From ownership to membership


In the past few years we have seen several examples of industries that have changed the way consumers search, buy and use products or services. In this blog I will short look at some influences on IT in the consumer market, but also the B2B-market.

sharing

Around the 1950’s, mass production came up and led to more efficiency, lower prices and higher wages. As a result, the average household gained acces to expensive products that, for decades long, were only available to the elite.

These days, the Internet has made the access to all kind of services much simpler: a small investment is enough to use a certain service, and a big investment to own a product is nog longer needed (think of the Sharing Economy). This applies, for example, to cars, but also in relatively low-cost products such as CD’s and DVD’s. Spotify and Netflix have changed the way people consume their media. Why should you buy a DVD if you want to watch the film only once?

sharing2

We thus see a shift in the consumer market from the ownership-model to the subscription-model. This also applies in the B2B-market. IT-infrastructure therefore has to change quickly as a result of this new reality, but, in practice, this is often a gradual process. This is because of the fact that companies have spent much, and long time, on developing their IT-infrastructure to meet business needs.  They are therefore unable to respond flexibly to changing market conditions (subscription-model).

The changing market conditions has an impact on IT:

  • From procurement perspective: a flexible subscription-based contract with a software supplier gives the IT-department the power to use services that can be deployed rapidly. User licenses are scalable, responding to the need. Through the cloud, companies can expand their infrastructure an applications, with new business processes, more insights, creating more value.
  • The demand of 24/4 availability. IT-systems therefore always have to be online, to offer the promised services. This asks for an investment in the infrastructure that guarantees high availability and security.
  • Companies that deliver products or services based on subscription or membership, are using a different way of (financial) administration. Customers don’t invest in the product or service at the beginning, but are paying a fixed payment per month. From the business perspective, this provides more opportunities for customer retention, loyalty and upselling. Also, when analyzing the customer behavior it is much easier  to offer customized products or services.

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It is certain that the digital revolution will bring further dramatic changes in the future. Forward looking firms are seeing the changing technologies as opportunities rather than threats. They can benefit from these disruptive technologies by standing in front by using or delivering them.

 

Harm-Jan Rijneveld

SN: 370370hr.

 

Sources:

http://cooperativegrocer.coop/articles/2009-01-19/membership-ownership

http://blog.unit4.nl/2014/10/effect-veranderende-economie-it-3-eigendom-lidmaatschap/

Belk, R. (2013) ‘You are what you can access: Sharing and collaborative consumption online’, Journal of Business Research, 67, pp. 1595-1600.

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5 responses to “From ownership to membership”

  1. oscarchongis says :

    Good article. The digital revolution already brought big changes to the market. For example look at über, it is a replacement for the ‘old fashioned’ taxi. It is a much cheaper option and consumers are getting much more awareness considering the price. Companies don’t have choice but to go with the flow. The competition will keep getting bigger, because everyone can start building an mobile application or website. The threshold of starting such companies is getting lower, so I predict that consumers like you and me will determine what’s coming next!

  2. 370370hr says :

    Thanks for your reply!

    I indeed agree with you that the thresold of starting such companies that uses platforms and IT mechanisms to serve people, that have to do the rest on that platform themselves, is getting lower.
    But what do you think of the competition-part in this markets? Isn’t it that, only the big established, early-entry companies, run this kind of markets (think of Über, Airbnb, Netflix and so on)? Due the fact that such platforms only have true value when they’re getting awareness, and much people engaging in the platform? (What I mean is the so-called ‘Network effect’, https://en.wikipedia.org/wiki/Network_effect).

    I wonder what you might think about this?

    • oscarchongis says :

      I don’t completely agree with your argument that only the big established companies run these kind of markets. If you compare Myspace and Facebook for example. Myspace used to be a market leader, but Facebook grew bigger in a rapid tempo.(http://www.forbes.com/sites/adamhartung/2011/01/14/why-facebook-beat-myspace/). So the new early-entry companies can defintely surpass the bigger established companies. I think that is due the fact that there is almost no switching cost, if there is a better option available the people will defintely switch.

      • 370370hr says :

        Good point indeed. When you as a newly-entered company perform better than your (established) competitor, you will create customers and create value. That is true for every market. But always holds: (as mentioned in lecture today) The penguin problem –> when the first users will registrer themselves and make use of the platform, the rest will follow. But you have to attract that first group of new customers, and that is hard with so much saturation in the community provider-market.

  3. 370370hr says :

    Good point indeed. When you as a newly-entered company perform better than your (established) competitor, you will create customers and create value. That is true for every market. But always holds: (as mentioned in lecture today) The penguin problem –> when the first users will registrer themselves and make use of the platform, the rest will follow. But you have to attract that first group of new customers, and that is hard with so much saturation in the community provider-market.

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