Subscriptions Are Getting Out of Control

By ColdFusion

Watch on YouTube (22:14)

Overview

This ColdFusion video examines the proliferation of subscription-based business models across industries, from their historical origins to modern-day overreach. The video explores how subscriptions evolved from reasonable services to predatory practices that erode consumer ownership, featuring examples like BMW's heated seat subscriptions, HP printers, Adobe's cancellation difficulties, and various failed subscription startups. It discusses why companies push this model, the psychological tactics used to trap consumers, and emerging pushback through regulation and consumer resistance.

Key Takeaways

• Subscriptions have evolved from reasonable services (17th century coffee deliveries, milk, magazines) to predatory practices that erode ownership, with Americans now spending over $1,000 annually on subscriptions
• The Software as a Service (SaaS) model in the early 2000s transformed subscriptions into a money-printing machine for businesses, with subscription companies growing much faster than the S&P 500, leading every industry to adopt the model
• Companies use 'dark patterns' - deceptive design tactics including hidden fees, difficult cancellation processes, urgency messaging, and guilt-based language - with 81% using automatic renewal and 70% failing to clearly explain cancellation
• Absurd examples like Juicero ($700 internet-connected juicer for packets you could squeeze by hand), Castle (clothing rental fraud scheme), and BMW's heated seat subscriptions show how far companies have pushed the model beyond reason
• Consumer pushback is growing through piracy, password sharing, boycotts, and regulatory efforts like the click-to-cancel rule, suggesting potential for change if enough people resist predatory subscription practices

Foundation Concepts

• Ownership vs. Access (econ): Ownership means you purchase something once and control it indefinitely, while access means you pay repeatedly for temporary permission to use something. Historically, most consumer transactions involved ownership, where buying a product meant you could use it forever without additional payments. The shift from ownership to access fundamentally changes the relationship between consumers and the products they use.
• Recurring Revenue Model (econ): A recurring revenue model is a business strategy where customers pay regular fees (monthly or yearly) rather than one-time purchases. This creates predictable, continuous income streams for companies, making their earnings more stable and their valuations higher. Investors prefer this model because it's easier to forecast future profits.
• Consumer Spending Patterns (econ): Consumer spending patterns describe how people allocate their income across different categories of goods and services. Small, regular payments often feel less painful than large one-time purchases, even when the total cost is higher. This psychological effect makes subscription models particularly effective at extracting more money from consumers over time.
• Historical Economic Transitions (history): Throughout history, economic systems have undergone major shifts in how goods and services are exchanged, from bartering to currency to credit systems. Each transition changes the power dynamics between buyers and sellers. The current shift from ownership to subscription-based access represents another fundamental restructuring of consumer economics.
• S&P 500 Index (econ): The S&P 500 is a stock market index tracking the 500 largest publicly traded companies in the United States, serving as a benchmark for overall market performance. When a company or sector grows faster than the S&P 500, it means it's outperforming the broader economy. This exceptional growth attracts investor attention and encourages other companies to adopt similar strategies.
• Cloud Computing Infrastructure (tech): Cloud computing allows software and data to be stored on remote servers accessed via the internet rather than on local devices. This technology enabled companies to deliver software as an ongoing service rather than a physical product. Users could access applications from anywhere, while companies maintained control and could update features remotely.
• Predictable Revenue Streams (econ): Predictable revenue means a company can accurately forecast how much money it will earn in future periods based on existing customer subscriptions. This contrasts with one-time sales, where revenue fluctuates unpredictably. Wall Street values predictability highly because it reduces investment risk and makes companies easier to value.
• Business Model Diffusion (econ): Business model diffusion describes how successful strategies spread from one company or industry to others through imitation and adaptation. When investors reward a particular approach with higher valuations, competitors feel pressure to adopt similar models to remain competitive. This creates industry-wide shifts in how products and services are delivered and monetized.
