The Future of Hardware Leads to the Subscription Economy

By Tien Tzuo March 22, 2011

by Tien Tzuo

 

Om Malik had a great post last week entitled, “Why the Future of Hardware Is Services.” He discusses why, for a hardware device to be successful, it must be tied to services. Because as internet access becomes pervasive across all devices, it’s the services you link to that truly makes those devices useful.

 

Om has a great example in Sonos. It’s a beautifully made device with fantastic software, but what is most engaging about Sonos is that it comes with the ability to access a variety of free and premium subscription music services from Pandora, Napster, Rhapsody, SiriusXM, and more. Like Om, I bought my Sonos to just play my iTunes collection, and now find myself accessing other services all the time. Another example is the latest generation Samsung TV’s. With an internet connection, you can watch Hulu, Netflix, Amazon, Youtube and more right out of the box with even more options that you currently get from cable.

 

And as Om alludes to, services are the key to delivering value that draws new and retains existing subscribers: “the longer you have an opportunity to engage with the customer, the more opportunities you have for more monetization,” which as it turns out, is one of the key factors driving the growth of the Subscription Economy. The above examples illustrate the transformation that hardware manufacturers are experiencing: a transition from one-time, fixed fee equipment purchases to long-term relationships with their customers through value-added subscription services.

 

As this shift happens, hardware manufacturers must ask themselves “How will these new services be monetized?”

 

  • Free with ads?
  • Monthly fee?
  • Usage based models?
  • Prepaid models?
  • Combos of the above?
  • All of the above?

 

Or what about the question: “How to keep pace with competitive pressures to offer customers and experiment with new options, more choices and better offers?”

 

Of course, the biggest challenge is that there’s no one right answer. To be successful in the Subscription Economy, companies will need to experiment, iterate, and stay nimble to find the right combination services that will keep customers engaged, and ultimately monetized. For some real-life examples, check out what some of Zuora’s customers are doing.

 

It’s exciting to see how hardware manufacturers are moving to the Subscription Economy. Om, we completely agree with your vision here, and look forward to seeing more and more great subscription services consumed on the devices we use today.