The concept of “ownership” as we know it is quickly changing. Traditionally, we’ve been tied to the idea of possession, paying for products and services outright or taking years (or decades) to pay off a home mortgage or car loan. Nowadays, everything seems to be available for rent or subscription. The new question seems to be: “why own something when you can rent or borrow it?” If you want a ride, call an Uber. If you want to binge watch movies, open Netflix. Ridesharing companies like Lyft and homesharing services like AirBnB have expanded the sharing economy to great heights and told customers that “what’s mine is yours, for a fee.” No matter what the product or service may be, sharing it has become a viable option. However, that was just the beginning because beyond the sharing economy lies the subscription economy.
What is the subscription economy?
The subscription economy is a set of companies operating on subscription-based structures instead of the traditional pay-per-product or service models. Over the last few years, there has been a noticeable shift in business growth strategies, as customers and businesses alike increasingly favor the subscription-based model. Subscription models can involve a “pay as you go” structure, a pay-per-subscription (typically monthly or annually), or a long-term contract. Customers can subscribe to products as well as services on a monthly or yearly basis via Subscription-as-a-service or Living as a Service (LaaS). The idea is to make recurring services and expensive products (like cars or houses) affordable through leasing and sharing, rather than outright purchasing. Overall, the subscription economy is designed to maximize flexibility and affordability. With the American homeownership rate at an all-time low of 62.9% in five decades, LaaS may be an excellent option.
Data and Trends: The Rise of the Subscription Economy
After the recent economic recession of 2007-2009, the American middle class lost over $2 trillion in savings over the span of just 15 months. Based on the Federal Reserve’s 2013 Survey of Consumer Finances, the average household income of 18 to 33-year-olds decreased by 19% between 2007 and 2013. For all ages, average incomes fell 12%. Despite being the most well-educated age group in history, millennials (those currently between 18 and 35 years old) were forced to defer milestones like getting married or purchasing a home or car by as much as 10 years. With homeownership among Americans under the age of 35 at just 34.5% with low chances of rising anytime soon, young adults are focused less and less on the standard American Dream of homeownership.
Dealing with unprecedented amounts of student debt and joblessness in a changing post-recession economy, millennials began to evaluate ownership through a different lens. This has resulted in countless new opportunities, however, even as household income levels are rising again. Many millennials are now opting for multigenerational households, often with relatives, or demand-based LaaS housing options with like-minded individuals. Flexibility, financial strategy, and mental fulfillment are becoming requirements, not just preferences, in choosing living situations. Furthermore, economic hardship and technological innovation have given rise to the sharing economy, which in turn has influenced the subscription economy, including the growth of LAAS. One-third of Americans reportedly have $0 retirement savings and 23% have less than $10,000 saved. With insufficient funds to retire or lead a desired lifestyle, renting out a room or subscribing to a co-living environment makes financial and logistical sense for many individuals.
The RISE of the remote worker
Besides economic hardship, individuals (particularly millennials) have another reason to desire pursue a subscription lifestyle. Remote working, or telecommuting, has multiplied four times between 1995 and today, according to Gallup Polls. Working remotely and maintaining a flexible lifestyle is becoming increasingly more valued, particularly by millennials. Since 2005, the non-self-employed work-at-home population has grown by 103% with nearly 4 million employees, or 2.8% of the entire American workforce, now working from home at least 50% of the time. Working remotely opens up new avenues of income, education and travel, none of which generally necessitate property ownership. Based on the Bureau of Labor Statistics’ projections, by 2020, about 65 million Americans will be working remotely as independent contractors, freelancers and solopreneurs and constitute 40% of the entire workforce.
Whilst 68% of millennials prefer employers with remote working options, only 2.8% of the US employed workforce actually works remotely.
Space-as-a-service models, which include co-working and co-living, are growing rapidly, as traditional notions of “public” versus “private” spaces gradually erode. Working from anywhere gives individuals the flexibility to choose the environment they surround themselves in on a daily basis. Millennials generally prefer to work in communities of like-minded people and desire fun, social, and energizing workplaces with flexible work hours and ample opportunities to travel and explore. The subscription economy greatly appeals to them because they are drawn less by the notion of purchasing property and more by experiences, events, and opportunities, which co-living spaces (or LaaS companies) often provide.
A brief history of shared living
Throughout history, humans lived in large groups, depending on one another for food, security, and support. In modern times, isolation started to become the norm, particularly in developed countries. In 2010, less than 3 people lived in the average American household, according to the Census Bureau. Single-person households and co-living spaces have been rapidly increasing in number, however.
Why the subscription lifestyle makes sense
In general, the subscription-model is great news for businesses who can convert long-term customer relationships into recurring streams of revenue. It is also fantastic for customers who no longer have to be burdened by traditional concepts of ownership and can attain the flexibility to explore products, services and housing options without breaking the bank. While living in a small household has inherent advantages like privacy, there are major disadvantages as well, with higher bills, lowered productivity, and loneliness being the most common issues. Home ownership was once an integral part of the American Dream but modern Americans, particularly millennials, are redefining their living arrangements and opting for communal living spaces reminiscent of more traditional ways of living.