• User Interface Design (tech): User interface (UI) design is the process of creating the visual and interactive elements that people use to interact with software, websites, or apps. Good UI design should make tasks intuitive and easy, but it can also be weaponized to guide users toward decisions that benefit the company. The placement, size, color, and wording of buttons and text can significantly influence user behavior.
• Cognitive Biases (psych): Cognitive biases are systematic patterns in how humans think that lead to irrational decisions or judgments. Common biases include loss aversion (fearing losses more than valuing gains), status quo bias (preferring things to stay the same), and the sunk cost fallacy (continuing something because you've already invested in it). Companies exploit these biases to keep customers subscribed even when it's not in their best interest.
• Asymmetric Information (econ): Asymmetric information occurs when one party in a transaction has more or better information than the other, creating an unfair advantage. In subscriptions, companies know exactly how their cancellation process works and what fees apply, but they deliberately obscure this information from customers. This information imbalance allows companies to extract more money than customers would agree to if fully informed.
• Behavioral Nudging (psych): Behavioral nudging involves subtly influencing people's choices through how options are presented, without restricting their freedom to choose. While nudging can be used ethically to help people make better decisions, it can also manipulate them into choices that primarily benefit the company. Urgency messages, guilt-based language, and strategic button placement are all forms of nudging.
• Value Proposition (econ): A value proposition is the benefit or solution a product or service provides that justifies its cost to customers. Strong value propositions solve real problems or provide genuine convenience that customers are willing to pay for. When a product's value proposition is weak or nonexistent, it means customers are paying for something that doesn't meaningfully improve their lives.
• Venture Capital Funding (econ): Venture capital is money invested in startup companies with high growth potential in exchange for equity ownership. Venture capitalists often prioritize rapid growth and innovative business models over immediate profitability. This funding environment can encourage startups to pursue subscription models even when they don't make practical sense, because investors are attracted to recurring revenue.
• Artificial Scarcity (econ): Artificial scarcity is when a company deliberately limits access to something that isn't naturally scarce, creating demand or justifying higher prices. In digital products and pre-installed hardware features, there's no real scarcity—the cost of providing access to one more user is essentially zero. Locking features behind subscriptions creates artificial scarcity to extract ongoing payments.
• Consumer Fraud (law): Consumer fraud involves deceptive business practices that mislead customers about what they're purchasing or the terms of a transaction. This can include false advertising, hidden fees, or operating a business with no intention of delivering promised services. Fraud schemes often exploit trendy business models like subscriptions to appear legitimate while actually stealing from customers.
• Digital Piracy (law): Digital piracy is the unauthorized copying, distribution, or use of copyrighted digital content like software, music, movies, or games. While illegal, piracy often increases when consumers feel that legal options are too expensive, inconvenient, or unfair. Historically, piracy rates have served as a market signal that pricing or access models need adjustment.
• Regulatory Intervention (law): Regulatory intervention occurs when government agencies create and enforce rules to protect consumers or ensure fair business practices. Regulations can mandate transparency, limit deceptive practices, or require companies to make certain processes easier for consumers. The effectiveness of regulation depends on enforcement and whether courts uphold the rules against industry challenges.
• Consumer Collective Action (sociology): Collective action happens when many individuals coordinate their behavior to achieve a shared goal, like boycotting a company or sharing information about unfair practices. In consumer contexts, collective action can pressure companies to change by threatening their revenue or reputation. Social media and online communities have made organizing collective action much easier than in previous eras.
• Market Correction (econ): A market correction occurs when prices, business practices, or industry trends that have become unsustainable or disconnected from real value adjust back toward equilibrium. Corrections can happen through consumer behavior changes, new competition, or regulatory pressure. When enough consumers resist a business model, companies must either adapt or face declining revenues.
• Product Categories (econ): Product categories are classifications of goods and services based on their function, such as transportation, entertainment, utilities, or software. Traditionally, different categories had different payment models—you bought cars but subscribed to utilities. The current trend of applying subscriptions across all categories represents a fundamental shift in consumer economics.
