Recently it was announced that sales of music on CD and vinyl dived 30 per cent in the UK during the first half of 2012, as revenues for streaming services such as Spotify and We7 increased. According to the figures, on-demand services look set to grow their revenues by 40 per cent this year making this the fastest growing sector of the music industry, with predicted global revenues of £696 million this year alone.
The success of these on-demand services marks a fundamental shift not only in the music industry, but also in other areas of our lives as consumers. Not too long ago children would spend their weekly pocket money in record shops buying CDs or vinyl. Now iTunes has come to the fore, with analysts predicting that Apple's online media store will net $8 billion in revenue in 2012. As different as they are, the thing that all these mediums have in common is ownership. Whether it's vinyl or an iTunes download, the purchaser has bought something which they now own for good - with either a physical record or a file, the concept is the same.
But increasingly this ownership model is being challenged. Spotify has created a successful business predicated on the fact that we'd rather rent music than own it, and there are plenty of examples of this same phenomenon in other areas. We register to use ZipCars, Boris bikes, computer games and even handbags... For all these things which we would once have bought, we can now subscribe to services which will provide them for us without us ever needing to own the items. The rise of this "subscription economy" is a major growth area in our society which is changing the way we live.
Behind the growth of services such as Spotify lies the fundamental question of whether we really want to own consumer goods anymore? Renting can certainly be convenient, since you don't need to worry about maintenance or stacks of old, unwanted products cluttering up your personal space. In the case of something like a mobile phone or an iPad, subscribing means you can update to a new model without losing the original, up-front investment which would be required to buy these items outright.
But can we really sever our ties with the concept of ownership? We know from individual pieces of research that we place a higher relative value on things we own, even items with no sentimental value and little intrinsic worth. Experiments have shown that we place a higher than logical value on personal possessions simply because we own them and we don't like the thought of parting with them. These studies show the deep-rooted psychological connection we have with ownership, a connection that the subscription economy is challenging.
This new way of operating is also changing how customers interact with businesses. Customer interactions have to be better and slicker, because there are now more of them in a subscription economy. When you buy something in a bricks and mortar shop, you buy it once. Even when the process is slow and awkward it's not a huge problem - you get your item and you leave. Now imagine having to repeat that process on a weekly or monthly basis to pay a subscription: you wouldn't be a subscriber for very long. Because a subscription is an ongoing relationship rather than a single transaction, businesses are having to work hard to maintain a bond with the customer where once there would have been a one-off transaction.
As more smartphones, tablets and PCs are connected to the internet, so the potential for the subscription economy increases. It goes without saying that the internet has been a major driver of this trend, with connected technology empowering consumers to specify exactly how they wish to buy and receive goods. Perhaps one of the most compelling examples to date has come from media organisations and news providers, which have opened up a whole new revenue stream by offering newspaper and magazine subscriptions serving digital copies straight to the customer's mobile device. We can expect to see more of these types of solutions in future as the subscription economy grows. We already have the technology, now the only limit is our imagination.