Who knew the world of TV would be transformed by subscription services? Then along came Netflix to shake up the home video sales and rental industry and create a new content powerhouse.
The same for music sales. Out with a personal CD collection and in with a subscription to Spotify to access a wider library of music.
And then there are people willing to make a monthly payment for the convenience of a regular delivery of vegetables, meal kits, even shaving products.
Convenience and choice are the driving factors behind the rise of the subscription business model. What we are seeing is part of a bigger disruptive shift from products to services throughout the economy. As digital, online and virtual business grow, outright ownership of physical products is becoming less important to consumers. Millennials who have grown up in a digital world are the first to say that for them experiences are more important than products, and that in many cases they would rather rent than buy.
Making things easier
Given these forces it’s clear that the arena of car buying is ripe for change.
Somehow, over the years, purchase of a vehicle has become one of the most complicated (and painful) transactions there is. Purely on the financial side, it often involves wading through considerations about leasing, contract-hiring or owning, along with up-front deposits, insurance, servicing and breakdown cover.
More than half of all previous car buyers say they would rather go to the dentist than enter a car showroom
What could be better then, than a subscription service for cars? Just place your order and within days a car will be delivered to your door with everything in place from road tax to servicing, ready for you to drive off. Peace of mind guaranteed.
The car as a service
In the automotive world, a subscription buys the right to use a car, or cars, typically on a monthly basis, and usually without a fixed subscription term. All without ever actually owning a car. In many cases users can change their cars according to need.
Subscription services make sense on many levels. They reduce waste (the average car is parked and unused for 92 per cent of the time). They reduce the cost and increase the flexibility of mobility – not least because they allow customers to avoid the impact of depreciation, which is the biggest single cost in new car ownership. And they appeal to younger consumers, who have been turning away from outright car ownership for years (79 per cent of 25- to 35-year-olds have never owned a car).
The US car subscription company Fair (backed by SoftBank, the Japanese technology investment fund) already manages more than 45,000 subscription cars in 30 US cities and consultancy McKinsey has forecast that by 2025 the number of subscription cars on US roads will be in the millions. Manufacturers such as Volvo are also setting up their own subscription trials, while in Germany battery company Sonnen is using subscriptions to encourage consumers to buy electric vehicles.
In Germany battery company Sonnen is using subscriptions to encourage consumers to buy electric vehicles
BMW is one auto company that offers car maintenance as a subscription. Three years of oil changes whenever needed, according to mileage? No problem.
The appeal of the flat rate can make further inroads into mobility than just car ownership. In Helsinki travellers have got used to one monthly payment covering the use of public transport and city bikes, extending to reduced taxi fares and car hire. The promise is no more fiddly payments to different providers – and a better understanding of your monthly outgoings.
Providers face challenges along with the opportunities. Service businesses are notoriously difficult to get right and customers are increasingly demanding. Subscription providers may promise choice, but balancing consumer choice and making a profit can be tricky. The Mobility as a Service business model is still evolving, which is no doubt why the US company Fair was forced to make job cuts last year and then restructured and relaunched the business in January.
Subscription providers may promise choice, but balancing consumer choice and making a profit can be tricky
But with so many of the right boxes ticked, there has never been a time as good to make mobility more flexible and affordable. Subscription services look like just the way to do it.