• Market Saturation (econ): Market saturation occurs when a business model or product type becomes so widespread that nearly all potential customers are already using it. As subscription services saturate the market, consumers face an overwhelming number of recurring payments. This saturation creates subscription fatigue and forces consumers to make difficult choices about which services to keep.
• Psychological Ownership (psych): Psychological ownership is the feeling that something is 'mine' even if legal ownership is unclear or absent. Humans derive satisfaction and security from owning things, and this feeling diminishes when everything becomes a temporary rental. The erosion of psychological ownership can create anxiety and dissatisfaction even when access to products remains unchanged.
• Historical Economic Systems (history): Economic systems evolve over time based on available technology, social structures, and cultural norms. In pre-industrial and early industrial societies, subscriptions made sense for perishable goods that required regular delivery, like milk or newspapers. The relationship between merchants and customers was more personal and locally accountable.
• Perishable vs. Durable Goods (econ): Perishable goods are items that spoil or lose value quickly (like food or newspapers), while durable goods last for extended periods (like furniture or tools). Subscriptions historically made sense for perishables because regular delivery was genuinely necessary. Applying subscriptions to durable goods or digital products that don't degrade represents a departure from this logical foundation.
• Pre-Digital Commerce Constraints (history): Before digital technology, businesses faced physical limitations in monitoring usage, enforcing payments, and controlling access to products after sale. Once you bought a physical object, the seller had limited ability to restrict how you used it. These constraints naturally limited how far subscription models could extend into consumer life.
• Physical Software Distribution (tech): Before the internet became ubiquitous, software was distributed on physical media like floppy disks and CDs that customers purchased once and installed on their computers. This model meant customers owned their software copy indefinitely, and companies had to release new versions to generate additional revenue. Updates and support were limited or sold separately.
• Internet Bandwidth Growth (tech): Bandwidth refers to the amount of data that can be transmitted over an internet connection in a given time. As internet speeds increased in the 2000s, it became practical to run software remotely rather than installing it locally. This technological shift enabled the SaaS model by making cloud-based applications responsive enough for everyday use.
• Customer Lifetime Value (econ): Customer lifetime value (CLV) is the total revenue a business expects to earn from a customer over their entire relationship. Subscription models dramatically increase CLV compared to one-time purchases because customers pay repeatedly. This metric became central to how investors valued software companies, incentivizing the shift to subscriptions.
• Remote Software Control (tech): When software runs on company servers rather than customer devices, the company maintains complete control over features, updates, and access. This control allows companies to enforce subscription payments, disable features remotely, and prevent customers from using older versions. It fundamentally shifts power from the customer to the company.
• Digital Rights Management (tech): Digital Rights Management (DRM) is technology that controls how digital content can be used, copied, or shared. DRM allows companies to sell access to content while preventing customers from truly owning it—you can't transfer it, resell it, or use it outside approved platforms. This technology enabled the shift from ownership to access in digital media.
• Physical Media Decline (history): For decades, music came on vinyl records, cassettes, and CDs, while movies came on VHS tapes and DVDs—all physical objects you owned. The transition to digital distribution eliminated physical media, removing the tangible sense of ownership. This shift made it easier for companies to reframe purchases as temporary licenses rather than permanent ownership.
• Streaming Technology (tech): Streaming delivers audio or video content over the internet in real-time without requiring users to download and store files. This technology made it practical to offer vast libraries of content for a monthly fee rather than individual purchases. Streaming's convenience helped consumers overlook the fact that they were giving up ownership.
• Consumer Expectation Shifts (psych): Consumer expectations are the standards people use to evaluate whether a product or service is acceptable or desirable. Once a new model becomes widespread, it resets what people consider normal. As streaming became dominant, younger consumers never experienced owning media, making subscription access feel natural rather than like a loss of rights.
