Consumers have long shunned subscription models as they have come to expect free content and services online due to the hidden nature of digital revenue in the form of ads and consumer data.
Not many consumers realised that they were the 'product' until the issue around user and data privacy blew up with the Cambridge Analytica scandal in 2010. It was around then that consumers warmed up a lot more to subscription based and ad-free services. Most subscription based services present themselves as a premium and privacy safe environment.
That said, the sustainability of subscription based business models are at question. Netflix is a case in point. As your business and services grow, you need more revenue to cover operational costs and that means that you will either need more subscribers or increase the cost of subscription. This becomes tricky as there is a chance that you lose a few subscribers if you do increase your cost.
This brings us to other sources of revenue. Merchandising and partnerships are potential sources of revenue, but may not be viable for certain products or services. In the case of digital media products such as streaming services, ads are an easy alternative source of revenue. This is the 'freemium' model that Spotify began with, where users are given the option of the free version of Spotify with ads or a premium subscription without ads.
Businesses have the potential to generate an almost endless stream of income with ads. The more effective your platform for marketing, the more advertisers are willing to pay to be on your platform, and there are many ways to slice and dice advertising opportunities to increase revenue potential. There is a common view in the business world that if your business is not growing, it's dying. This is why even the noble Netflix has to turn to an ad tier to drive revenue growth.
The interesting thing here is the introduction of an ad tier subscription plan that requires payment to access content that will have ads. Will consumers be willing to pay a small fee to be shown ads? Will customers really have a choice if ad-free subscription costs increase? How much do people really value their data privacy and having an uninterrupted ad-free experience?
There are more questions than answers at this point, but one thing is clear - ads are here to stay.
Comments