The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of and in the 17th century, and is now used by many businesses, websites and even pharmaceutical companies in partnership with the government.
Industries that use this model include mail order book sales clubs and music sales clubs, private web mail providers, cable television, satellite television providers with pay television channels, providers with digital catalogs with downloadable music or eBooks, satellite radio, telephone companies, mobile network operators, internet providers, software publishers, (e.g., blogging websites), business solutions providers, financial firms, , lawn mowing and snowplowing services, , renting an apartment, property taxes, as well as the traditional newspapers, magazines, and .
Renewal of a subscription may be periodic and activated automatically so that the cost of a new period is automatically paid for by a pre-authorized charge to a credit card or a checking account. A common variation of the model in online games and on websites is the freemium model, in which the first tier of content is free, but access to premium features (for example, game power-ups or article archives) is limited to paying subscribers.
In addition to the freemium model, there are other subscription pricing variations gaining traction. For instance, the tiered pricing model is frequently used in software as a service (SaaS) platforms, offering customers different levels of access and features based on their subscription tier. This model is particularly effective for tailoring services to customer requirements. Another approach is the usage-based pricing model, which calculates charges based on the extent of service or product utilization by the customer. This model is becoming increasingly prevalent, especially in services where customer usage can significantly vary.
In contrast with other media such as , subscription fees to academic publishers generally do not go towards supporting the creation of the content: the scientific articles are written by scientists and peer review by other scientists as part of their work duties. The paper authors and reviewers are not paid by the publisher. In this light, the subscription model has been called undesirable by proponents of the open access movement.
Academic publications which use the subscription model are called "closed-access", by opposition to their open-access counterparts.
An integrated software solutions, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably greater than the revenue from simple one-time purchases. In some subscription schemes (like magazines), it also increases sales, by not giving subscribers the option to accept or reject any specific issue. This reduces customer acquisition costs, and allows personalized marketing or database marketing. However, a requirement of the system is that the business must have in place an accurate, reliable, and timely way to manage and track subscriptions.
From a marketing-analyst perspective, it has the added benefit that the vendor knows the number of currently active members since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates customer relationship management to a large extent because the analyst knows who is an active customer and who recently churned.
Additional benefits include a higher average customer lifetime value (ACLV) than that of nonrecurring business models, greater customer inertia and a more committed customer base as it transitions from purchase to opt-out decisions, and more potential for upselling and cross-selling other products or services.
Some software companies such as Adobe and Autodesk have moved from a perpetual licensing model to a subscription model, known as "software as a service". This move has significant implications for sales and customer support organizations. Over time, the need to close large deals decreases resulting in lower sales costs. However, the size of the customer support organization increases so that the paying customers stay happy.
Subscription pricing can make it easier to pay for expensive items since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customers from subscribing. Fixed price may be an advantage for consumers using those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been. In addition, subscription models increase the possibility of vendor lock-in, which can have fatally business-critical implications for a customer if its business depends on the availability of a software: For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or in particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business thereby leaving the customer without a chance to renew the subscription and access his own data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades). Also, consumers may find repeated payments to be onerous.
Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of privacy.
A subscription model may be beneficial for the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller.
Subscription models might also create the opposite effect. This can be illustrated by subscribing to a service for mowing lawns. The effective use of a single mower increases when mowing for a collection of homes, instead of every family owning their own lawnmower which is not used as much as the service providing mower, the use of resources for producing lawnmowers, therefore, decreases while lawns stay cut.