Boom & Bust: Inside the Rapidly Expanding World of Subscription Services - Pacific Standard

Boom & Bust: Inside the Rapidly Expanding World of Subscription Services

Whimseybox, Julep, Wantable, Blue Apron, Glossybox, and many, many more: After the success of Birchbox, the subscription product industry exploded, but how many different products do we need delivered straight to our door? As part of our week-long series on booms and busts, Jamie Wiebe talks to some of the pioneers behind an industry where the business models are shaky and the margins thin.
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(Photo: Quang Ho/Shutterstock)

(Photo: Quang Ho/Shutterstock)

If the Pandora of Greek mythology had a box today, what would come out of it? A random assortment of sample-sized make-up, probably, or five neatly-packaged organic snacks, all delivered to her apartment once a month for a modest fee of $15. Pioneered by Birchbox, the subscription box industry has exploded, with millions of dollars of investment money pouring into new boxes that hope to lure in subscription customers with the promise of self-care and careful curation.

To some, these boxes are something wonderful, a gift unto themselves, a surprise; to others, they represent some of the evils of the world—blind consumerism, excessive packaging, the fossil fuels wasted to get products from point A to point B.

There’s a subscription box for everything. If it’s that time of the month, women can pick from HelloFlo, geared more toward the younger set with its “Period Starter Kit” box, which includes “a cute canvas pouch for taking supplies on the go”; Juniper, HelloFlo’s hipper, more artisanal older sister, which includes a heaping handful of snacks in each box; or The Period Store, which promises to “reimagine the way you get your period,” and offers eco-friendly tampons and treats. It’s all clever allusions to the same thing: Each month, they’ll send you some Midol and a handful of tampons and pads, and throw in a couple of treats to sweeten the deal—chocolate covered pretzels, chamomile tea, gummy bears.

All that, for more than double the cost of a large box of tampons.

If it’s not a great deal, why would anyone subscribe? Subscription box bloggers—of which there are many, including Liz Cadman, the blogger behind My Subscription Addiction, their matriarch—meticulously go through their Birchboxes, their Glossyboxes, their Wantables, calculating the real price of each item and determining the precise value of the box’s contents. Worth less than what you paid (shipping included)? Terrible deal. Do not buy. Worth more, and it’s the holy grail, lauded by blogger after blogger.

Most subscribers point to a box’s value when choosing subscriptions. But the very existence of period boxes points to another impetus: The idea of getting yourself a secret gift, something that makes your life easier and makes you happier. After all, why else would you pay $20 for 13 tampons, a few pads, and a handful of candy?

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(Photo: Birchbox)

BEFORE KENT BENNETT, A partner at Bessemer Venture Partners in Cambridge, Massachusetts, invested in Blue Apron, he and his wife were long-time customers. “It made our life a whole lot better,” he says about the subscription, which costs $60 per week (plus shipping) for all of the ingredients needed to make three home-cooked meals for two. “It made our life a whole lot better because we don’t have to worry about what to do for dinner.”

It’s not a bargain or a deal; You’ll find the same ingredients in your favorite supermarket for much less, and the same (or similar) recipes online. What Blue Apron offers is the chance to spend a premium to simplify your life. Hate going to the grocery store? You can get ingredients individually wrapped and shipped to your door. And dinner isn’t the only category that can afford a little convenience: Don’t have time to run to the drug store? HelloFlo will bring the tampons to you.

But where some see convenience, other see waste—of money, of packaging, of gas and shipping fees.

I’ve subscribed to a series of subscription boxes throughout the years, trialing Birchbox, Julep, NatureBox, Wantable, Whimseybox, Love With Food, Glossybox, POPSUGAR Must Have, and probably more I’ve since forgotten. I’ve found some products I love, but most products I ignore—itsy-bitsy bottles of face peel I have no interest in, eyeshadow in a terrible and unflattering shade, foundation two shades darker than my skin color, vitamin pills I’m convinced are a scam. They’re all piling up in a box in the corner of my desk, and it feels like I’m propping up an industry that doesn’t need to exist, just for the sake of a quiet thrill that lasts about 30 seconds.

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(Photo: Glossybox)

THE FIRST SUBSCRIPTION BOX to become a major success was Birchbox, setting the stage for hundreds of entrepreneurs to flock to what seemed to be an endlessly profitable business model. And many did, with both independent, owner-operated boxes and giant venture capital-backed conglomerates popping up to provide customers with monthly supplies of snacks, make-up, jewelry and dog treats.

Cadman’ssite lists 25 subscription boxes launched in the two months before Christmas of last year—one of the busiest periods for new boxes, she says, when companies rush to get their products on the market (and available for gift subscriptions) before the holiday. Many of these enter an already-crowded market—a full one-fifth of the new boxes, for example, were nail polish subscriptions.

“Usually, there’s no box in a specific category, then all of the sudden there are five,” Cadman says. And no matter how much someone might love nail polish, few people want the 11 new polishes a month—plus nail art—they’d get by subscribing to all available boxes.

