This article was first published on INMA.
At some point, this was bound to happen. It’s already happening in other industries as well. I am talking about the Oct 28th policy statement by Federal Trade Commission (FTC); they want to make it easier for you to cancel subscriptions.
The FTC is not alone. Regulators across the world are onto this trend. The Reserve Bank of India (RBI) ruling about mandatory reminders prior to recurring charges went into effect on Oct 1st causing heartburn for any publisher with card subscribers from India. The Competition and Markets Authority (CMA) in the UK is contemplating similar rulings. But what is causing this sudden outburst of consumer protectionism?
Sudden Outburst of Consumer Protectionism
People forget and people get busy. Disengagement is human nature! However, history is riddled with examples of disengagement-led business models. Blockbuster used to have a prominent revenue line item called late fees. Netflix came along and disrupted Blockbuster’s business by offering DVD rentals by mail and at a flat rate with no late fees. Engagement-led revenue is so engrained in Netflix’s gene pool, that even today when OTT fragmentation is at its peak, Netflix self purges inactive subscribers regularly.
It’s obvious that the more you drive the more you are at risk of having a car accident. Hence, fixed monthly car insurance is moving to usage-based car insurance. AWS offers reserved server instances, but only after metered pricing gets more expensive for the business. The pricing mechanisms in the SaaS industry are also fast evolving. SaaS companies are starting to align their pricing with the value their customer receives.
In July 2020, Newrelic (NYSE: NEWR) pivoted from subscription-based pricing to usage-based pricing. Their Chief Growth Officer, Manav Khurana wrote: “It was a bold and risky move. But it made sense because we repeatedly heard from our customers that the new model better aligns with their success. Simply put, you only pay for what you use. No more shelfware as with other subscriptions.” To learn more about the changing patterns of the subscriptions economy, I follow Kyle Poyar from Open View Partners, a venture capital firm. In his recent blog post, he writes about why usage-based pricing is on the rise.
All of the above examples bring to bear the fundamental truth about digital subscriptions - buyer’s remorse. Wikipedia defines buyer’s remorse as the sense of regret after having made a purchase. In the case of digital subscriptions, the remorse arises from not engaging with your website enough to justify a monthly recurring payment. In a March 2021 study conducted by Northwestern University’s Medill Spiegel Research, they found that 49% of digital subscribers do not go to the websites they had paid for even once a month. Ed Malthouse, Speigel’s Research Director says “Most subscribers are either complete ‘zombies’ or almost a ‘zombie’.” At this rate, when the path to canceling subscriptions is made unnecessarily complicated and opaque, it makes sense for the regulators to step in; especially at a time when almost every digital publisher is luring users with $1 trial offers.
As with everything in life, there is always a silver lining. With the regulators stepping in to make subscription cancellations easy, my conjecture is as follows:
- The dreaded zombie subscriber purge will become inevitable.
- The $1 trial offers will no longer work for sustainable subscriptions growth, and the cost of loyal subscriber acquisition will increase.
- Engagement will become the north star metric for all quality publishers and creators.
- Winning a subscription commitment from a user will form an ever-lasting relationship between the publisher and the user.
Let’s make great content and our users happy. Once again!