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ON DIGITAL-First Fridays: The Subscription Economy

Pre-digital, subscription was for periodicals, newspapers, cars, and book-of-the-month clubs. Today, it is a required part of businesses. If you do not have a subscription model in your business, you need to—and it is not easy to do.

Every business must have a subscription model. Millennials expect it. Your investors expect it.

There is a class of users that prefers to own an asset. Is it generational? In regulated industries? Is it for strategic or balance sheet reasons? Whatever it is, make sure your selection criteria are clear.

All others prefer to have access to the asset.

We have officially reached the tipping point. Access is the preferred method and thus we are in the “The Subscription Economy”.

Subscription models challenge the incumbent or can create a competitive barrier. Netflix challenged Blockbuster and continues to challenge the entertainment industry in Hollywood. Salesforce challenges Oracle and SAP. Apple challenges music and the mobile/telco industries. You can now subscribe to an iPhone via a new Apple service.

Heck, you can even subscribe to an IBM Mainframe today.

One of the prizes of subscription is loyalty.

But buyer beware. Subscription models are usually more expensive in the long term. Do your math. If you intend to subscribe for the long term, it can be two to three times more expensive than purchasing outright.

There are also challenges in making your products or services available as a subscription. You have to move from one-time transactions to multiple transactions. You also move from receiving value up front to receiving a lifetime of value. And the greatest determinant to long-term value and loyalty is rapid and continuous usage of your service.

Successful transitions to the Subscription Economy are well thought out, financially planned through, well communicated, and capture new spend. They identify new streams of revenue using new channels of engagement to appeal to the emerging powerhouse consumer—Millennials.

In my next post in this series, I’ll discuss how this new generation is changing the face of business—as both consumer and employee.

For more thoughts ON DIGITAL, download the book.

Mark Barrenechea

Mark J. Barrenechea is OpenText's Vice Chairman, Chief Executive Officer and Chief Technology Officer. A prominent thought leader, he has extensive experience in information technology and his vision is to enable the digital world to help transform organizations.

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