Web Business Models

Anything You Want, Only $10 a Month

Anything You Want, Only $10 a Month

Photograph by What Laptop magazine via Getty Images

Microsoft’s (MSFT) Xbox just got a whole lot cheaper. Well, sort of. According to the Verge, the software giant is planning to adopt a model familiar to any smartphone owner and will sell its hit gaming console for just $99—if you sign a two-year contract for Xbox Live. The online entertainment service will set you back $15 a month.

For those keeping score, the new contract offer seems like a deal, but actually costs $40 more than if you paid for everything up front. Doing the latter costs $420 (about $300 for the console and another $120 for two years of Xbox Live), while the new pricing setup will cost about $460 over two years.

Microsoft’s pricing shift is a sign that even the established tech giants are embracing the Era of the Subscription. Thanks in part to the rise of cloud computing and the ubiquity of high-speed Internet, monthly subscriptions are the business model du jour in Silicon Valley (at least for those companies that have a business model). You can get unlimited amounts of almost any virtual thing you want for roughly $10 a month: movies (Netflix (NFLX), Hulu), music (Spotify, Rdio), and storage (Dropbox, Box).

The trend holds for nonvirtual products, too. Birch Box, a New York startup and emblem of a trend, sends a box of beauty samples to subscribers each month. Dollar Shave Club will—you guessed it—send monthly razor packs for as little as $1. And Amazon.com (AMZN)offers discounts on a wide variety of household goods and groceries for consumers who “subscribe” to buying the same item every few months.

Tien Tzuo, the former chief marketing officer for Salesforce.com (CRM), calls this a transition away from “a 20th century product-based, ‘buy once’ economy to a 21st century services-based ‘subscription economy.’” Maybe he’s right. Maybe this is symbolic of a shift from George W. Bush’s “ownership” society and toward a usage-based society, one where everyone rents and pay-as-you-go plans dominate. Or maybe it’s just a way for companies to make an extra 40 bucks.

Sheridan is a Bloomberg Businessweek contributor.

Cash Is for Losers

Companies Mentioned

  • MSFT
    (Microsoft Corp)
    • $48.7 USD
    • 0.48
    • 0.99%
  • NFLX
    (Netflix Inc)
    • $368.14 USD
    • 5.04
    • 1.37%
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