It’s 2023, and the Subscription Economy continues to roll on. Every quarter, it seems, yet another CEO is announcing that 20%, 30% or 50% of their revenues will come from subscriptions within the next 3-5 years.  

Readers of the Subscribed Weekly, of course, aren’t surprised. Perhaps your company is already 100% recurring revenue, like Adobe. Perhaps the service you launched alongside your hardware has really taken off, like GoPro. Maybe your entire industry has made the shift, like The New York Times has.  

But many of you are asking, “what comes next?” How do we build on the successes we’ve had, now that 20-80% of our future revenues are coming from existing customers?  How do we not backslide into our old, transactional models?  And of course, how do we wrangle with this slippery eel of an economy and figure out how to keep growing. 

Whatever stage your company is in, I believe success in the Subscription Economy comes down to navigating Three Big Shifts: the shift towards customer relationships, a shift to dynamic monetization, and finally, a shift to a mindset that goes deeper, not bigger.

Let’s dive in. 

Transition From Transaction-First To Relationship-First

The first shift is one from a transaction mindset to a relationship mindset. What that means in everyday English is that, historically, business owners have focused on their products, determining success by how many units of that product they can sell to customers. That’s sales summed up. But what if you flipped conventional wisdom on its head? Instead, retrain your thinking so that building and refining the relationship with the customer are at the forefront of your business efforts. That’s a relationship-first mindset.

A great example here is GoPro, the famed action photography company that became a household name by selling some of the world’s most durable and versatile action cameras – 35 million units between 2014 and 2021 alone. That’s a lot of transactions!

But in 2020, GoPro hit a crisis. When their main clientele couldn’t leave their homes, GoPro’s revenue essentially evaporated overnight. But then something magical happened. GoPro turned its focus to a little known but well-loved action video editing app that they had launched four years earlier, enhanced it with warranties, repair options, and other features, and turned it into a major hit. Suddenly, GoPro had direct relationships with millions of its customers, who of course, then were able to buy the latest Hero camera directly from GoPro, without ever having to leave their house.

The next step, in hindsight, was obvious. Why not make this new Qlik app available to anyone with an iPhone or Android phone, in other words people who had never purchased a GoPro? At least not yet!  

In fact I’ve been asked over and over again, by many companies: “Should we take our new software applications and have it work with our competitors’ products?”. My answer is simple: if you have a relationship first mindset, then absolutely.  And with the right relationships, guess what? The transactions will come.

A Shift From Static Pricing To Dynamic Monetization

Okay, so now you have all these digital relationships and customer data. In order to proceed, you know that you must already have that information. How do you then turn that information into revenue? 

The answer is also the next shift: dynamic monetization!

A great example here is the The New York Times, and how they went from being left for dead to crushing their original goal of 1 million subscribers and now on track to reach 15 million subscribers by 2027.

In order to achieve this turnaround, NYT understood it needed systems that can operate at the speed of their subscribers. And this really paid off during the pandemic two years ago, when almost 100 million visitors checked The New York Times daily to understand what was going on. In other words, the NYT was reaching almost a third of the total U.S. population. Talk about being relationship first!

That’s when NYT’s dynamic paywall kicked in. By then the NYT had a wide range of offerings – News, Puzzles, Sports, Cooking, and more. By taking into account the number of articles read and time spent on the site, the NYT was able to put the right offer in front of the subscriber, essentially allowing its readers to pick and choose what sections of the paper they wanted, and effectively converting unknown users into paying subscribers.  The ultimate goal, of course, is to get them on the All Access plan.

Pricing is no longer static. Success in the future will be about getting the right offer, to the right subscriber, at the right time. Everytime.  That’s dynamic monetization.

A Shift From Going Bigger To Going Deeper 

If the first two shifts were about building relationships and not just focusing on transactions, then the third shift is all about persisting past the lifecycle of a product, avoiding what I like to call “the valley of decline”. 

This is something every MBA learns in business school: if you saturate the market with a successful product, eventually that growth is going to slow down. And so we’re all trained to find that next hit product – the next iPhone, the next Model X.  And so we go bigger – bigger movie sequels, more bells and whistles, faster processors. And if we fail?  Well, now we’re in the doldrums.

But, what if we could break this cycle? 

What if I told you that the secret to avoid the valley of decline is not about going bigger, but going deeper? Not by diving deeper in product development, but into what your customers actually want. 

Think of it like this: Users of iRobot aren’t looking for a vacuum, they’re interested in cleaner homes. People who buy Fender guitars aren’t actually focused on the guitars, they secretly want to be rock stars. The alternative to going bigger, the next big product, is actually to go deeper, deeper into what your customers actually want.  

And when you shift your thinking, new opportunities emerge. You help them become better design professionals. You help them understand the world better, through visual interactive tools. You help them share and keep their greatest moments of triumph. You help them feel like a rock star, within minutes of strumming the guitar for the very first time.

Suddenly, your company is in a great position to meet the needs of your customers, instead of pandering to sell units. 

So I leave you with this question: is your company in the income business or the outcome business? Income businesses think about the product and sales first. Outcome businesses think with the customer-first. Income businesses start and end with the transactions. Outcome businesses focus on relationships, they use dynamic monetization to translate relationships to revenue, and they go deeper with their customers.

Because when you stop focusing on transactions, and start focusing on relationships you open up new gateways to recurring revenue and continuous monetization. Now the rest is up to you and how you understand these big shifts in the Subscription Economy. Don’t be rigid, go with the shift.