Nik Milanovic manages strategic partnerships at Funding Circle.
The American dream is no longer for sale — but it is for rent. We are slowly going through a subtle shift in how the economy is owned and operated, with massive implications. On an average day, you may wake up, shower, dress, drive to work and return home. But the way you do it is changing: Where once you would own the car, the house and the clothes, you now have the option to live life by subscription.
The idea of subscription itself is nothing new — from milk and newspaper delivery to fitness clubs, the business model has been a mainstay in the American economy for centuries. But for many assets, ownership seemed for so long like an inviolate trait. You might lend your car to a neighbor, but you owned it at the end of the day. Now, as the world of the middle class flattens, this boom in subscription businesses reflects a deep foundational change in how our generation thinks about property and ownership.
Welcome to the club
Roam.co is a simple startup with an audacious idea: you don’t need to own a home, and “home” doesn’t have to be tied to one location. By paying $1,600 a month — maybe half what it costs to live in an apartment in San Francisco — you get access to co-living spaces around the world. The project, piloting in Bali, Miami, Buenos Aires, Lisbon and Kyoto, seeks to radically redefine how the “digital nomad” generation finds a place to live. As their website states, “Just show up with your bare essentials and immediately feel at home.”
Yet this idea, in its simplest form, isn’t that radical. Rent, for example, is at its core just a monthly subscription fee paid for an apartment. Utility bills are a subscription fee for shower water and electricity. Few people buy their own gym — most subscribe to a fitness club. But this conventional model is finding surprising applications, such as Surf Air, which lets you book unlimited private jet flights for $1,950 a month, upending what used to be an exclusively owned asset.
And now, pay-as-you-go models have taken it one step further and disintermediated even former “subscription assets:” instead of leasing a car, you can pay Uber or Zipcar per ride. Instead of renting an apartment, you can divvy up private rooms on Airbnb or claim a couch via CouchSurfer.
Subscription and pay-as-you go businesses are undermining an idea that has been entrenched in our collective psyche since the foundation of capitalism: that you have to own something to use it and enjoy it. As noted in a 2014 report by The Economist Intelligence Unit, “80% of customers are demanding new consumption models including subscribing, sharing, and leasing — anything except actually buying a product outright.”
What about the new generation of consumers in the market has led to more comfort with — and preference for — subscriptions?
Much has been written on the business model of what is dubbed the “new subscription economy,” commenting on the value to companies of renting their assets and collecting revenue via subscription rather than depending on individual sales. Zuora is credited with coining the term, and Rent the Runway, Dollar Shave Club and Netflix are prime examples of services on the leading edge of this economy. But why is this shift happening now? What about the new generation of consumers in the market has led to more comfort with — and preference for — subscriptions?
Many point to the Internet as the impetus: online, you can use Breather to rent office space by the hour, hire a handyman through TaskRabbit or get on-demand cookies via Doughbies. Online, goods like software that used to be sold in CD-ROMs are now non-rivalrous, meaning SaaS companies can sell the same product 1 million times at no additional cost.
But there is more to the story than just easy access — the full story is more nuanced. And darker. While possibility plays the critical role of midwife, necessity is still the mother of invention.
How to lease your dreams
According to recent studies, anywhere from 50 percent to 63 percent of all Americans don’t have $500 saved that they could spend in an emergency situation (and less than one- third have $1,000 saved). The American middle class is struggling to recover from the most recent recession, which wiped out 2 trillion in savings over just 15 months. Millennials were hit particularly hard — 48 percent of the unemployed population consists of millennials.
Millennials are also increasingly putting off adulthood purchases like buying a home by as much as 10 years from when they used to. Driving the paucity of savings and spending are staggering levels of student debt, which college graduates carry to the tune of a $40,000 average in loans to pay down, adding up to $1.2 trillion outstanding. It’s difficult to support both a student loan and a mortgage.
This perfect storm gave birth to the “sharing economy,” the flip side of the subscription economy, where asset owners “share” what they own with total strangers, to recoup those losses and jobs.
While possibility plays the critical role of midwife, necessity is still the mother of invention.
It’s little wonder then, that the sharing or “gig economy” is so popular, and that stints like driving for Lyft are increasingly replacing, instead of augmenting, steady jobs. But is this the new normal? Or is it a short-term hangover of the financial crisis and current double-dip recession? It’s tough to tell, but the longer it takes to make a full economic recovery, the more the subscription model will become ingrained in the American psyche and fundamentally change our thinking on property and ownership.
The subscription economy is also a distinctively American response to lower levels of wealth and income. Where more social democratic governments in Europe responded to inequality with social spending, progressive taxes and generous welfare programs, the U.S.’ commitment to rugged individualism and entrepreneurialism instead birthed models of communal ownership made possible by massive for-profit marketplaces.
There is a good case to be made that “subscription everything” really is here to stay. Rising household debt levels — whether mortgage, credit card, or student — make it hard to see a clear path to big-ticket purchases for the millennial generation.
The displacement of many traditionally middle-class jobs to low-cost centers like China may mean it takes longer for jobs, and savings, to reach previous levels. And young people are more mobile than ever, moving across the country for jobs, making them less likely to make long-term investments in things that can’t be easily relocated.
As an American Public Transportation Association study pithily summarizes, “History shows that the combination of technological change […] combined with macro forces that shape behaviors […] can lead to societal change that can last generations.” As young people, we may have to face the fact that it doesn’t make financial sense to own the things that we could instead simply subscribe to. And this mindset may be something we carry into adulthood; we may be witnessing the slow transition away from the “homeowner generation.”
The road ahead
On further inspection, though, the new normal isn’t all that bad. Maybe ownership is overrated.
Studies estimate that cars are only used productively 4 percent of the time, on average. The advent of ridesharing, coupled with autonomous vehicles, will draw much more productivity and efficiency out of a normally idle asset, while radically redesigning cities as parking spaces and garages become unnecessary. Airbnb boasts more than 2 million listings in 190 countries worldwide — apartments and rooms that may otherwise have sat unused and unoccupied. TaskRabbit plays host to millions of “taskers” who can now capitalize on their free time.
The sharing economy unlocks the inertial value dormant in people’s assets; it allows the “haves” (owners) to share with the subscription-economy “have nots” (renters), to the point where nobody is really an owner or a renter anymore, but rather all participants in a collective pool.
For subscribers who rent their apartments, take Ubers, watch Netflix, clean their houses with Handy and cook with Blue Apron, subscriptions create an agile lifestyle. No ownership means no maintenance costs and upkeep. Subscriptions can be upgraded, downgraded or canceled easily and flexibly. There is a financially shrewd Zen in not being tied to unmalleable objects. It frees people to spend money on pursuits other than that of saving to buy nice things.
So what’s next? Even when employment and savings return to sustainable pre-recession levels, it’s not clear that every American will rush out to buy a car. Subscription models have made significant inroads into American life, and many possibilities are still unexplored: unlimited monthly rideshare memberships, wardrobe subscriptions, pay-as-you-go smartphone rental, the “Birchbox for X” model… even monoliths like GM, News Corp. and Schneider predict that 40-100 percent of their revenues will eventually be from subscriptions.
To steal a quote from Fight Club author Chuck Palahniuk, “The things you own end up owning you.” It may be time for us all to rethink the value of ownership.