• Hardware vs. Software (tech): Hardware refers to physical components like heating elements, while software is the code that controls those components. Traditionally, when you bought hardware, you owned it completely. Modern connected devices blur this line by using software locks to disable hardware features, allowing companies to charge repeatedly for physical components you've already paid to manufacture and install.
• Marginal Cost (econ): Marginal cost is the expense of producing one additional unit of something. For physical heated seats, the marginal cost is the materials and installation—once installed, there's zero additional cost to let the customer use them. Charging a subscription for zero-marginal-cost features represents pure profit extraction rather than covering ongoing expenses.
• Consumer Backlash (sociology): Consumer backlash occurs when customers collectively express anger or opposition to a company's practices, often through social media, boycotts, or negative publicity. Strong backlash can force companies to reverse decisions if they fear damage to their brand or sales. BMW's retreat on heated seat subscriptions demonstrates that backlash can still be effective.
• Problem-Solution Fit (econ): Problem-solution fit describes whether a product actually solves a real problem that customers face. Strong businesses identify genuine pain points and address them effectively. Many absurd subscription services fail because they create solutions for problems that don't exist or that already have simpler, cheaper solutions.
• Startup Funding Dynamics (econ): Startups often raise money from investors based on growth potential rather than current profitability. This creates pressure to pursue trendy business models like subscriptions even when they don't fit the product. Investors' preference for recurring revenue can lead founders to force subscriptions onto products where they make no sense.
• Over-Engineering (tech): Over-engineering means adding unnecessary complexity, features, or technology to a product beyond what's needed to solve the core problem. Internet-connected juicers and subscription-based garage door openers are examples of adding technology not to improve functionality but to justify ongoing payments. This complexity often makes products worse while costing more.
• Firmware Control (tech): Firmware is permanent software programmed into hardware devices that controls their basic functions. Companies can update firmware remotely to change how devices work, including blocking features or third-party accessories. This gives manufacturers ongoing control over products even after you've purchased them.
• Vendor Lock-In (econ): Vendor lock-in occurs when switching to a competitor becomes impractical or expensive, trapping customers with one provider. Printer companies have long used proprietary ink cartridges to create lock-in, but subscriptions intensify this by making the printer itself dependent on ongoing payments. This eliminates competitive pressure and allows price increases.
• Razor-and-Blades Model (econ): The razor-and-blades model involves selling a primary product cheaply (the razor) to create demand for expensive recurring purchases (the blades). Printers have used this model for decades, selling hardware at low margins while profiting from ink. Subscriptions take this further by making the hardware completely dependent on the subscription.
• User Experience Design (tech): User experience (UX) design encompasses all aspects of how people interact with a product or service, aiming to make interactions smooth and satisfying. Ethical UX design prioritizes user needs, but dark patterns deliberately create friction where it benefits the company. This weaponization of design principles turns user experience into a tool for manipulation.
• Loss Aversion (psych): Loss aversion is a cognitive bias where people feel the pain of losing something more intensely than the pleasure of gaining something of equal value. Subscription services exploit this by framing cancellation as losing access, benefits, or progress rather than as stopping unnecessary spending. Guilt-based messaging amplifies this psychological discomfort.
• Friction in Transactions (econ): Friction refers to obstacles that make transactions more difficult, time-consuming, or costly. In legitimate contexts, reducing friction improves customer experience. Dark patterns deliberately add friction to cancellations while removing it from sign-ups, creating an asymmetry that traps customers. This intentional imbalance is a form of manipulation.
• Disclosure Requirements (law): Disclosure requirements are legal obligations for businesses to clearly inform customers about important terms, fees, and conditions. Effective disclosure means information is prominent, understandable, and provided before commitment. Companies circumvent disclosure by hiding terms in fine print, using confusing language, or revealing fees only during cancellation.
