Why Everything Is Now A Subscription Service (And Why You Should Embrace It)

What's the first thing you bought on the internet? For me, it was a bootleg VHS tape copy of a pro wrestling event I ordered from some dude nicknamed Johnny Jackal off a random forum. I paid with a postal mandate (yeah, Google that). Ah, memories.

For a while, in the early days of the internet, paying for anything was terrifying. The only assurance websites provided was putting the Norton logo on there like it meant anything. Your network could crash and you might have no idea where your money went.

Plus, it seemed companies decided that to lure people online, we had to get free stuff. Yahoo was free games, news and horoscopes. Google gave free search. Geocities offered free websites. MSN, free messaging. Napster, free music (whoops). Facebook's marketing touted it as being "free and always will be" (until it quietly removed it from its homepage in 2019).

We never asked ourselves how these companies made money. It felt like magic boxes. Or, later, it was like: oh, yeah, those annoying pop-up ads and Punch the Monkey...

Little did we know ads businesses were tracking our browsing history. Two decades later, suddenly (finally) ads are out. Facebook, rebranded as Meta, is launching a paid subscription service. There's no way to buy a licence for Microsoft Word, you have to pay a monthly fee. Why all this greed, you may ask yourself?

In this edition of the newsletter, I'll show you:

• How have we got to the point where everything must now become a subscription service
• Which trends you should be careful with
• Why the subscription model might be better for the internet as a whole

The Diminishing Returns of Innovation

What sport do you practice? You've probably noticed how, when you reach a certain level, you must put in twice as much work to gain a fraction of progress. Marathon runners will train for years to gain seconds on a 43 kilometres race! This is the law of diminishing returns.

Innovation works the same. Technology reaches a "rapid progress" stage where users get tremendous value. Companies that capture the opportunity earn huge market share. Growth appears infinite. But every technology matures. Low-hanging fruits have been picked. The technology still makes incremental progress, but they are barely noticeable.

But shareholders require steady growth, all the rest be damned. Executives therefore must continue to squeeze more value out of an innovation which produces less and less. This is how you get weird marketing ploys and, worse, regulatory capture or lobbying.

For a while, acquisitions were the preferred option to provide more value. Facebook acquired Instagram and Whatsapp. Google acquired Android and YouTube. But the increased scrutiny by the US Congress over antitrust concerns has drowned that well.

Think of Netflix. In 2013, Netflix was eating the world. It revolutionized entertainment. It was earning Oscar nominations. Movie theatres were panicking. Governments wanted to tax it for killing local entertainment.

Then Netflix started to suck. You just can't manufacture Stranger Things on a steady basis. Disney+, Peacock, Paramount+, Apple+ and Prime Video started competing for audience and creators. So Netflix decided the best way to increase revenue was to jack up prices for no supplemental benefits and to crack down on password sharing. Let me rephrase that so you see how terrible this is for business: Netflix spent millions of research and development dollars on a feature that makes the user experience objectively worse for the sole purpose of increasing its bottom line.

The harsh truth is that streaming entertainment technology plateaued. Netflix might have better resilience, performance, and even recommendations. But has anyone noticed? Netflix failed to transform itself, and consumers are paying for it. And well, at least Netflix users can find solace in that un-subscribing is one click away, which is not always as easy with other internet services...

How Large Platforms Purposefully Make the Internet Worse

We're seeing the "diminishing returns" phenomenon everywhere on the internet. This recent article from Wired magazine labels it as "enshittification" (please don't click it, it comes across as self-righteous despite some good ideas). The path goes like this:

• new platforms emerge and bring value to consumers;
• consumers congregate towards the platforms;
• platforms monetize their audience's attention with advertisements;
• platforms experience the "diminishing return" phenomenon;
• consumers get a worse experience due to the abundance of ads;
• platforms get disrupted or die.

Examples abound. Think of how your Facebook feed is full of media content you have never liked, how the Amazon pages showcase only ads, and how bad Google search results have gotten.  

The Wired author sees the new Twitter and Meta subscriptions as a harbinger of doom (see what I did?). Essentially: creators will now need to pay to have their content seen on these platforms.

What to conclude from these examples?

• People will accept to subscribe to services that provide value consistently and innovate;
• Innovation and consistent value are subject to the law of diminishing returns;
• Companies must deliver constant revenue growth to maximize shareholders' value;
• As a result, companies will ultimately all attempt to get more money from less value, at the expense of customers' goodwill.

