This article was originally published in Australian Financial Review.
Peter O’Connell wants you to think of your electricity bill the same way you think of your Netflix bill. Which is to say, you don’t think about it. The telecommunications company he co-founded, Amaysim, is in the process of rolling out a new energy service that’s based around the same “subscription economy” model as services like Netflix.
Amaysim co-founder and CEO Peter O’Connell, with one of the smart meters he says will help you think about electricity differently. (Wolter Peeters)
This model is also changing the way you can buy (or, rather, not buy) a car, and has led to people subscribing to electric toothbrushes (new heads appear in the mail whenever they need replacing) rather than buying them outright.
“Subscription is [for] when you want to pay an amount of money and get a service that means you don’t have to think about that service ever again,” says O’Connell, Amaysim’s CEO and managing director.
“All I have to do is make sure there is money in my account for the direct debit, and the service occurs,” he says.
The company’s soon-to-be-launched electricity service, which has already been completed on the east coast of Australia and will come to South Australia next year, works around the same principles.
Customers will choose a small, medium or large subscription, for which they’ll get a certain number of kilowatt hours every month.
They’ll get an app showing them how their consumption is tracking against their subscription. If it looks like they’ll go over the number of kilowatt hours, they’ll get a message warning them, and then they’ll get a top-up pack of kilowatt hours, charged at the same rate as the subscription plan.
If customers don’t use their allotted kilowatt hours in a month, they’ll just roll over to the next month.
We will force the classic energy suppliers to change the way they do things, exactly as we did in mobile. — Peter O’Connell, Amaysim co-founder
“Over a year, your use of electricity goes up dramatically in winter, so you want to carry over what you didn’t use in autumn, and similarly it goes up in summer, so you want to carry over what you didn’t use in spring,” O’Connell notes.
If all of that sounds familiar, that’s because it is – Amaysim is basing its energy subscription service on its mobile phone subscription service.
And with the help of smart electricity meters (which get installed as part of the subscription), O’Connell’s plan is to get Australians to think of kilowatt hours the same way they think about gigabytes: they may not understand exactly what they are, but they quickly come to understand how many of them they need each month.
His plan, too, is to force Australia’s largest energy retailers to follow suit, much as Australia’s largest telcos followed Amaysim into simplified billing for mobile phone services.
“Subscription electricity services will be a lot cheaper than classical electricity services to begin with,” he says. “But we will force the classic energy suppliers to change the way they do things, exactly as we did in mobile.”
Iman Ghodosi, vice-president of the subscription economy software provider Zuora, says the shift to subscription services in industries such as electricity and automobiles is partly driven by economics and partly a generational shift.
“Millennials are more interested in the outcomes that derive from products than in the products themselves,” Ghodosi told The Australian Financial Review ahead of Zuora’s Subscribed conference in Sydney this week.
In the USA and Germany, BMW lets you “subscribe” to its cars for a monthly fee, changing from model to model depending on your needs at the time. Manufacturers such as Ford and Toyota, meanwhile, are now finding they can get a greater share of wallet if they offer their goods direct to customers as subscriptions, bundled with the services that are associated with those goods.
By 2023, three quarters of all companies selling products direct to customers will offer subscriptions. — Gartner Consulting
Car makers can make more money if they offer subscriptions that incorporate not just the cost of the car, but also other costs such as registration, insurance and even road tolls, Ghodosi says.
Amaysim’s O’Connell is quick to point out that this share-of-wallet aspect of the subscription economy applies only to companies which were once selling physical products. Amaysim’s subscription energy service will have a lower share of wallet than traditional energy services, at least until the big power companies are forced to bring their prices down.
While automobile makers themselves have yet to pursue subscriptions in Australia the way they have overseas, third-parties such as CarBar and Blinker offer car subscriptions across the makes.
CarBar’s weekly subscription fee includes insurance, registration, maintenance, roadside assistance and lets customers switch between Ford, Kia, Volkswagen, Peugeot, Toyota and other makes, as often as every two weeks.
The future of subscriptions
The consulting firm Frost & Sullivan estimates that by 2025, almost 10 per cent of new car sales in the USA and Europe will come as part of a subscription, representing a business opportunity worth $US100 billion ($147 billion) to the automotive industry.
Another consulting company, Gartner, estimates that by 2023, three-quarters of all companies selling products direct to customers will offer subscriptions to those products as part of their sales strategy.
Once goods and services have shifted over to subscription-oriented models, it might even be possible to combine them into mega-subscriptions.
“I can imagine one day we just have a ‘utility subscription’,” says O’Connell.
“It costs you $600 a month or whatever, and it gives you water, electricity, gas, rates, mobile phone, everything in one subscription.”