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The Rise of the Subscription Economy

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A global payments revolution is taking place as the world shifts from traditional ad-hoc payments to subscriptions. The mass adoption of the subscription economy is a rapidly growing trend that will change the way businesses and consumers manage their finances. According to the subscription economy index, the subscription economy has grown 300% over the past seven years. This growth is not yet expected to slow down. Analysts predict that 75% of organizations selling direct to consumers will offer subscription services. Many people are unaware that subscription-based pricing has been around since the 1800s.

However, the rise of the internet has lit a fuse for a subscription boom. The internet has allowed consumers to access products and services frequently and on demand, thus making the one-off payment an obsolete transaction for both the consumer and the business. A big consumer trend that is popularising subscriptions is the end of ownership. This is the growing pattern in the entertainment industry. People used to buy and own a CD. That CD would give a consumer access to about 20 songs for roughly $10. However, thanks to companies like Spotify and Apple, consumers can access millions of songs for a monthly fee of $10 without having to “own” a single song. Another trend that has driven the popularity of subscriptions is consumers’ never-ending desire to live an easy lifestyle. Subscriptions mean that a consumer does not have to remember due dates or waste time making when the payment is automated and recurring.

Subscriptions provide many benefits for economic participants, but they also have their drawbacks. The long-run benefit for businesses comes at the expense of consumers, because consumers will have a higher total cost than they would have had for a one-off payment. Another issue is the short-term cost for businesses to make the transition from ad-hoc selling to subscription selling. For example, Disney’s new streaming service (Disney Plus) lost $2.8 billion in the 2020 fiscal year, and it is only expected to achieve profitability in 2024. The rise of various software technologies and the changes in consumer behaviour have led to a paradigm shift in the way we pay for products and services. In the same way that subscription-based payments are replacing one-off payments, many other innovations will be improving and updating our world, and most of these innovative products will be sold through subscription-based pricing.

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