Rather than limiting their households to relatives, these individuals are opting to cohabit with friends and like-minded strangers. These co-housing spaces often involve private and communal living spaces, with shared responsibilities for cooking and chores. By paying a reasonable fee per month, people can afford to live in expensive places like San Francisco for a fraction of the costs and retain the flexibility to travel or move. Typically, monthly rental costs in San Francisco, for instance, can range from $2800 for a studio to $3500 for a one-bedroom apartment. Compare this to $1500-2500 for a room within a co-living space or $1000-1500 within a shared house.
This is the beauty of subscription-based living and LaaS. Additionally, many millennials are also leaving big cities due to high costs in favor of old homes in closed-in but more affordable suburbs. In fact, millennials purchased 35% of homes sold in the U.S. last year. Even as millennials are tackling financial challenges, they are breaking the norms of city-bound youth and opting for different styles of home ownership and residency. LaaS, and the subscription economy in general, are financially and logistically viable options for tech-savvy but financially limited millennials in search of a more flexible way of living.
What is Living as a Service (LaaS)?
Living as a Service (LaaS) is one of the most rapidly expanding and notable sectors of the subscription economy. LaaS, like the subscription economy in general, revolves around a central idea: ownership isn’t everything. Essentially, owning a home is not a prerequisite for living in it. In the case of subscription-based living, the basic idea is to charge customers a monthly fee for rent and utilities. This often includes turn-key homes already equipped with furniture, linen, kitchenware and utilities (including TV and Internet). Cleaning and concierge services are often included as well.
The customer-centric outlook
In the subscription economy, companies are responsible for directly maintaining relationships with their customers, often through multiple channels ranging from social media to in-person interactions. Customer satisfaction is the central focus and customers are prioritized above products or transactions. There is an inherent focus on monetizing long-term relationships instead of simply selling or shipping products.
Types of subscription-based spaces
The best part about subscription-based spaces, including co-living locations, is the flexibility of schedules and abundance of opportunities to socialize, be productive and explore. The typical day of a resident can range from work sessions to meetings, meals, outdoor breaks, and various group activities. Around the world, there are many types of subscription-based spaces with something for everyone:
- Co-living spaces offer a “modern, urban lifestyle that values openness, sharing and collaboration” with shared amenities and like-minded people. With furnished buildings entirely dedicated to co-living and leases available on a month-to-month (or shorter) basis, the co-living sector is rapidly expanding. With the rise of remote working and millennials seeking flexibility, we estimate an addressable market of $11 billion by 2020.
- Beyond the traditional apartments are micro-apartments - units of under 400 square feet - are becoming popular, particularly in crowded cities like New York, and are designed for people who need affordable living spaces in great locations. Unlike co-living spaces, micro-apartments are less communal and enable a highly independent lifestyle.
Subscription-based living, in general, takes into account individual preferences and provides abundant opportunities for authentic connections with like-minded individuals. Flexibility to achieve the perfect work-life balance is just a great bonus.
Benefits of subscription living
Shared living has many benefits that renting or purchasing living spaces do not. These are some of the primary positives:
Affordability: Because of the shared living aspect of subscription living, individuals save a lot by subscribing. The cost of renting a one-bedroom in San Francisco, for instance, is $3,590, on average. Subscribing to a co-living space can cost between $1800 to $4500 per month, with an average cost of $2600. Hacker houses, increasingly common in big cities, also offer bunk beds for as low as $1200. With furnishing and amenities provided, generally speaking, subscription-based living is logical for many individuals, particularly working millennials.
Flexibility: Subscription-based living involves lower overall costs as well as the avoidance of long-term contracts with month-to-month rental options. Flexible membership plans, enabling daily, weekly or monthly payments and a wide range of membership benefits are also available, with Outsite. Reducing financial and legal obligations to stay in a single place is highly appealing.
Convenience: As a whole, subscription living is more convenient. Shared amenities and proximity to like-minded individuals creates a welcoming environment that is conducive to community growth. Additionally, sharing living spaces allow access to higher quality neighborhoods and better amenities than renters would be able to afford individually. With virtually no paperwork or deposits to worry about, turnkey co-living spaces offering furniture, kitchenware, utilities and cleaning for a monthly subscription are highly appealing.
Stability and community interaction: Living in close quarters with like-minded people helps foster community interaction and acceptance that many individuals don’t experience outside of traditional family units. Creating strong community bonds and developing social networks is a huge drawing point for subscription-based spaces.
WHERE IS THE SUBSCRIPTION ECONOMY HEADED?
As the subscription economy expands, businesses need to be mindful of subscriber identity (particularly when dealing with many subscribers) and company culture in order to maintain an authentic, customer-oriented mindset. With every major industry seemingly on the verge of disruption, the economy as a whole has been transforming as well.
Clearly, subscription has proven to be an effective model to entice customers because according to The Economist Intelligence Unit’s 2014 report, 80% of customers are now demanding options to subscribe, share and lease instead of purchasing outright.
Currently, there are around 2.1 million domestic and 12 million internationally-based American millennials earning over $100,000 per year. The market for team retreats and the corporate housing market is at around $30 billion. In addition, there are 5.3 million domestic and around 30 million internationally-based remote employees. All of this indicates a $11 billion addressable market for co-living spaces. This also helps explain the rise of subscription-based pricing models, which around 50% of companies are already adapting to.
As far as subscription-based living goes, we have gradually been shifting from a mindset of ‘property ownership’ to ‘sharing economy’. Judging by the progress so far, the subscription model of housing will expand rapidly. Living as a Service is simply the first step.