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Regulatory changes are likely to change subscription strategies

By Abhishek Dadoo



At some point, this was bound to happen. It’s already happening in other industries as well.

I am talking about the October 28 policy statement by Federal Trade Commission (FTC), which wants to make it easier for you to cancel subscriptions.

The FTC is not alone. Regulators across the world are riding this trend. The Reserve Bank of India (RBI) ruling about mandatory reminders prior to recurring charges went into effect on October 1, causing heartburn for any publisher with card subscribers from India. The Competition and Markets Authority (CMA) in the United Kingdom is contemplating similar policies.

In response to new regulatory policies in the United States, India, and United Kingdom, companies are turning to a usage-based payment model.
In response to new regulatory policies in the United States, India, and United Kingdom, companies are turning to a usage-based payment model.

What is causing this 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. Amazon Web Services offers reserved server instances, but only after metered pricing gets more expensive for a 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, New Relic pivoted from subscription-based pricing to usage-based pricing. The company’s 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 a recent blog post, he explained why usage-based pricing is on the rise.

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 a Web site enough to justify a monthly recurring payment.

A March 2021 study conducted by Northwestern University’s Medill Spiegel Research found 49% of digital subscribers do not go to the Web sites they paid for even once a month. Ed Malthouse, Spiegel’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 US$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:

  1. The dreaded zombie subscriber purge will become inevitable.
  2. The US$1 trial offers will no longer work for sustainable subscriptions growth, and the cost of loyal subscriber acquisition will increase.
  3. Engagement will become the north star metric for all quality publishers and creators.
  4. 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.

About Abhishek Dadoo

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