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The Rise of AI-Driven Subscription Business Models

Modern consumers are turning to subscriptions. Can businesses boost the longevity of subscription models to cash in on this trend? 

Convenience over conveyance and access over control is the motto of our world.

Technological developments lie at the core of this postmodern age. Customer expectations have increased. Businesses expand rapidly due to an overwhelmingly large customer base. And, as subscription services multiply, it has become time-consuming to handle a huge volume of customer data while tracking real-time insights.

To catch up with these changes, a system that aligns with and prioritizes customer preferences becomes necessary.

Businesses have begun adopting new tactics to counter them—one of them being AI-driven business models which has led to AI becoming a prototype for business models across different domains.

The Evolution of Subscription Models

Origins of Subscription Thinking

But this realization is not a modern one, the idea came into existence several centuries ago. It was in the 15th century when ease of access integrated with predictability and stability to craft a more predictive and recurring business model – subscriptions.

In an age where technology was not the norm, publishing houses depended on customer loyalty while the customers relied on content quality.

The basic understanding behind subscriptions as a recurring revenue model for businesses is set in stone. It continues to cater to customer demand and thrive on customer loyalty – a strategy that has remained static ever since.

However, subscription businesses were not introduced in the 20th century.

From Print to SaaS

The history of traditional subscription models reaches as far back as the 15th century when the services ranged from milk deliveries to magazines. On the other side, modern business models rose through the crux of modern computing in the second half of the twentieth century.

In 1994, The New York Times publication, “Attention Shoppers: The Internet is Open”, announced the first-ever Internet retail transaction completed using a credit card. A deterrent in this joyous moment? The privacy concern.

In the article, Commerce.net, a US-based government organization promoting e-commerce transactions, feigned the need for an easy-to-use industry standard for protecting Internet transactions. Have subscription business models become that industry standard?

In the same year, Amazon.com established a marketplace for books and CDs. This everything store opened new avenues for e-commerce transactions, setting the benchmark for modern subscription models.

In this rapidly evolving and complex digital landscape, subscriptions took a giant leap from print. We have landed in the era of SaaS (Software-as-a-Service) where digital services and products are acquired on a recurring basis, welcoming the modern variant of subscriptions.

Modern Developments

During the late 2000s, Apple kickstarted the digital subscription models by offering subscriptions to content-based apps such as music, video, magazines, etc. Meanwhile, SaaS businesses such as Salesforce and Microsoft have also significantly contributed to and popularized the growing subscription economy.

Today, countless companies are adopting subscription business models with tailored experiences offered through data analytics and personalization.

Solving Old Problems with New Tech

Since then, a systematic integration of AI with machine learning has reshaped the model’s capabilities. The primary cause of concern that plagued traditional subscription services – safer transactions and privacy of their payment information – has been addressed by introducing blockchain technology. On the other hand, IoT has also increased connectivity between subscription devices.

Have we strayed too far from the real purpose behind subscription models?

If you closely study how subscription models work, you notice that it is inherently a symbiotic relationship between businesses and their ‘regulars.’ Recurring buyers are the key ingredients for subscription businesses and are crucial in popularizing subscription models across diverse domains.

Owing to its growing popularity, how both – regular and potential buyers – access, interact, and engage with these services has significantly changed. Businesses have introduced personalized subscriptions to appease a diverse demographic.

Personalization as a Core Strategy

With more and more users seeking personalized experiences, organizations are introducing customizable subscription packages to chase qualifying prospects. And, they are not mere trends that might fizzle out shortly.

So, subscriptions became the benchmark for optimizing customer relationships and business profitability.

However, the underlying concern is how companies tweak the existing subscription models to gauge more revenue instead of developing new ones.

Have you ever noticed pop-ups announcing you can only proceed further after subscribing to a premium plan?

Limited access. The new maxim of subscription businesses.

With growing consumption habits and unique patterns, we want to control access. For this, we play tug of war with subscription providers. The more we seek the content behind the pile of subscription services, the more they restrict and monetize our access.

To say that subscription businesses have begun utilizing a new marketing gimmick would be an understatement. With different subscription plans, they offer you personalized recommendations using chatbots or pop-ups, making AI – the basis of future business models.

What has brought about these changes? The use of personal data.

AI as the Foundation of Future Business Models

Data-Powered Personalization

The end goal behind AI-driven models is bridging the supply-demand gap. With a surge in services in the market, the demand has escalated and traditional models have proved detrimental to this growth. Customer demand is increasing at an alarming rate. So, subscription businesses come to your rescue with personalized, swift, and reliable solutions.

