The Membership Economy

The Membership Economy shows how nimble companies that focus on ongoing, formal relationships over one-time transactions are thriving. By renting, lending, or offering access instead of just “ownership,” organisations can leapfrog industry leaders. In terms of strategic business models, this is one that allows for breakthrough growth.

Owning vs Renting

Thanks to the interconnectedness of today's world, owning something can become less practical, more troublesome and expensive. If an asset is decreasing in value, rarely used and quite expensive, it is often much wiser to rent or lease it rather than buying and owning. Consumer behaviour is shifting and going forward, this shift will continue and interconnectivity will ever rise, giving way to the circular economy trend.

Examples of membership companies are Netflix, Spotify and Adobe. You don't need to buy a bunch of movies, CD's or computer software, you can use it on demand whenever you like. By paying a membership fee, you have access to abundant content that you can enjoy for a very small fraction of the price to buy it all.

Economics

In many cases, membership economies lower the barrier of entry for many consumers and the market becomes bigger. For example, it's much cheaper to lease a vehicle through a company like Zipcar rather than buying your own car. Much more people can afford to do that compared to outright purchase which is expensive for many.

Membership focussed companies can grow exponentially since having more members gives greater value to the company creating a snowball effect. An example of this is Linkedin, by increasing its user base, the value of being on the network further increases for all members.

Subscription vs Membership

This is often used interchangeably, and in most cases, these concepts overlap. However, there is a key difference between subscription economy and membership economy. The main differentiating factor is the focus of the company, one wants to sell subscriptions, another wants to build a community of members. With these two different goals in mind, the actions taken and priorities of the two companies are vastly different.

A membership economy company doesn't have to have a subscription model. In most cases, they have a subscription offer, but not all. Sometimes, you can be part of the membership without actually subscribing, much like the Linkedin example.

Social Need

Membership economies creates communities of people and triggers the feeling of belonging among individuals. This is an innate human desire, after nutrition, mating and shelter, people inherently desire social activity and a sense of belonging as in the Maslow's pyramid of human desires. This allows for an emotional connection and a lasting relationship between the company and its members.

Challenges of the Membership Economy

Of course, there are challenges for any company that wants to establish itself in the membership economy. Firstly, it's important to really understand and commit to building a community of value and caring for your members. Most want to be part of the membership economy simply to reap the benefits, like a loyalty program that exists simply for marketing purposes, not innately ingrained into the company culture and offering. Start by setting your priorities straight.

Secondly, make sure to have patience. This approach is not a quick scheme to build a community, stay agile and listen to your members. Don't be afraid to pivot if your user data suggests that you should be doing something differently. Finally, some communities benefit when there is a substantial user base and that leads way to the chicken and egg problem. If you're building a network, it's very hard to find the first users that ultimately have little value in joining, like walking into an empty nightclub...

Opportunities of the Membership Economy

There are two key advantages for businesses to engage in the membership economy. The first is loyalty of members, if you created a community well, you have people that are emotionally committed to your brand and it begins to have tangible value. The second is the potentially high reoccurring revenue and much greater company valuation. All this is possible thanks to technology and the right application of it.