Subscribed

Ever more companies are moving to subscription models to reflect their customers’ changing needs.

In 2015, Tien Tzuo wrote an article for Fortune in which he argued that business school was a waste of time. His reasoning? You generally only learn one basic idea there: create a hit product and sell lots of it.

The world, he suggested, has changed and so have consumers. Nothing reflects this better than the rise of subscription-based business models.

So what’s so great about the subscription model?

Two points stand out – access and service.

Today, people are less interested in owning products. What they really want is to be able to use them. Cutting-edge companies don’t sell CDs or cars. Rather, they sell access to music or transport.

That’s what some of the world’s most successful businesses have common.

Take Spotify, Uber or Netflix. Customers don’t own the actual albums, vehicles or videos; they pay a subscription fee to access them whenever they need them.

People value services more than physical products. The music matters more than the silver disc on which it’s stored, just as getting from point A to point B is more important than the cumbersome machinery that makes the trip possible.

When companies focus on what their customers actually want and need, they’re much better placed to tailor their products to the people who buy them. And that means better service!

But it’s not just about riding the waves of changing tastes to gain a market advantage – it’s a case of sink or swim. Shifting to a customer-oriented subscription model is increasingly vital for a company to survive.

Only 12 percent of the companies in the 1955 Fortune 500 list – an index of the 500 most profitable companies in the United States – are still on it today. Those that remain are barely recognizable because of the major renovations they’ve undergone.

General Electric, for example, was ranked fourth in 1955 and thirteenth in 2017. In the mid-twentieth century, it was known as a manufacturer of light bulbs and fixtures. Today, most of its revenue is generated by digital subscription services, such as data services.

The same goes for IBM. The company rose from sixty-first in 1955 to thirty-second in 2017. The secret to its success? It went from selling commercial scales and measuring equipment to offering IT and business subscription services.

So what happened to the 88 percent of companies that didn’t make it into the new Fortune 500? Well, they couldn’t keep up with the pace of change. They just weren’t adaptable enough.