Business and Technology Short Read

Our Invisible Assets

Digital services like Netflix and Spotify are the face of a ‘subscription economy’ on a remarkable rise. The true extent of its consequences, both for the consumer and the environment, is stark.

H ow many monthly payment services do you subscribe to? It’s probably more than a mobile phone contract. Now what used to sit on the shelves of your living room is more likely to be found on an app on your phone. Whether it’s DVDs you now rent from Netflix, music from Spotify, or books on your Kindle, firms are fast turning their once one-time buys into services.

You’d be forgiven for thinking at this stage that this was unworthy of the ‘subscription economy’ tag. But this trend of ‘dematerialisation’, de-cluttering if you will, can in fact be seen in almost all areas of our life now. We’re less likely to buy ourselves a car – in favour of using Uber. Businesses might rent office carpets by the month instead of buying them by the yard. Lighting is now offered as a service, tyres can be bought by the kilometre, printing is done by the page. Not just that – you can rent clothes, bikes, washing machines, nightly food kits, and even a bed. It may sound niche. But the market overall has more than doubled in revenue over each of the past five years. Last year, the average ‘subscription’ business grew around nine times faster than those of the S&P 500, the top 500 American companies.

In many ways, it makes sense. As house prices rise and short term accommodation becomes more popular, it might be odd to buy all the kit for the house only before moving out 6 months later. There’s also the added bonus of not having to clear it out or fix it if it breaks – installation, delivery and maintenance is all included. Never mind the convenience of being able to unsubscribe when money gets a bit tight.

But this new lifestyle can have its drawbacks. The loss of employment and with it income may mean losing … well, the music, the bed, the flat – pretty much everything. The piles of clutter may also have been more than just a database of files, but moments to remember in years to come. Studies show we attach value to objects we own, and you probably remember the first film or album you bought off the shelves. But the first song you streamed? Probably not.

However, there are broader effects to consider. As companies increasingly retain ownership of their products, maintaining and remanufacturing them, their incentives have changed. Products are no longer designed with built-in obsolescence so that customers come back for more. Maintenance is now their biggest cost, so designing them to last longer is now in their interest. This helps the environment.

Moreover, as the life cycles of products are extended, recycling is now more than just a public service. Desso, a Dutch flooring company, offers a carpet-leasing subscription service. It installs the carpet, maintains it until unwanted, and then converts the carpet backing into roof and road materials. Recycling becomes a source of profit in itself.

Services are also easy money for green energy providers. Because companies don’t have to add assets to their balance sheets and tie up capital when buying services, energy efficiency upgrades like new LED lighting, heating, ventilation or air conditioning  systems are more appealing. Even solar energy is now being sold as a service with monthly charges. No doubt many companies would stick with traditional utility electricity if they had to cough up the £8,000 in one go that it can cost to install a single solar panel.

The shift to the services model undoubtedly therefore has its upsides. It will impose its own economic costs though, requiring new maintenance teams, for instance. It may even require a whole new approach to R&D. It also won’t appeal to all generations: figures show subscribers tend to be well off city-dwellers aged under 45. It’s not yet clear whether they’ll still be subscribing when they’re 60. Under current trends, they might not have a choice.

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