A new economy: how a blockchain breakthrough is challenging the subscription economy
Today, the subscription economy now covers everything from virtual spin classes to clothing, and even pet food. The business model has exploded because it offers recurring revenue streams and long-term customer relationships. 10 million people signed up for Disney+ within 24 hours of its November debut , giving some illustration of this model. Yet, ironically for a model built on guaranteeing stable long-term revenues, the subscription model may be set for dramatic drop-offs in revenues and customers. A perfect storm of circumstances means some are predicting we are nearing a ‘ peak subscription’ cliff edge after which the model will become unsustainable for many businesses.
Many subscription service providers are caught in a catch-22 situation. Some TV streaming services are not charging enough in subscription fees to cover the investments they have made, yet if they raise them they will lose subscribers. The industry is also a victim of its own success, as despite the growing plethora of subscription services, there are only so many that people can afford to sign up to. Not only that, the expensive nature of subscriptions means that customer recruitment and retention is difficult; half of subscribers to e-commerce services, for example, cancel within six months.
The cost of subscriptions also represents a barrier to billions of people, shrinking the potential market for these services. Many industries are missing out on the ‘low-hanging fruit’ of smaller, shorter term transactions which could give them access to a larger and more loyal customer base.
Enter, ‘microtransactions’. There is evidence that giving people the option to pay tiny sums, ‘microtransactions’, as little as a fraction of a penny, for individual services, such as a newspaper article or a song, can cumulatively offer a rich revenue stream. The ‘freemium’ method is already tried and tested in the mobile games industry. Free-to-play mobile games generated $88 billion through other services such as microtransactions in one year alone . Mini-transactions also form a potential ‘gateway’ to a bigger subscription market by offering initial ‘taster’ services to a wider audience.
Slow transaction speeds and high transaction fees have proven a barrier to making ‘microtransactions’ viable as a lucrative revenue model across industries. Even VISA, the fastest system, can only process 24,000 transactions per second. However, a recent blockchain research breakthrough from IOHK researchers and other partners from the company’s blockchain research lab at the Universities from Edinburgh, is set to challenge the subscription economy and enable a new payment model.