• Federal Trade Commission (law): The Federal Trade Commission (FTC) is a U.S. government agency that protects consumers from unfair or deceptive business practices and promotes competition. The FTC can investigate companies, require changes to business practices, and impose fines. When the FTC takes action, it signals that practices have crossed from aggressive marketing into illegal deception.
• Early Termination Fees (econ): Early termination fees (ETFs) are charges imposed when customers cancel a contract before its agreed end date. While ETFs can be legitimate when they compensate for actual costs, they become predatory when hidden, excessive, or used primarily to trap customers. The key issue is whether fees are clearly disclosed before commitment.
• Deceptive Trade Practices (law): Deceptive trade practices are business actions that mislead consumers about products, services, or transaction terms in ways that affect purchasing decisions. This includes hiding important information, using confusing language, or designing processes to trick customers. Such practices are illegal under consumer protection laws, though enforcement varies.
• Market Dominance (econ): Market dominance occurs when a company has such a large market share that customers have few alternatives. Adobe's dominance in creative software means many professionals have no practical choice but to use their products. This dominance allows Adobe to impose unfavorable terms that customers in a competitive market would reject.
• World Economic Forum (history): The World Economic Forum (WEF) is an international organization that brings together business leaders, politicians, and intellectuals to discuss global economic and social issues. The WEF publishes predictions and recommendations about future trends. Its 2016 prediction about ownership sparked controversy because it seemed to celebrate a future many found dystopian.
• Sharing Economy (econ): The sharing economy refers to business models where people rent or share access to goods and services rather than owning them individually, often facilitated by digital platforms. Examples include Uber, Airbnb, and streaming services. While framed as efficient resource use, it also represents a shift of ownership and control from individuals to corporations.
• Digital Goods Characteristics (tech): Digital goods are products that exist as data rather than physical objects, including software, music, movies, and ebooks. Unlike physical goods, digital goods can be copied infinitely at near-zero cost and controlled remotely through DRM. These characteristics make it technically easy for companies to enforce access-based models rather than ownership.
• Autonomous Vehicle Technology (tech): Autonomous vehicle technology uses sensors, cameras, and artificial intelligence to enable cars to drive themselves with minimal or no human input. This technology is software-based, making it easy to deliver as a subscription rather than a permanent feature. The high development costs give companies justification for ongoing charges.
• Connected Vehicles (tech): Connected vehicles have internet connectivity that allows them to communicate with manufacturers, receive software updates, and enable remote features. This connectivity gives manufacturers ongoing control over vehicle features even after purchase. It transforms cars from standalone products into platforms that can be modified, monitored, and monetized remotely.
• Feature Gating (tech): Feature gating is the practice of building capabilities into a product but restricting access through software controls. In Tesla's case, the hardware for self-driving is installed in the car, but the software to use it requires payment. This allows companies to extract additional revenue from features customers might assume are included in the purchase price.
• Perpetual Software Licenses (tech): A perpetual license allows you to purchase software once and use it indefinitely without additional payments. While you might not receive updates or support after a certain period, the software continues functioning. This model gave customers long-term value and control, as they could choose whether and when to upgrade.
• Software Update Cycles (tech): Software companies traditionally released new versions every few years, requiring customers to purchase upgrades to get new features. This created unpredictable revenue and pressure to add compelling features. Subscriptions eliminate this cycle by providing continuous updates while ensuring continuous payment, regardless of whether updates are valuable.
• Enterprise Software Market (econ): The enterprise software market serves businesses rather than individual consumers, with different purchasing dynamics and higher price points. Microsoft's success in converting enterprise customers to Office 365 subscriptions was crucial because businesses represent large, stable revenue sources. Enterprise adoption also normalized subscriptions for individual users.
• Automatic Renewal (econ): Automatic renewal means subscriptions continue and charge customers repeatedly without requiring explicit approval for each billing cycle. While convenient for services customers want to keep, it also means subscriptions continue by default even when no longer wanted. This shifts the burden from companies to retain customers to customers to remember to cancel.
