The first recollection I have of the “subscription economy” was of jet engines back in the late1990s. Back in the day, when an airliner’s engine approached end-of-life (based on flight hours) or failed abruptly, the airlines would purchase a replacement engine from vendors like Rolls Royce, install them and maintain them. An unexpected engine failure could cost the airlines millions in engine replacement costs, lost flight revenue, need to reschedule stranded passengers, need for back-up aircraft, buffer engine inventory, crew over-time, etc. But given the multiple models of planes in a typical fleet, there were often multiple engine models to keep track of and monitor. It became apparent that airline service departments were not qualified or equipped to maximize the life of it’s jet engines, often replacing them prematurely or letting them run until they failed unexpectedly. Rolls Royce realized that the airlines didn’t want to be in the “jet engine business”, the airlines wanted to focus on flying passengers from point A to B. So Rolls Royce developed a new “subscription” model called “power-by-the-hour.” Basically, it was Engine-as-a-Service (EaaS). For a flat hourly rate per engine, Rolls Royce would handle installations, check-ups, maintenance and decommissioning. From the standpoint of the airlines, this was perfect. The finance department loved the predictability of the subscription payments, as opposed to the “lumpiness” of engine purchases and overhauls. The airlines loved not having to spend resources on engine inventory, repair facilities, technicians and engine liability insurance. There is definitely a lot of buzz around the “subscription economy.” One definition stated it as “when customers pay for a service monthly that was once purchased in a single payment.” Modern day examples include Netflix and Spotify for consumers and Salesforce and Workday for businesses. Even “traditional” industries are giving it a try. Cadillac recently launched the BOOK subscription service. For a flat $1,500 monthly fee, a customer can swap out their car up to 18 times per year. Take out the Escalade to ski at Squaw Valley then cruise to Napa in the convertible. The fee covers all maintenance, check ups and scheduled repairs. It’s no surprise that the subscription economy has been growing at over 15% per year since 2015. US Retail sales, in contrast, has only grown at 3.6% annually.
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