One of the hottest trends in online retail in the past several years has been subscription commerce.

Much of the boom has been fueled by the rise of subscription box services that deliver products on a regular basis in a pretty little (or big) box.

Typically, these services are focused on a particular product category, such as healthy snacks or children's books.

One of the poster children for subscription box services is Birchbox, which sends its subscribers five beauty product samples every month for $10 per month, or $110 per year.

Birchbox, like many subscription box services, adds a touch of personalisation, tailoring the samples it delivers based on profile information supplied by its customers.

The model has been a hit with consumers. Birchbox's customer base reportedly eclipsed the million subscriber count, producing a business generating eight-figures in revenue each year.

Not surprisingly, investors were impressed and funded the company to the tune of more than $70m, valuing the young business at nearly $500m.

But, as Bloomberg's Kim Bhasin and Polly Mosendz recently detailed, "Birchbox [found] cute boxes filled with makeup aren't enough."

The company laid off staff earlier this year, and launched a traditional brick-and-mortar retail effort.

But this week, the company laid off another 12% of its staff, suggesting that Birchbox is finding it more difficult to live up to expectations than it had hoped.

With volatile public markets and no funding since 2014, Birchbox is not in an ideal position. And neither are its many competitors and copy-cats.

As Forrester Research analyst Sucharita Mulpuru told Bloomberg, "Expectations have been too high. We've seen this story before..."

She was perhaps referring to the daily deals market which produced one of the fastest-growing companies of all time only to fade away a few short years later as consumers and businesses tired of the model.

Subscription box services are dead, long live subscription commerce

The rise and fall of subscription box services was just as predictable as the rise and fall of daily deal services.

Subscription businesses obviously have attractive attributes, the most attractive of which is arguably an annuity-like revenue stream.

But there are numerous cons to the subscription commerce model that make building a business for the ages a challenge.

As Philip Wilkinson, founder of Kopi, a subscription gourmet coffee business, noted:

They can get boring. A lot of subscription businesses just send the same thing each month and then it just becomes a dull commodity item.

With barriers to entry low, competition in many subscription box niches is rife, driving churn and customer acquisition costs up.

For highly-popular subscription box services like Birchbox, the model itself becomes an impediment.

While subscription revenue is great, once subscription growth slows, companies find that they have little to no means to increase revenue-per-customer unless they embrace a traditional retail model (eg. selling products, not subscriptions).

However, that is easier said than done because these companies are frequently in no position to compete with the major brands that dominate the conventional retail markets they're associated with.

For these reasons and more, it seems quite possible that subscription box services could go the way of the daily deal, leaving investors who have funneled over a billion dollars into the space very disappointed.

But even if subscription box services have already seen their best days, subscription commerce is not dead.

Some subscription box services will survive. And the Birchbox-pioneered subscription box isn't the only form that subscription commerce can take.

Amazon Subscribe & Save allows consumers to receive periodic scheduled deliveries of thousands of products with a focus on essentials like toilet paper, dietary supplements, diapers and pet food. 

Other subscription services focused on essentials include Gillette Shave Club and hair coloring upstart Madison Reed.

But eventually, subscription commerce could merge with traditional commerce thanks to offerings like Amazon Dash, which allows customers to reorder products on demand with the tap of a branded button.

Amazon says orders through Dash have increased by 70% in the past three months and there are now more than 150 brands whose products are available through the program.

While it's too early to call Amazon Dash a success, or proclaim it the successor to subscription commerce as we know it, Dash has best of both worlds potential, offering much of the convenience and economic benefits of subscription services without a formal subscription.

Patricio Robles

Published 6 July, 2016 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (5)

Joe Hawkes

Joe Hawkes, Senior Digital Marketing Executive at Charles Russell Speechlys

The boom may perhaps be over but there will definitely be survivors.

Pact Coffee and Dollar Shave Club both seem to be doing quite well (as far as I know) because they've tapped into a service that provides a necessary item, rather than a luxury item. Few people get bored of drinking the same coffee or using the same razor blade day-in-day-out.

Do subscription services need to be boring to survive?

over 1 year ago

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Andrew Papier, Co-Founder at Grandox

Not all subscription boxes are created equal and not all have to sell millions of boxes to make a difference. Commerce can be more than just selling products. Our box, http://www.mygrandbox.com/ is more than just products in a box. It's a way to bring a smile to someone, the older loved ones in your life, that you might not reach out to as much as you'd like to. You can personalize each box with photos and letters as well. So, although "beauty" boxes might have reached their peak, there's no substitute with sending someone a special gift.

over 1 year ago

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Andre Bramwell, csr at Munchiezmon

We are giving away 100 free snack subscription boxes at www.munchiezmon.com Candies and snacks from the Caribbean and around the world.

over 1 year ago

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Robert Mygind, CEO at Reepay

We are a little behind in Europe than US, so is first now we see the same trend, where many subscription businesses focus on commerce subscription giving discounts. It is true that it is easy to copy the business, but speaking over all I think the industry will grow still. Thinks like self-driving cars will properly be subscription.

As a note I work at https://reepay.com how operates a subscription billing platform

about 1 year ago

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Joe Davis, Business Development at The Insert Lounge

Have you ever noticed the inserts inside subscription boxes which are used for customer acquisition? At www.theinsertlounge.com companies can freely arrange their own insert swaps with like-minded subscription box owners.

about 1 year ago

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