• Subscription Fatigue (psych): Subscription fatigue is the exhaustion and frustration consumers feel when managing numerous recurring payments across different services. As subscriptions multiply, tracking them becomes burdensome, and the cumulative cost becomes significant. This fatigue can lead to decision paralysis, where consumers keep subscriptions simply because canceling feels overwhelming.
• Hidden Costs (econ): Hidden costs are expenses that aren't immediately obvious when making a purchase decision, revealed only later or through careful examination. In subscriptions, hidden costs include cancellation fees, price increases after promotional periods, and the cumulative annual expense of many small monthly charges. These hidden costs mean consumers pay more than they initially expected.
• Click-to-Cancel Rule (law): The click-to-cancel rule is a proposed regulation requiring that canceling a subscription be as easy as signing up—if you can subscribe with one click, you should be able to cancel with one click. This rule aims to eliminate the asymmetry where companies make subscribing effortless but canceling difficult. Implementation has faced legal challenges from industry groups.
• Regulatory Capture (law): Regulatory capture occurs when industries gain influence over the agencies meant to regulate them, leading to rules that favor businesses over consumers. When courts block consumer protection rules or enforcement is weak, it often reflects industry lobbying power. This dynamic explains why predatory practices can persist despite apparent regulatory attention.
• Civil Disobedience (sociology): Civil disobedience involves deliberately breaking laws or rules as a form of protest against perceived injustice. In the subscription context, piracy and password sharing can be seen as forms of civil disobedience—illegal actions that consumers justify as responses to unfair pricing or practices. Whether this is ethical remains debated.
• Market Signals (econ): Market signals are information conveyed through consumer behavior that indicates preferences, satisfaction, or problems. Rising piracy, password sharing, and subscription cancellations signal that consumers find current models unfair or overpriced. Companies can either respond to these signals by adjusting practices or try to suppress the behavior through enforcement.
• Platform Economics (econ): Platform economics studies businesses that create value by connecting different groups of users, like buyers and sellers or content creators and consumers. Platforms often start by offering great value to attract users, then gradually shift value extraction toward themselves once users are locked in. This pattern is common in digital services and subscription models.
• Network Effects (econ): Network effects occur when a product or service becomes more valuable as more people use it, making it difficult for users to leave even as quality declines. Social media platforms, communication tools, and industry-standard software benefit from network effects. These effects create lock-in that allows companies to degrade service without losing customers.
• Rent-Seeking Behavior (econ): Rent-seeking is when companies extract value by manipulating economic or regulatory conditions rather than creating new value. Subscriptions for features already built into products, blocking third-party alternatives, and making cancellation difficult are all forms of rent-seeking. This behavior prioritizes extraction over innovation or customer benefit.
• Property Rights (law): Property rights are legal principles that define ownership and control over assets, including the right to use, modify, sell, or exclude others from something you own. The shift from ownership to access fundamentally weakens consumer property rights. When you only license access, you have fewer legal protections and less control over what you've paid for.
• Economic Power Balance (econ): Economic power balance refers to the relative leverage that buyers and sellers have in market transactions. When consumers own products, they have more power—they can use them indefinitely, resell them, or modify them. Subscription models shift power toward companies by making access dependent on ongoing payments and compliance with changing terms.
• Consumer Sovereignty (econ): Consumer sovereignty is the economic principle that consumers should ultimately determine what gets produced through their purchasing choices. When dark patterns, lock-in, and market dominance limit real choice, consumer sovereignty erodes. Restoring it requires either effective competition, regulation, or collective consumer action to force companies to respect preferences.
• Sustainable Business Models (econ): Sustainable business models create value for customers while generating profit, maintaining this balance over time without exploiting customers or degrading service. Predatory subscription practices may generate short-term profits but risk long-term backlash, regulation, or competition. The future depends on whether market forces push companies toward sustainable or extractive models.