The ringtone subscription model! — Why a scam company was able to raises $76 Million Series B?

Ringtones is what I first thought of when I read this:

Apparently JustFab works like this: once you buy something from their website, you become their “VIP member”. Then you will have to log into their website between the 1st-5th of each month and click “Skip This Month”. If no action is taken (either skip this month, or cancel your account), they just charge you a $39.95 fee every month.

via Why a scam company was able to raises $76 Million Series B? | Hacker News.

A few comments down, someone actually makes the connection to the ringtone companies:

This business model reminds me of those fly-by-night mobile subscription services from the early 2000s. The ones who’d make you think you were buying a single ringtone, and the next thing you knew, you’d been surreptitiously signed up for a $29.99/month subscription.

I remember evaluating the books for one of those companies back in the day. It was wildly successful at the surface level. But if you dipped below the surface, you noticed that its biggest strategic weakness was “Breakage,” i.e., the rate at which people eventually discovered they’d been duped and then cancelled their subscriptions. It turned out that the average subscription lasted 2 to 3 months, and nobody kept a subscription longer than 5 months. This basically meant that the company’s entire business model was predicated on scamming new users at a rate quicker than its existing users could break away. While not a Ponzi scheme in the true sense, the model operates on a similar assumption. But the assumption is not sustainable in the long run.

Economics of Subscription Commerce

A thorough overview of the subscription commerce model in Techcrunch today by Phin Barnes from First Round Capital:

To Subscribe Or Not Subscribe? That Is The eCommerce Question | TechCrunch.

Some of my thoughts:

- Quora has been the best source on info on subscription model to date.  Here is the question with the most epic answer from Elizabeth Knopf.

- The existence and success of Quidsi (Diapers.com) dampens Phin Barnes’ pov on the competing on price and convenience.

- The point about the mismatch between Shoedazzle’s monthly revenue and subscriber base data is valid and does indeed make it look like a regular ecommerce model.  Business Insider has an old post on this.

- At the end of the day, subscription commerce is not that different than your regular ecommerce play.  It all boils down to lifetime value per customer. Subscription commerce models help in maximizing that with favorable churn and cash flows.

- The point about cash flow / payment terms is the most underrated benefit of this model.

- The point about optimizing a subscription commerce business for your best customers is a great model because the most valuable customers will self select for the service.  However, the issue is that like with most services that start out by monetizing a passionate user base, you get to a point where you need to generate demand from the mass market to further scale the business.