Home / News / Business Of Life /  Opinion | Why millennials are willing to swipe right on subscription models

Talking about issues plaguing the Indian automobile sector, Union finance minister Nirmala Sitharaman ascribed part of the problem to millennials subscribing to Uber and Ola instead of buying cars. A few days after her comments, Mahindra launched a subscription-based car ownership model, just like its global counterparts Ford, Volvo, Hyundai and Porsche.

It’s true that people across the world, especially millennials, depend on Uber and Ola. Why can’t we subscribe to transportation just the way we subscribe to water, internet and electricity?

At the 2019 Subscribed conference in San Francisco, Ford’s director of connectivity Jamie Allison said his company’s new charter is to make the “bed-to-bed" journey as simple as possible. Companies are waking up to the fact that they can’t solve mobility issues simply by selling more cars.

In the digital age, we prefer outcomes to ownership and customization to standardization. That is why subscription is the future of business and every company is doing its best to adopt a subscription-based model as soon as possible.

This trend goes beyond business. American rapper Kanye West is popularly called the first SaaS (software-as-a-service) musician. In 2016, he launched The Life Of Pablo, an unfinished album, where he kept tweaking the lyrics based on the feedback from fans and constantly changed the order of songs. In Tech Speak, he launched an minimal viable product (MVP ) and reimagined his customers into subscribers and creative participants.

Research shows companies that run on subscription models grow their revenue more than nine times faster than S&P 500 firms. There are three reasons subscriptions work for businesses in the digital age. First, they expand optionality for the customer. If customers aren’t satisfied, switching to another service provider is straightforward.

Second, subscriptions transform transactions into meaningful relationships. Instead of focusing on one-time sales, entrepreneurs need to provide value over an extended period of time. This is a win-win scenario. Entrepreneurs work hard to understand unmet customer needs and figure out innovative means to provide services that go beyond the expectations of the underlying contract. This makes the service provider better and enhances customer surplus.

Lastly, subscriptions ease out the financial burden of customers. Instead of committing a sizable chunk of their savings to acquiring assets, they can avail the desired services for a fraction of the cost.

Let’s see this in action. Cars are depreciating assets. The moment we drive them out of the showroom, their value drops by almost 50%. This is probably why subscription services like Porsche Passport appeal to millennials. They can drive the latest Porsche models for as long as we want without having to deal with the headaches of ownership. All this at a cost that is both affordable and attractive.

Building a culture

Every MBA student learns about the four Ps in marketing: product, price, promotion and place. Today, product ownership is dead. Hence, the first of four Ps is better understood as service. With that in mind, we can pivot again the entire business to focus on customer satisfaction. Tien Tzuo, chief executive of enterprise software company Zuora, offers a great framework to visualize any company as an integrated organization of subsystems tied to what the customer truly wants. He suggests that organizations need to incentivize radical collaboration across organizational silos and constantly evolve to delight customers. This might be chaotic in the short-term, but it brings organizations closer to what they intend to achieve. Today, the whole world runs as a service: education, transportation, media and healthcare.

While subscriptions are not a new idea, ubiquitous Internet connectivity coupled with decreasing infrastructure cost and high levels of customer awareness have made subscriptions the perfect complements to businesses in the digital age.

In 2002, commenting on the decline of iTunes downloads, Steve Jobs said the subscription model was bankrupt and destined to fail. The same year song-writer David Bowie made a far more prescient statement: “Music subscriptions are going to become like running water of electricity. While Jobs got several things right, he underestimated the power of subscriptions, the heart and soul of businesses in the digital age. Bowie saw what Jobs couldn’t. Millennial Matters recalibrates the skills needed to survive and find meaning in the workplace of tomorrow.

Utkarsh Amitabh is founder of Network Capital, a global peer mentoring community and a WEF Global Shaper.

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