License the software applications that will be hosted on the cloud
Types of subscription models
With the popularity of subscription models rising, different types of subscription packages have emerged:
- Fixed usage: offers a set price for a fixed quantity of goods or services over a set time frame, an example being a magazine subscription
- Unlimited usage: offers a set price for unlimited access to a good or service, an example being a gym membership.
- Pay-as-you-go: offers customers the ability to purchase products or services periodically without long-term commitment, an example being a beauty box subscription. This subscription can be cancelled any time.
- Freemium: offers access to limited levels of content for free, but offers additional content or premium features to paying subscribers, an example being a cloud service provider or music streaming service.