The 'Internet of Things'

Esmeralda Swartz

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What Does Doorstep Milk Delivery Have in Common with Subscriptions?

Part 1: Part of the mythology surrounding subscription services is that there is something fresh and new about this

Some of our customers and billing industry contacts are somewhat intrigued (or even bemused) by the upsurge in attention being given to the concept of "subscriptions". Some are concerned that they're missing something because, after all, subscriptions have been business-as-usual for most of us for years. So why all the fuss? Does the growth of subscription-type services delivered over the Internet indicate there's some exciting new business model out there? Are we seeing fundamental changes in the way companies are doing business?

Part of the mythology surrounding subscription services is that there is something fresh and new about this, something that needs a new generation of billing systems optimized for subscriptions. This is puzzling. Subscription services have been around on the Internet since its earliest days. Actually, subscription services in various forms existed decades before the Internet appeared to change our lives. True, the Internet has opened up huge additional opportunities for subscription services, just as it has opened up all sorts of other opportunities - for content distribution, selling products, communicating, and more. In one way or another, we managed to do most of these things in the dark pre-Internet days, but the Internet had truly transformed the scale, reach and cost factors underpinning all of these business activities.

Just a minute's thought will remind us of the huge list of subscription services that existed before the Internet, most of which have transitioned to the Internet age quite effectively. The word "subscribe" literally means to "write under" or, in practice, to make a commitment. Historically, it's exactly the same concept as "underwrite": insurance companies "underwrite" the terms of insurance policies, while their customers "subscribe" to those terms and so commit to make payments. In fact, insurance policies are a good example of a subscription business model, one that's probably been around about three hundred years. It also illustrates a fundamental feature of a true subscription business model, which is a two-way mutually beneficial agreement, in which the service provider commits to provide services and the customer commits to make payments for a period, thus delivering dependable and predictable recurring revenues.

For a long time, subscription services have been everywhere: insurance payments, mortgage payments, phone line rental, medical plans, club membership dues, magazine and newspaper subscriptions, cable TV, book-of-the-month club, doorstep milk delivery, fruit-of-the month, online computer bureau services, savings plans, bus passes ... the list goes on. Most of these have moved to the Internet quite happily, and been supplemented by IP-technology variants, such as streaming media, cloud apps, cloud storage and more.

So, given that the subscription model has been with us, in a rich variety of forms, for a long, long time, it's hardly a surprise to find that the earliest computerized billing systems were built to handle subscription services. All industrial-grade billing systems, including MetraTech's billing systems and those of our major competitors, were built to handle subscription services, on-line and off-line. Simply being able to process recurring payments is not a differentiator in the world of large-scale enterprise billing systems. On the other hand, being able to handle subscriptions along with an unlimited combination of other customer payment and discounting regimes ... well, that's more like a differentiator.

It's true that there are a lot of simple "lite" billing systems out there that can only handle non-recurring transactions. They were developed with a different and specific target market in mind: the uncomplicated Internet merchant business. That market hasn't gone away, and doesn't seem likely to, but we do recognize that Internet merchants are increasingly looking towards subscriptions as an additional business model to deploy where it fits, and that means that some simpler systems have a lot of work to do to catch up.

As I pointed out in a recent blog MetraNet users have a distinct advantage: the system can handle any business model, or any combination of business models. In that blog, it didn't occur to me to highlight subscription services as an example of a future-proofing capability, because ... well there's nothing new about the subscription business model, and we've always been able to handle subscriptions along with every other type of commercial arrangement.

A few years ago, we were hearing that everything on the Internet would ultimately be paid for by advertising. Now we're hearing that everything on the Internet will inevitably be paid for by subscription. Well, advertising is still around, and a lot of dollars still flow to Internet-based companies as one-off payments for products and services alike. Subscription services are important and can be valuable, but they cannot be the only option available to service providers.

A big concern for service providers is (or should be) the fact that we are now seeing this hype leading to more subscription plans that lack one of the key features of traditional subscriptions: dependable and predictable recurring revenues. When the commitment part is diluted, the "mutual benefit" is usually diluted too, something to watch out for. When this is combined with a "dumbed down" business model, subscriptions might not always be the best idea. In fact, they may be a sure path to commoditization. I'll expand on this in my next blog.

More Stories By Esmeralda Swartz

Esmeralda Swartz is VP, Marketing Enterprise and Cloud, BUSS. She has spent 15 years as a marketing, product management, and business development technology executive bringing disruptive technologies and companies to market. Esmeralda was CMO of MetraTech, now part of Ericsson. At MetraTech, Esmeralda was responsible for go-to-market strategy and execution for enterprise and SaaS products, product management, business development and partner programs. Prior to MetraTech, Esmeralda was co-founder, Vice President of Marketing and Business Development at Lightwolf Technologies, a big data management startup. She was previously co-founder and Senior Vice President of Marketing and Business Development of Soapstone Networks, a developer of resource and service control software, now part of Extreme Networks.

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