How Subscriptions Are Evolving
The subscription model has come a long way since the first newspaper subscriptions came to life in the 17th century.[1] From streaming services to grocery replenishment, there seems to be a subscription for everything. Yet, the subscription economy continues to evolve. The next wave may include micro-subscriptions and subscriptions in non-traditional industries.
Are Micro-Subscriptions the Next Big Idea?
Most subscriptions charge a fixed price for a specific quantity of a product or service regardless of usage. However, some brands are beginning to offer micro-subscription plans that personalize the pricing options.[2]
Consumption-based pricing is one way companies are looking to match a product or service’s pricing with a customer’s usage. The customer only pays for what they use.
Other companies are offering premium services or add-ons. For example, SNAP is adding a $3.99 premium option to its basic product. Some video games are downloadable for free, but players may then pay for expanded features as they wish.
Companies that bundled products and services into one subscription might think about unbundling these and offering these as smaller, less expensive options to meet customers’ needs. Micro-subscription’s smaller payments may entice more customers to subscribe to a product or service. In turn, this may provide companies with a more predictable revenue stream and the ability to capture more revenue.
Non-Traditional Industries Offering Subscriptions
A report from Barclaycard Payments indicated that 68% of businesses offering subscriptions will expand their portfolios before the end of 2022. [3] The report stated that this is being driven by companies in non-traditional industries such as do-it-yourself (DIY) & home improvement and homeware and technology retailers.
The report also noted that companies are creating new subscription-based models designed to be purchased as presents for the upcoming holiday season, with particular demand coming from younger shoppers.
Some examples of non-traditional industry offerings include:
Health & Wellness
For a flat yearly fee, healthcare company MDVIP offers a product bundling that includes preventive care and diagnostic tests along with value-added services like meal plans, fitness programs, and 24/7 physician availability.[4]
Education & Professional Development
Some online education platforms offer free basic instruction with a premium add-on. For example, Codeacademy, a virtual platform that teaches coding skills, offers many of its courses free of charge. However, a subscription to its Pro service gives learners a more focused learning experience that includes exclusive content.[4]
Home Maintenance
Some companies are looking to turn home services into a subscription service. Super bills itself as “subscription care” for the home. The company looks to fill the role of a superintendent for homeowners, offering on-call maintenance staff in exchange for a monthly fee.[4]
Not Your Father’s Subscription
The subscription-based model will likely continue to evolve as companies look to monetize more of their business and tailor their offerings to meet changing consumer needs and wants. Companies that offer compelling products with the right pricing model may offer individuals an attractive investment opportunity.
The Fount Subscription Economy ETF (SUBS)
The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Fount Subscription Economy Index. The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.
SUBS may present an attractive vehicle for individuals to gain exposure to companies offering subscription-based pricing models.
For a list of fund holdings, please click here.
[1] The Subscription Evolution – Putting Design Thinking into Practice, Subscrybe, 10/22/21
[2] The Rise of Micro-Subscriptions, Protocol, 7/24/22
[3] Non-Traditional Options Set to Drive Growth in Subscription Economy, Retail Technology Innovation Hub, 7/27/22
[4] Seven Surprising Industries Turning to Subscription Business Models, CBInsights, 2/26/20
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Risk Disclosure:
Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated objectives. In addition to the normal risks associated with investing, international investments may involve the risk of capital loss from unfavorable fluctuation in currency values, differences in generally accepted accounting principles, or social, economic, or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume.
The Funds’ concentration in an industry or sector can increase the impact of, and potential losses associated with, the risks from investing in those industries/sectors. For MTVR, the Fund may be concentrated in the entertainment and interactive media & services industries. The entertainment industry is highly competitive and relies on consumer spending and the availability of disposable income for success, which may cause the prices of the securities of companies to fluctuate widely. The prices of the securities of companies in the interactive media & services industry are closely tied to the overall economy's performance. Changes in general economic growth, consumer confidence, and consumer spending may affect them. MTVR may also be subject to the specific risks associated with metaverse companies. These risks include but are not limited to small or limited markets, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Smaller, start-up companies tend to be more volatile than securities of companies that do not rely heavily on technology. Metaverse Companies may rely on a combination of patents, copyrights, trademarks, and trade secret laws to establish and protect their proprietary rights. There can be no assurance that these steps will be adequate to prevent the misappropriation of their technology or that competitors will not develop technologies that are equivalent or superior to such companies’ technology.
For SUBS, the Fund may be concentrated in the software industry. Technological changes, pricing, retaining skilled employees, changes in demand, research & development, and product obsolescence can affect the profitability of software companies causing fluctuations in the market price of company securities.
Both Funds are subject to communication services sector risk, which can involve the same risks as being concentrated in the software industry. Network security breaches, potential proprietary or consumer information theft, or service disruption can negatively affect companies’ stock prices.
The Funds are non-diversified. The Funds are new and have limited operating histories for investors to evaluate. New and smaller funds may not attract sufficient assets to achieve investment and trading efficiencies. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility.
