Like a lot of people, I think subscription commerce is one of the more interesting business model developments in the past few years. We’ve already seen a few interesting companies created, with more in the works. In looking at a number of interesting companies in the space as both a consumer and an investor, I have a few core questions about the space:
1. How much of the market will Amazon devour with Subscribe and Save? I am a very happy Amazon Prime subscriber. Amazon Prime has basically eaten into my price sensitivity around products that I can order using that channel. With Amazon’s Subscribe and Save offering, I find myself ordering a lot of consumer staple products (things I use on a very predictable basis from brands I know and trust) via Amazon. How large is the opportunity for replenishment of known-brand consumer staples outside of what Amazon can cover? For the essentials like mouthwash, toothpaste, deoderant, etc., Amazon has a pretty good offering that meets most of my needs. Seems to me that Amazon could and should be a really formidable competitor in the branded staples replenishment world.
2. How many products really work well with a subscription model? I’ve been a Netflix subscriber on and off for the past 10 years. Whenever those red packages pile up on my kitchen table, I usually unsubscribe – I just realize I’m not consuming enough of the product to warrant being a subscriber. In contrast, I’ll probably never cancel Xbox Live – I can’t imagine living life without XBL because there isn’t any real substitute for the product. Overall, I have a lot of questions about how many product categories there are out there where a subscription provides a superior customer experience over traditional retail. There are certainly opportunities for “discovery” and introducing me to new products and those are interesting. But once I’ve discovered a new brand that I like, does the allure of discovering additional brands still hold? Maybe some of those discovery-oriented services are better off striking a balance between using the monthly subscription to introduce new products but having a more traditional ecommerce storefront for replenishment or repeat purchases.
3. Is it better to be the brand or be a retail outlet for someone else’s brand? Last, I wonder how the market will shake out between companies who are retailers offering other people’s branded products will fare relative to those who sell their own branded items. The advantage of selling your own product is clear – if you are the exclusive channel and control the supply chain, you can blunt cross-channel price comparison and reap the benefits of supply chain efficiency. On the other hand, selling other people’s products and brands, especially if they are well known, is a good way to get consumers who are looking for those products in a more convenient or possibly more cost-effective way.
Curious to hear other people’s thoughts on the matter. Feel free to leave a comment below or message me on Twitter @chudson.