Subscriptions for everything from autos to underwearJune 20, 2013: 7:53 AM ET
The so-called subscription economy is expanding.
FORTUNE -- What do men's underwear, online file sharing, and flights up and down the California coast have in common? All three of those hot commodities are now being sold for a monthly flat rate, thanks to a growing number of companies that are embracing a subscription-based model of selling, well, just about anything.
This shift is happening both in the consumer and enterprise worlds, says Tien Tzuo, CEO of Redwood City, Calif.-based Zuora, whose billing and payment software powers all sorts of subscription-based services. The company's customers include cloud management provider RightScale, file sharing site Box, and Autonet Mobile, maker of in-car Internet systems. At a lunch in San Francisco on Wednesday, a handful of these clients gathered to discuss the opportunities -- and challenges -- of the so-called "subscription economy."
"You have to deliver value every month, or customers can cancel," said Michael Crandell, CEO of Santa Barbara-based RightScale. The company uses Zuora to charge a monthly fee for its service -- software that lets customers manage applications across private and public "clouds."
Indeed, the cloud has helped usher in the subscription-based trend because it enables software to be delivered as a service over the web -- not via on-premise installations that carry a hefty sticker price but offer little opportunity for recurring revenue. With software-as-a-service, companies typically pay a per-user, per-month fee. Cloud-based software vendors typically push out new features on a monthly, if not weekly, basis. The trend has changed the way software is built, delivered, and priced.
But startups (and larger companies) are also experimenting with using the subscription model to sell all sorts of other goods. Case in point: Once upon a time, men used to drive to the store to buy underwear. Now, a startup called Manpacks offers a subscription service that ships a box full of new underwear and socks to them several times a year. There's also Surf Air, a new aviation service that lets travelers fly as much as they want (in California) for $1,650 a month, and Dollar Shave Club, a startup that ships razors for as little as $1 each month and has raised over $10 million in venture capital funding.
Even auto companies are toying with charging customers monthly fees for services like Internet access and a slew of in-car applications. And United Airlines (UAL) will soon sell subscriptions that charge passengers an annual fee for extra leg room and baggage on an unlimited number of flights. On the music and entertainment side, companies like Netflix (NFLX) have shown that people don't care about owning their content anymore -- instead, they are willing to pay a monthly fee to access movies and TV shows when and where they want. And after companies like Pandora (P) and Spotify took off, heavyweights Google (GOOG) and Apple (AAPL) decided to launch their own subscription-based streaming music services.
Of course, the membership-based model doesn't work for every product, and a flat, predictable fee certainly doesn't add up for every consumer (just do the math). But Zuora has a lot riding on the expansion of the subscription economy. The more companies adopt the subscription-based model of selling, the more they'll need services like Zuora -- which also charges its users a monthly subscription, but of course.