The Subscription Economy
The past few years have seen a major rise in the subscription business model, majorly because consumers now prefer to purchase consistent amounts of products after a specific timeline. The subscription economy has diversified, ranging from household goods and products to media streaming content. Media-streaming sites such as Netflix are said to have converted over 46% of former online shoppers into subscription shoppers. Additionally, it is estimated that as from 2014, visitation to subscription websites has increased by over 800%, with the sites garnering over 37 million visitors.
As blockchain technology slowly takes over business models, it is prudent to analyze how blockchain and the massive subscription economy can have an interplay. Ethereum’s ERC948 has been designed specifically for this purpose and this article intends to review it and determine if it is suitable for its intended purpose.
Subscription Models with Ether
Perhaps you’re wondering why the current Ether models can’t be used to create a functioning subscription service. Here are a few reasons why:
For one to launch a subscription model with Ether, it would mean giving existing consumers a lot of work. For instance, they would need to not only establish but also control a prepaid subscription with Ether, hold it in escrow and should she want to extend the subscription, add to the escrow. This method thus requires customers to fund the escrow every month, or at least make an upfront payment, making it rather tedious and not user-friendly.
Some people have argued that the ether ERC-20 protocol is better placed as a subscription model. However, it also comes packaged with several challenges as indicated below.
Subscription models with Ether-20
These models would send an email to the consumer at the end of every month requiring confirmation as to whether to continue with the service. It would follow the following sequence:
- Sending email
- Receiving email
- Opening email
- Signing a tx
- Broadcasting a tx
This goes against the psychological foundations of subscription services, as it requires the consumer to opt-in numerous times. Further, the consumer is constantly in the reminder of the financial commitment they have to make, creating friction and developing a weakness point. A study revealed that 40% of subscribers cancelled a subscription or two in 2017. This opt-in process is also not tenable in that in the future, customers are expected to have dozens of subscription services. It would be rather tedious to keep re-approving each and every one of them at the end of the month.
ERC-20 also provides users with an opt-out method where users choose to discontinue rather than continue. A company using this model would have to provide customers with the following features:
- Approve X where X represents the price per month
- Approve N where N represents the number of months the contract shall run for
The company would then make the relevant transfers on a monthly basis. This model, however, brings forth two issues:
- A company would need to provide the customer with strong guarantees as to when they cancel their subscription.
- The choice of determining the duration of N is still left to the customer. Further, once N is over, the customer has to renew the subscription. This presents a problem in that the more decisions forced onto a customer, the less likely the customer is willing to follow through on all of them.
Subscriptions to the ERC-948 model
This model has been designed in a bid to cure the defects in the aforementioned models. The opt-out model it suggests would basically function as follows:
- User agrees to ‘X’ tokens being remitted from his wallet every ‘Y’ time period by ‘Z’ company.
- The user has the power to revoke consent at all times.
- User consent is dependent on the availability of ‘X’ tokens.
The success of this model would additionally be dependent on the following:
As indicated earlier, the future could bring forth a time when customers have numerous subscriptions to different products subsisting. Shared contracts would, therefore, save the customer the pressure of having to audit every single one of their subscriptions. The only disadvantage of this is that there would exist a single source of vulnerability, as opposed to decentralized contracts where risk would be spread out.
Token prices are very versatile and tend to rise or decrease very now and then. This means that the amount of ‘X’ tokens one would be charged would be uncertain and it would depend on one’s luck as tokens can be extremely cheap today and very expensive tomorrow. This can be remedied by setting a standard subscription cost in fiat currency then transferring the relevant amount at the transfer rate that is functional at the time of transfer.
Service providers would also face the challenge of issuing each of their subscribers with a smart contract. This could be remedied by creating a smart contract that applies to all members. However, this may not be applicable where a service provider has different subscription packages.
Despite having several challenges to cope with, Ethereum-948 definitely provides a very promising and lucrative environment for subscription service providers. Blockchain technology is generally very versatile and hence one need not worry about the challenges posed as more often than not, blockchain finds viable solutions. It will be definitely interesting to see the model adopted and functional.