Subscription business models have been gaining traction over the last five years, particularly with small business startups. But what impact are technologies like artificial intelligence and machine learning having on subscription business models?
Machine Learning in Subscription Businesses
Stefan Pretty, CEO and founder of Subbly, an all-in-one subscription eCommerce solution, shares how he sees AI/machine learning shaping subscriptions, as well as how the combination of subscriptions and ecommerce are helping more entrepreneurs get off the ground.
Below is an edited transcript of our conversation. To see the full interview, click on the video below, or on the embedded SoundCloud player.
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Small Business Trends: Tell us a little bit about you and Subbly.
Stefan Pretty: Sure. I’m from Scotland, residing in Los Angeles right now. Basically, back when I was in Scotland I used to run a digital agency, and one of the prospective clients was wanting to start a subscription box business, and our shop could have built it but it would have cost them a lot of money. So we were looking for a solution that would make it more affordable because their budget was quite limited. At the time subscription was on the radar, it was becoming a thing. I was a subscriber of Graze Box, and you get their food delivered to you every week, the healthy snacks. I don’t know how healthy they really were, but it was a nice idea. I was a big fan of that. So I did some research, discovered that subscription was on the rise. It was a fascinating business model because it’s complicated, and I like complicated things.
Basically there is no solution out there on the market so I’m gonna just create one. That was four years ago. So now we’re helping small businesses get up and running, and existing businesses add subscriptions.
Small Business Trends: You mentioned to me you like to think of yourselves as the Shopify for subscriptions. Why is the combination of ecommerce and subscriptions something that is important from a small business perspective?
Stefan Pretty: I think we’re so used to the one-way transaction. Like if you’re going to the store you buy a product and you leave. And I think that ecommerce is so thoroughbred now. Shopify has done a fantastic job of getting that down to an art. It’s more of a science now. But they’ve moved so far in that direction, and all these platforms that exist, Shopify, Bit-commerce, et cetera, these guys are so far in the direction now that it’s hard for them to really incorporate a subscription — which is technically a very complex business model — to add suddenly.
That presents an opportunity for some other platforms to exist that were more subscription focused that also did ecommerce. Because ultimately, ecommerce as I said, is a science. Don’t get me wrong, I’m not discrediting that, but it’s slightly simpler than the subscription. I don’t want to offend anybody here.
I think I would compare it to the Shopify in the sense that we give you the tools to allow you to build your business to allow you to be successful, rather than being like a platform or like the Amazon direction where you’re offered the marketing services as well. That’s how we see ourselves at the moment.
Small Business Trends: You’ve been around for about three or four years in subscriptions. Tell us, how have subscription models matured?
Stefan Pretty: Back when we started Subbly it was very primitive. It was very straight forward in the sense that you’d subscribe and there’s no customization to it, no personalization to it. Everybody was trying to figure it out at that point in time. Even the big guys were trying to figure it out. Graze were really doing a great job of innovating this space because you could actually go in and say, “I liked that product, I didn’t like that product”, and they would adapt your experience.
The cost of doing that personal business is astronomical. So when we started out it was very primitive, and I think over the last three years even, the expectations and the bar was just constantly going up as everybody’s getting learning. It’s just getting a very steep learning curve, but now you’ll find that even the small businesses expect, and obviously the customers expect this because of the big businesses who have innovated in this, the customization aspect and the personalization aspect to give the consumer what it is that they like, what they want. Which is gonna allow them to stay on, and be a customer for much longer.
So I think that’s the goal in small businesses, to understand that now, because there’s plenty of resources out there now and it’s obvious. You can see it, it’s moving that direction. It’s definitely growing and become more advanced and complex, and I think it is going to continue, to be honest with you. But it’s our job to enable that.
Small Business Trends: You mentioned roughly 75 percent of folks in your Facebook group are female entrepreneurs. And some of them are building their subscription business on the side.
Stefan Pretty: Yeah, 75 percent, that’s a staggering statistic when you think about it. The thing is about subscription, it’s extremely appealing in the sense that, “Oh I can have a business that I can turn a one-time transaction and all the effort I’ve gone into getting that customer and having them as a repeat customer, and therefore it’s going to be easier”, it isn’t necessarily easier, which is the interesting part. So there is a gap that needs to be closed in terms of understanding and expectations, which we’re working on, or making it easier.
I think the trend is that it’s attracting at-home mothers, or parents in general actually. And also it’s attracting people who have full time jobs and they’re wanting to start their side hustle. Because I think we’re seeing a movement away from this corporate stale world, where people are starting to realize that you have to fight for your own survival and create your own empire so to speak, and create your own resources.
I think people are really hungry, and entrepreneurship became cool suddenly in the last five to 10 years. I think everybody wants to get involved. I think it’s a great thing because it causes more innovation faster. That’s definitely the trend at the moment. But don’t get me wrong. You still have the existing businesses and the small businesses who really know what they’re doing and have a solid business plan. They have some resources behind them and they’ve got experience in, say, online marketing, and they come in and they’re executing immediately and then within a day there are already 50 subscribers, which is really cool to see. That really excites me to know that we’re enabling people to do that as well.
Small Business Trends: How are things like AI impacting the way subscription businesses are being built? And also, the kind of experiences that subscription businesses can offer their customers?
Stefan Pretty: I think this is still in its early stages. I do think AI, or specifically machine learning, is going to become more and more prevalent. Let’s take the example recently, Amazon Prime, they’ve just launched their automated store. Basically, I had a conversation with one of my dear friends a couple of years ago. We were talking about it would be really awesome to have an unmanned automated support, where you could throw products in the cart and it would just charge your account with an RFID or something like that. And two years later, only two years later, it happened. It just shows, it sounds crazy, it might actually just end up happening. AI is actually allowing these things to happen.
I think that machine learning is becoming more and more critical in the consumer relationship world as well. And that obviously applies specifically to subscription businesses or services because a lot [of] it is done to the personalization aspect, understanding the consumer’s behavior and giving them what they want to increase the lifetime value and build a relationship. It’s a relationship you’re building, so you’re gonna have that constant communication contact. You want the customer to stick around for years.
I think also on the consumer’s side the demand is, “I want just to have what I want. And without any effort or thinking about it, and it to be good quality and to be easy and convenient and delivered to my door tomorrow.” And that’s because the bar keeps getting pushed up, because of companies like Amazon, and small businesses need a chance to be able to actually have a piece of that. Because the bar is being risen so much, it’s harder for a small business to actually get in on and appeal to the consumer because of those expectations. I think it comes down to platforms like us who have the responsibility to simplify and make it accessible for these entrepreneurs, but machine learning will be a massive component of that. It’s something that we’re gonna have to innovate with quickly, because I think it’s gonna happen faster than we even imagine, to be honest with you. I don’t know, one year, two years, things are gonna be very different, I think.
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it’s an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.