The subscription model involves paying in periodic intervals for goods or services
based on a prearranged capacity, the team at Juniper Research notes in a report.
The research report explains that the subscription economy is an umbrella term for the market surrounding subscriptions, “including subscription commerce merchants, subscription management billing services and payment processing services that support recurring payments.”
Juniper Research defines a subscription service as “a product or service that is bought or accessed via a recurring payment that requires no additional action to terminate beyond cancelling the payment.”
Originally, the report notes that subscriptions started as a way of getting a weekly delivery of milk, books and newspapers.
The rise of the Internet and eCommerce in the mid-1990s “paved the way for the growth of digital content subscriptions in the early 2000s.”
Then, the growing popularity of video and music streaming subscriptions like Netflix and Spotify displayed “the potential of subscription-based content delivery in the digital
entertainment market.”
The middle of the 2000s saw “the introduction of cloud computing and SaaS (Software-as-a-Service) allowing users to connect over the Internet with cloud-based apps which are licenced on a subscription basis.”
This was popular as a B2B transaction, “as the major companies in this space sold productivity and office software.”
Next, the late 2000s witnessed the rise of mobile game subscriptions “due to the release of app stores. As a centralized digital marketplace, this allowed developers to offer subscription-based apps on a wide scale.”
The next shift in the subscription model revolved around “analyzing consumer data and using it to personalise their experience. For instance, in 2014, Spotify acquired”
The Echo Nest, a music analytics firm, and “used its technology to form a tailored song
recommendation system.”
This trend has only been accelerated “in the past few years by the release and integration of AI and machine learning into subscription models, which further elevates the level of data analysis and personalization that businesses are able to offer their customers.”
The pandemic had an undeniable impact “on global subscriptions, with almost all categories seeing a large influx of users. For example, digital entertainment subscriptions surged due to lockdown restrictions, and delivery service subscriptions and physical item replenishments became popular due to in-person shopping changing from a pleasant experience to a more stressful one. After the pandemic and the return to pre-pandemic activities, the adoption of subscriptions has continued to grow.”
Although we are not seeing growth rates as large “as during the peak of the COVID-19 crisis, consumers have generally kept any subscriptions they started during the pandemic.”
This reflects how businesses have successfully “adapted to provide value in a post-pandemic economy.”
Recently, improvements in payment methods “have fueled an increase in subscription use; for example, network tokenization stores customer payment details so they do not need to re-enter it, easing the checkout process for customers.”
The expansion of payment methods, “such as the introduction of Open Banking and digital wallets, has also contributed to streamlining the subscription process for consumers and merchants.”
By 2028, the subscription economy revenue “will reach $996 billion, up from $593 billion in 2024, a substantial growth of 68%.”
This growth will stem from the proliferation of subscriptions “into a broader range of segments, such as Mobility-as-a-Service, physical goods boxes, and delivery services.”
Several prominent subscription markets “are currently undergoing regulatory changes.”
The US is among the first to implement regulations, “ensuring easy cancellation with its ‘click to cancel’ bill. While this will increase churn, subscription merchants will grow their investment in customer retention, creating opportunities for subscription management businesses.”
Juniper Research found that “to move into this space, subscription management platforms need a greater focus on churn reduction technologies, such as intelligent card retries.”
By employing machine learning capabilities, merchants can “gain a greater understanding of consumer reasons for cancellation, proactively issuing personalized loyalty rewards to counter churn.”
The research found that hyper-personalization “can significantly improve retention, especially via algorithm-powered product tailoring.”
The two industries which have moved “furthest into this space, digital music and digital video, are forecast to reach a combined revenue of $370 billion by 2028, facilitated by personalised products like ‘Spotify Wrapped’.”
The research recommends subscription management platforms “invest in AI for consumer tracking.”
Enhanced data insight capabilities will “significantly aid in sustaining customer relationships, enabling optimized marketing strategies.”