Service Subscription Business Model

Subscription business models are taking hold in many different industries, supported by advances in cloud computing, data analytics, and the Internet of Things (IoT). Suppliers benefit from longer and wider revenue streams for their products, while customers avoid big upfront payouts and are able to standardize and spread out their expenses. Subscription-based services certainly aren’t new. But the model that’s evolved in the last several years is more robust and widely applicable than any previous one. It has radically overhauled at least one major industry. Subscription cloud computing services, with their flexibility, cost savings, and performance advantages, are increasingly replacing on-premises software as the technology platform of choice for enterprise IT. The as-a-service model is catching on quickly in other industries, including construction, where new, sophisticated machinery is extremely expensive and aging equipment is a competitive disadvantage. One major manufacturer of construction equipment is expanding its digital services for high-end products to include real-time monitoring of parts and performance to identify weaknesses and wear.

In healthcare, IoT-enabled devices already relay patients’ health data immediately and consistently to hospitals and medical practices, implemented as part of a remote monitoring service. In the auto industry, Volvo’s recent advertising campaign, extols the manufacturer’s new subscription program, under which its monthly vehicle charges include taxes, insurance, and both roadside and at-home services. This program eliminates the down payment and end-of-service fees typical of auto leases. Other auto manufacturers and dealers offer similar programs. Subscription services are popping up in unexpected places. In anticipation of the impending shift to 5G wireless networks, a major network device manufacturer is offering consumers 5G router hardware, software, and support bundled as a “premium service.” A European utility is offering consumers a service that, for a monthly fee, monitors temperature and functioning of a customer’s hot water tank through an attached IoT device. Temperature loss results in a text message and/or phone call to the customer, expediting a visit from a technician already armed with relevant data.

The as-a-service model appeals to millennials, according to recent reports, many of whom value convenience over ownership. Those strapped by college debt also appreciate the ability to spread out their costs—for everything from clothes to furniture. Still, the consumer-oriented subscription market isn’t without its challenges. For example, recent efforts to offer IoT-enabled, app-connected electric scooters as “shared services” have no doubt created a ready-made market of urban commuters looking for mobility alternatives, but issues related to traffic rules, safety regulations, and liability are holding back the services, while a glut of competitors is complicating the economics. All of this adds up to a typical day in e-commerce land. Which of these new online as-a-service businesses will succeed over the long haul, and in what form, isn’t exactly clear. What is clear is that the current “let’s see what sticks” business environment requires savvy companies to overcome any lingering trepidation about the model cannibalizing their current revenue streams and explore where “as-a-service” might fit into their product plans. In addressing such an open-ended imperative, cloud computing can help. MEP Digital Systems, for instance, offers field service management for subscription tailored specifically to the as-a-service model.