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1-Page Summary of The Membership Economy

Overview

Imagine having access to a new, clean car without worrying about parking or taxes. That sounds pretty good, right? In today’s world you can have that if you don’t own the car but pay for it as part of a membership program. This business model is becoming more popular because people are looking for different ways to buy products and services.

This passage explains the membership business model and outlines how it works. It provides real-world examples of companies that successfully use this model, along with tips on how to transform a traditional ownership-oriented company into one oriented around membership.

You will learn that Facebook started small and then focused on what it was good at, how Adobe is suitable for non-designers, and why the free membership option ruined Napster.

Big Idea #1: Internet-powered businesses offering customers “access” rather than “ownership” are on the rise.

Fifteen years ago, people had their own collections of CDs and movies. Today, however, that’s no longer the case because services like Amazon Prime, Netflix and iTunes have made it easier to stream media. As a result of this change in business model for streaming services, they now dominate the market.

The sharing economy is a system that allows people to share resources. It’s different from the traditional economic model, because it focuses on sharing and not ownership.

Owning a car is great, but there are costs associated with it. You have to pay for repairs and taxes. If you need a parking spot, too, that’s even more money. Renting might be better because you only use the car when necessary and don’t have to worry about all those other things like ownership and maintenance.

Fortunately, the internet has made it easier than ever to get access to almost anything. There are many companies that have emerged in recent years that provide their customers with alternatives to ownership of things like cars and vacation homes.

For example, Zipcar members have access to a fleet of cars that the company owns. Similarly, RelayRides pairs car owners with those who want to rent a vehicle. You can also rent movies on Netflix and book temporary rooms through Airbnb. Crucially for companies specializing in access, the focus changes from products to customers; more specifically, the customer is no longer merely a client but rather becomes a member as we’ll see in upcoming points.

Big Idea #2: Membership-oriented businesses create an ongoing relationship between company and customer.

Imagine going to a store to buy a hammer. If you pay for it, your relationship with the shop is over. This is the classic model of customer interaction. However, if customers commit to a company, they get all the benefits and responsibilities of an ongoing relationship.

The relationship between customers and companies can be determined by a subscription or an ID system. For example, Netflix uses a subscription to give its users access to movies, while Facebook requires you to have an account in order to use the site. These relationships are different from those of traditional customers because members have a stake in the company.

In order to maintain the relationship, both parties must give something. Netflix gives access to movies and customers pay for them. Facebook provides members with a dynamic social platform in exchange for their personal data.

As we’ve discussed, the membership economy is growing and evolving. There are many different kinds of these businesses. They can be classified into four categories: digital subscriptions with online services like Netflix; digital subscriptions for communities like Facebook or LinkedIn; offline loyalty programs that provide discounts for frequent customers such as Starbucks; and traditional companies which predate the internet but have a membership-oriented business model such as credit card companies or phone providers (e.g., Verizon).