Subscriptions are like insurance and gym memberships. They’re profitable only if they represent value that is never fully realized by the consumer.
Think of your monthly spending as a probability distribution. They provide value by reducing variance of that distribution at the cost of increasing the mean.
Consider at a more concrete example. You’re provided with two options:
You get $100 a month guaranteed
Flip a coin each month. On head, you get $200. On tail, you get nothing.
The expected value for both are the same, but option #1 is predictable. It’s the better option of the two unless you’re in a situation where getting $0 is effectively equivalent to getting $100. You would need to increase the amount you get in option #2 to make it worthwhile. Similarly, you can decrease the amount you get in option #1 and still have it be the better option.
By default, life is like option #2. The value proposition of insurance and the like is to give you option #1 with an amount lower than the expected value of #2, and in exchange, they get the difference as profit.
Think of your monthly spending as a probability distribution. They provide value by reducing variance of that distribution at the cost of increasing the mean.
Consider at a more concrete example. You’re provided with two options:
The expected value for both are the same, but option #1 is predictable. It’s the better option of the two unless you’re in a situation where getting $0 is effectively equivalent to getting $100. You would need to increase the amount you get in option #2 to make it worthwhile. Similarly, you can decrease the amount you get in option #1 and still have it be the better option.
By default, life is like option #2. The value proposition of insurance and the like is to give you option #1 with an amount lower than the expected value of #2, and in exchange, they get the difference as profit.