Everything as a Service

Over the past decade, the business world has had a real attraction to making everything a service. And rightly so. There is obvious advantage, affordability and convenience for users to rent instead of buy. They get incrementally better offerings without heavy costs. And it saves companies the hassle of repeatedly needing to sell the product to the same customer, and offers a regular fee for their efforts.?From furniture and tech products to cars, web hosting and food apps. I?am all for the services model.

However, one?can't help not compare the process of buying good ol' products whenever you needed?them, to subscription based services. Let me know what you think..

In FMCG products, larger SKUs are more expensive, and?(almost) always cheaper per unit than smaller quantity SKUs.?And increase in prices due to manufacturing, distribution and profit margins affects new and loyal customers alike. And similarly, any promotional discount does not differentiate between old and new customers.?See where I’m going with this?

Now let’s look at technology and web service companies. They have a monthly, quarterly or annual fee. And like any other business, they have growing costs. And their discounts to convert free or non-users to paid users are far more tempting than consumer product discounts.

And?these discounts often strain them, forcing them to evolve into leaner?models of operation. That's the upside! I mean, is anything more fascinating than Uber needing only a 3-member team to manage every new location it expands to? In comparison, in 2012, I remember forgetting an empty gym bag in an Ola cab, and was sent to two of their sprawling offices in Mumbai?to get it back!

However,?once that discount period is over?for the user, fees of many tech services companies rises fast, year after year. And just like with consumer product customers, there is no explicit advantage of staying loyal (apart from perhaps a superior offering itself) to a brand. Though?customers of consumer products still benefit from any benefits or discounts offered to new/ non-paying customers. That is often not the case with tech services companies.

And therein lies the paradox. Alert consumers of tech services?would find themselves regularly reviewing subscriptions?and their?benefits?and relevance, comparing with competitors, or even just weighing the pros and cons of retaining any service, each time it is up for renewal.

I?have been using the MS Office 365 service for almost 8 years, and the older MS Office software before that. And while my subscription was on auto-renewal for many years, at one point I realized how the fee had steadily risen. New users could jump in at almost 40% lower (and as a friend mentioned, even lower priced on Amazon on festival days). It seemed unfair, with nothing stopping me from simply registering as a new user (new email id), and the inconvenience and wasted time in moving files from one cloud to another.

Similarly, hosting is a ruthless market for service providers. All service providers offer heavy discounts on new subscriptions, but those fees skyrocket after the initial period is over. And in many cases, you avoid the heavy initial discount and committing?to many years without first ascertaining quality of the service and support.

I wonder if this paradox is more prevalent in price-sensitive markets like India, or is a pattern across the world.

And I wonder if there is a better model that might help fix it (for customers) and solve the challenges?that service companies face. A model?that is adequately fair to service companies that work hard to bring incredible services our way, and stand apart from the competition. And one that is also fair to average users?who are?not particularly thrilled on being fleeced for being loyal on finding out the same service is offered to newcomers at a fraction of the cost.

The ideal model would be one that adequately compensates tech service companies, while also avoiding the skewed pricing between newbies and loyals. And of course, tech companies need to stay lean.?Especially in crowded, low differentiation spaces.

The business model that extends from the founders' vision to become part of the organization culture will determine how soon and how much profits your business can and will make.

Any views on this?

#subscription #services #businessmodel