Improving Customer Lifetime Value (CLTV)

Coupled with the prowess of AI, businesses rush to execute relevant changes in how customers interact with subscription services. And now, with the help of this cutting-edge technology, companies can effectively curate creative and cost-effective business models increasing customer lifetime value and gaining valuable user insights.

The advent of AI might as well be considered the turning wheels required to revolutionize subscription business models.

Reducing Friction and Middlemen

By removing the need for multiple liaisons, businesses can improve their customer experience by employing AI tools. This could enable them to remove the middlemen between the providers and potential users – a splinter in the traditional models.

Besides, the broader landscape of consumer behavior itself has taken a drastic turn. AI analytics condenses complex and extensive consumer data to simplify service packages and develop subscription models through consumer pattern recognition.

We have transcended one-off purchases to a subscription economy that relies on access, convenience, and personalization – the cast iron of AI-driven subscription models.

AI-enabled CRMs have proved beneficial in analyzing user history, demographics, and browsing behavior to churn out subscription packages that will resonate with prospects.

With individual preferences taking precedence, the latest business models aim to introduce seamless customer experience and accordingly optimize their services.

How do they bridge the connectivity gaps?

By integrating circular models with their subscription models.

Previously, businesses engaged users through a linear value chain. But that has been reiterated into a circular chain to align with the evolving digital landscape. In the circular economy, the service provider retains the ownership of their product or services, and the user pays for its use over a limited period. At the end of this period, the provider is responsible for upgrading and maintaining these services. This establishes a continuous dialogue that helps the businesses outline the user’s usage patterns – another evolution in business models exploited by subscription businesses.

Beyond Propensity Scores

Moreover, traditional subscription business models have always analyzed propensity scores to anticipate whether users will churn or subscribe to your services. These numbers are important, but unreliable and futile without the necessary software to put them to use.

To boost the relevance of these numbers, newer subscription business models plan to align with the dynamic technological landscape.

This is where AI plays its role.

Predictive Analytics and Decision Trees

Subscription business models understand what you want them to do through predictive analytics. It employs AI, machine learning, statistical models, data analysis, and user behavior to predict future outcomes.

Predictive analytics has three significant techniques – regression analytics, neural networks, and decision trees. But decision trees are one of the AI techniques that influence and improve subscription models.

AI-decision trees categorize data according to different variables. This method works effectively to understand a user’s behavior and ultimate decision. By classifying the customer base into specific groups, businesses leverage predictive analysis to predict their pattern alongside tailoring content to reach a wider audience.

Tree Structures for Segmentation

As the name conveys, this classification model resembles a tree where the branches signify potential choice, and the leaves represent the result that the decision ultimately leads to. This simplifies the entire process of customer pattern recognition improving the capabilities of the subscription business models.

From Analysis to Action

The newly developed subscription models not only analyze but also shape the customer history, shifting the central focus on ‘direct-to-consumer’ subscriptions and boosting the customer lifetime value (CLTV).

The upgraded subscription business models are AI-empowered, integrating lead generation and customer assistance into a unified experience.

Why are more and more businesses adopting subscription models?

Subscription models are a recurring revenue stream for companies where retention and preservation of customer experience take center stage. How have they done this?

Usage-Based Pricing and Retention

Through recurring upgrades and maintenance of subscription packages, the sharing economy ensures increased service utilization and higher income per unit. The newer subscription models consider a range of pricing strategies. Due to this, introducing usage-based pricing has become paramount in boosting customer retention and conversion rates.

The result? Hybrid subscription models that align their services with unique consumption habits.

If we want an answer to why more businesses are adopting subscription business models, regular revenue stream and customer retention seem the most plausible reasons.

Tien Tzuo, the founder of Zuora, labels future subscription business models as the “total monetization stack.”

A glimpse at the future of subscription business models reveals an effective merger between sales and service models. Formerly, self-service models catered to users who favor their research, whereas account-based models served those who sought tailored options.

Through the help of AI techniques, subscription businesses have leveraged both these models to address the mutual dependency between subscription and consumption.

A step forward from traditional subscription models that barely offer any competitive edge.

Is there space for subscription business models in the future market?

Subscription as a Cultural Force

Subscription – a direct manifestation of consumption culture, is also a new middleman between content and consumers.

With intensifying consumption habits, subscriptions require sustainable subscription models that meet the requirements of their businesses and their users.

The Final Question

The question persists: will AI-enabled subscription models develop into a significant tool for businesses to market their services skillfully, or will it become a stumbling block across the evolving habits of the consumer culture?