And yet, despite this seemingly depressing analysis, I'm here to tell you that high-priced subscription services are better for the internet as a whole. Why?

Aggregators like Facebook, YouTube and Google are playing both sides (customers and sellers). Both parties lose.

When you remove the intermediary and go direct to the provider, a relationship can exist. Less is more. Choose your favourite small businesses that provide value and incentivize their business model with a direct purchase. You will win in the end.

Privacy Regulations Have Won The Game (Not Without Costs)

The new generation of social media led by Gas, Discord and BeReal will not be ads based. The new wave of search led by Neeva AI and Perplexity is subscription based. Online advertising is out. The main reason is privacy regulations.

What we're seeing from the past 5 years of GDPR enforcement is basically the Tech Giants taking the fines one by one and keeping things mostly the way they are. It took Apple adding its anti-tracking technology (ATT) to give Mark Zuckerberg an aneurysm.

New businesses will always struggle to withstand the risks associated with GDPR safeguards if they want to do things right. Their only bet is to "go fast and break stuff", like TikTok, which succeeded in becoming too big to fail before regulators knew what was going on.

Privacy regulations have succeeded in creating a world where subscriptions become a viable business model for social media. However, we must acknowledge the dirty side effect of solidifying the ads business around internet giants who can afford the legal battles.

My point is if you, like me, value ethical businesses that care about your privacy choices, a subscription business is your only hope. Everywhere else, if you are not paying for the product, you are the product.

Everything has become a subscription business. It's a good thing because it means you finally are the customer.

🥊 Latest In Tech

Cybersecurity, Breaches Edition

• Voice authentication is dead. Deepfaked voices break phone authentication systems. In other news, most service providers will authenticate you with questions such as your mother's maiden name, your address, or your children's names... We should expect more. Story
• City of Oakland Paralyzed By Ransomware. I explained why organizations get hacked so much last week. What the City of Oakland should explain to its citizens is how they've built a network that cannot contain an attack. Story
• Atlassian Leaks Files From Its Office Management App. It seems like yet another human misconfiguration. Story
• Stanford Leaks PhD Applications. Just like with Atlassian, a human error lead to the folder being shared publicly by accident. Story
• Canada Follows EU and US States To Ban TikTok Over Security Concerns. The decree forbids elected officials and employees of the State to install the app on their work phones. We're still awaiting evidence that TikTok's data collection is different from what other social media do. Not saying it's ok, but TikTok being a boogeyman right now feels like your grandpa who's angry at "kids these days". Story

Business of Tech

• Apple Progressing on Blood Glucose Monitoring Technology for the Apple Watch. The future Apple Watch feature would allow diabetics to test their blood without injections. As I've written before, health is tech's final frontier. This is my Faustian bargain: I'm willing to let these large corporations into the health industry even more if it means we can rely less on our broken healthcare systems. Story
• Tech Layoffs Are Creating a Surge in Startups. With Big Tech in post-covid hangover, people are turning to entrepreneurship and sectors that were seen as less glamorous such as manufacturing and finances. This will be a big win in a decade.  Story
• Supreme Court to Rule on Internet Free Speech Issue. The Google v. Gonzalez case puts into question's Google liability for recommending terrorism-related video content on YouTube. "Section 230" is a statute that protects technology platforms from being responsible for third-party content. Essentially: before it was television, video games, metal music and Dungeons and Dragons who turned people into monsters. Now it's the algorithms. Story

Artificial Intelligence

• Claims of Generative AI Taking Over Law are Exaggerated. While law certainly has its share of overwritten texts and standardized documents, I actually believe this story to be an example of AI overhype. A bunch of lawyers used ChatGPT for a month, got some value out of it, and suddenly it's headlines about disruption-mania. We will really need to be careful in the upcoming months to spot the companies that just slap "AI" on everything because it's what's cool.  Story
• Meta Launches LLaMA Model. The model seems to be better than GPT3. What piques my interest is how this item would have barely made a blip on the radar 3 months ago and yet here we are. I actually enjoy Meta's dull blog post here. It published LLaMA like any other model. It doesn't feel like Google's ill-attempted response to ChatGPT. Keep working on the science, Meta. Story

❓ Question of the Week

How many online services do you subscribe to?