Subscription Economy News: August 4, 2014

By Aarthi Rayapura August 4, 2014

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By Gabe Weisert, Content Marketing Manager

 

Here are a few of the more notable Subscription Economy stories we’ve been following this week. The key takeaways:

 

  • Consumer subscription boxes are going terrestrial in all sorts of interesting ways.

 

  • IoT is returning to its factory floor roots with new manufacturing processes & enabled devices.

 

  • The fierce scramble for quality content among media subscription models continues, most lately among ebook suppliers.

 

  • After some hits and misses in the MMOG world, subscriptions are returning to online gaming.

 

  • The Financial Times continues to be the standard-bearer for the print-to-digital shift.

 

High Tech & Internet of Things

 

  • What’s the life expectancy of the phrase “SaaS” as a meaningful concept? We’re giving it another two to three years before pretty much every consumer application will be delivered over the Internet. Microsoft recently reported that its Office 365 “rent-not-buy” subscription service is at an annual revenue run-rate of more than half a billion dollars. What else would be interesting to know? The percentage of all consumer Office revenue attributed to subscriptions, its churn rate, and the the effectiveness of its trial program in converting users to paying customers (or cost to acquire a new customer).

 

  • Makers of web-enabled heavy construction machinery are discovering huge efficiency dividends for the clients. According to the Wall Street Journal, companies like Caterpillar and Komatsu are actually dissuading their clients from purchasing new equipment in favor of taking advantage of under-utilized assets. Why? Because electronic monitoring devices are giving them much greater visibility into what’s being used, and what isn’t. What’s the upside for these companies? Greater customer loyalty and better insight into replacement part upsell opportunities. These are still early days  – only 15% to 18% of Caterpillar machines sold in the past decade are using the company’s monitoring system.

 

  • The biggest jump ball in the IoT space right now is establishing a workable uniform standard for how web-enabled devices will communicate. Nest unveiled its proposal a few weeks ago, and last week a group of technology companies lead by Intel offered their alternative, the Open Interconnect Consortium. According to the New York Times, “The reason for all this activity is sheer numbers, and potentially a lot of market power. The IoT is expected to eventually touch some 200 billion cars, appliances, machinery and devices globally, handling things like remote operation, monitoring and interaction among Internet-connected products.”

 

  • The original protocols behind IoT come from factory automation processes, and GE is seeking to reinvent its birthplace.  According the Washington Post, the company’s new “Brilliant Factory” initiative seeks to create a “dynamic system in which machine parts constantly relay information to operators, who can schedule maintenance before equipment fails, all the while improving the manufacturing process.” GE, along with other legacy brands like Honeywell and Roper, is starting reassert its status as a technology innovator.

 

Media

 

  • After lots of success with in-game purchases, online gaming is taking another look at subscriptions. Electronic Arts announced a new subscription service for the Xbox One that will give customers unlimited access to a handful of the company’s games for $5 a month or $30 for an annual subscription (compared to the $50 to $60 cost of a single game). To start, EA said that it will offer four main games, all of which were released in 2013 or early 2014: FIFA 14, Peggle 2, Madden NFL 25, and Battlefield 4. The company is throwing in a number of value-adds including discounts on in-game purchases and early access to upcoming titles.

 

  • The real differentiator for media subscription services will be the quality of their content. Amazon’s new unlimited book-borrowing service may bring in $ 1 billion a year in sales for the company. Why? Because while physical book sales in the U.S. are projected to fall to $19.5 billion this year from $26 billion in 2010, e-book revenue is expected to leap more than eightfold to $8.7 billion, according to Forrester Research. But as with other ebook subscriptions services like Oyster and Scribd, there are still big holes in terms of quality titles from the big five publishers.

 

  • News readers are willing to pay for content, just not commodified content. The Financial Times continues to lead the shift from print to digital. Its 455,000 online subscribers and 220,000 print subscribers produced a 13% rise in year-over-year revenue, with mobile growth now accounting for 50% of total traffic. Every single one of its subscribers is tracked in Salesforce. According to the Guardian, “The FT is in a special place and holds a special position. It shows signs of a real transition from print to digital.”

 

  • Editorial media continues to explore premiere subscriptions and exclusive access to proprietary tools. Variety is rolling out a new premier subscription package that gives readers exclusive content, industry information and discounts on proprietary Variety entertainment information products. But the real appeal is access to a database of “Vscore Ratings,” which quantifies the value of over 17,000 actors currently working in television and film with the industry’s most accurate familiarity and appeal metric, allowing users to generate lists of up to 250 actors.

 

Consumer Retail

 

  • Subscription boxes are taking the product sample model into hyperdrive. Among women who subscribe to makeup sample subscription programs, 83 percent were influenced to buy the full-sized product, according to the 2014 Makeup In-Depth Consumer Report from The NPD Group, Inc., a global information company. “The idea of offering samples has been around for some time, but sample subscription programs are a fresh way for manufacturers and retailers to engage with interested consumers and monetize their sample programs, while consumers discover brands or products they may not have been aware of previously,” said Karen Grant, a vice president and global beautify industry analyst at the group.

 

  • Subscription-based e-commerce is informing terrestrial shopping, and vice versa.  Birchbox opened its first retail store in New York City. According to Quartz, the company has attracted more than 800,000 users since launching in 2010, but only around 30% of its revenue comes from full-product online sales from Birchbox.com.Its new store is an attempt to understand why. Much more than an exercise in physical branding, the store will used a variety of new analytic sensors as well as a wifi-enabled app to help boost its online sales efforts. No doubt it will also benefit from a huge advantage in customer insight over traditional retail stores.

 

  • On that note, Nordstrom’s bought Trunk Club for reportedly $350 million dollars. It’s an impressive exit for the men’s clothing subscription service, which is set to do over $100 million in revenue this year (clients are interviewed by a stylist over the phone, sent a trunk full of bespoke clothing, then charged for whatever they don’t return). It’s also a huge win for Nordstrom’s, which now gets a mature e-commerce platform and a new client base of several thousand clothes hounds who probably skew much younger than their traditional demographic. Yet another example of a traditional brick and mortar retailers realizing that their physical locations can act just like Amazon fulfillment centers.    

 

  • The Netflix model continues to eat the world.  Rent the Runway Unlimited,which provides a “closet in the cloud,” offers women a $75 per month subscription that enables them to rent any three items  (handbags, jewelry, accessories) and rotate them via a queue. Again these retail subscription models tend to skew younger – an average age of 30 versus the department store average age of 50.   Pointing to the popularity of Netflix, Spotify, Aibnb and Uber, CEO Jennifer Hyman told Fortune that “younger people are proud of renting, not buying.”

 

  • And finally, our subscription box of the week is Nerd Block, which has been described as “Comic Con in a box.” As profiled in Paste Magazine’s fifteen favorite subscription boxes, each box contains four to six “geek tested, nerd approved” items from the likes of Star Wars, Adventure Time and Doctor Who (we’re excited for Peter Capaldi but retain a soft spot for the Tom Baker years).