Plus, nail polish boxes already have a reigning queen: Julep. The seven-year-old company transformed from a small chain of nail salons to a subscription box behemoth, whose Series B financing round in 2013, led by Andreessen Horowitz, garnered $10.3 million, only half of their $20.6 million in overall funding.

More than nearly any other industry, subscription boxes rely on the goodwill of bloggers, a small army of fashion, beauty, fitness, and food writers who review each month’s offering.

Even Cadman, who reviews subscription boxes for a living, has had enough of nail polish. “A month or two ago I was inundated with nail polish subscription boxes. Even if I changed my color every day I would never get through them, so I paused one or two until I could get things back to slightly normal,” she says.

It’s hard to make grand pronouncements about the future of the subscription industry as a whole without looking at the sub-industries beneath: the snack boxes, the beauty boxes, and, yes, the nail polish boxes. One person can subscribe to Birchbox; BarkBox, which is a box for your dog; and Julep, and while they might be tempted by a novel category, chances are they don’t want another nail polish box. That means new companies must innovate or die: If you want people to jump ship from Julep, you need to offer something they don’t already have access to, and without $10.3 million of your own funding, that’s a tough act to follow.

“I think that a lot of the ones that pop up are responding to seeing other people being successful, and doing what they’re doing, rather than providing enough additional value to cause people to switch,” says Robyn Metcalfe, who blogs rather candidly about make-up, beauty science, and subscription boxes at Brightest Bulb in the Box.

Kent Bennett agrees. “There aren’t going to be a million companies in every category,” he says. “There’s a limit.”

Subscription boxes certainly have a tempting business model for investors and entrepreneurs: Each new customer is guaranteed monthly inflow, building a semi-permanent set of repeat users. “When you can acquire a customer once and keep them into the future, it’s a much better business than if I have to sell one product at one point in time,” Bennett says.

Take a company that sells T-shirts. With a traditional business model, each new customer makes just one purchase. In order to transform a one-time purchase into a repeat customer—or, even better, a brand evangelist—the T-shirt company will have to focus not just on a quality product, but also on marketing to their existing customer base. Subscription boxes can focus most of their marketing resources on attracting new customers, not retaining old ones.

With a subscription box, once they’re signed up, they’re a monthly income source until they unsubscribe. “Once you get someone to sign up, it’s easier to keep them signed up than it is to get a new customer,” says Sam Gold, founder of Yumvelope, a $21 food box that promises (at least) six full-size snacks a month. Not that getting those customers is easy in the first place—Gold concedes the acquisition cost is “pretty high.” But as a small team or lone entrepreneur, the idea of a business with just ever-so-slightly less of a focus on the endless churn of acquiring and re-acquiring customers can be very tempting.

“I think that even now, people think it’s really easy to start a sample subscription box,” Gold says. “It’s a fun little business, something that doesn’t require a ton of time, that you don’t necessarily have to do full time.” Box owners can focus on the fun stuff, like curating each month’s box, with less focus on marketing.

That is, unless your churn rate gets too high, meaning too many customers are canceling their monthly orders. “The hurdle for subscription commerce is a lot higher to deliver an awesome product. If you’re churning too high, you have to reacquire customers,” Bennett says.

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(Photo: Blue Apron)

BACK TO CADMAN AND her overflowing pile of nail polish: If your product isn’t well-curated or just doesn’t work for the customer, they have a visible reminder of just how much they don’t need your service. That’s where providing a product-based subscription service—as opposed to a recurring, intangible subscription like Netflix or Amazon Prime—gets tricky.

“In a month where I don’t use Netflix, I don’t really think about it,” Bennett says. “A month where you don’t like the product shipped to your front door, you’ll have a visible reminder that this wasn’t a good month.”

Therein lies the value of curation and trust, something many new boxes just haven’t pinned down yet.

“Trust is developing, but we don’t have years and years of history,” says Max Friedman, founder of Hatchery, a newly-launched subscription service that bills itself as a “purveyor of artisan ingredients.” Their first box shipped last November; their most recent includes products like guava jam and jerk sauce. They’re already thinking big: Friedman says they have scouts around the country seeking out the hippest hyperlocal culinary inventions to include in their boxes, and he eventually wants to expand the site into an online bazaar selling all things hipster food.

“We’re positioning ourselves to be the go-to marketplace for artisanal ingredients and condiments across the country,” Friedman says. But before that can happen, Hatchery has to prove they’re the food box you want to subscribe to—that Hatchery is better than Yumvelope, or better than Love With Food, NatureBox, or Bestowed, all established snack boxes that occupy the same niche. They need their first monthly boxes to impress their customers, and more importantly, to impress the bloggers.

"I think that even now, people think it’s really easy to start a sample subscription box. It’s a fun little business, something that doesn’t require a ton of time, that you don’t necessarily have to do full time."

You don’t want to upset the bloggers.

For those first few months, new boxes need to hit it out of the park every single time. Established boxes like Birchbox or Julep might get a pass if they have a bad month, but if your first swing is a miss, the bloggers will jump.

More than nearly any other industry, subscription boxes rely on the goodwill of bloggers, a small army of fashion, beauty, fitness, and food writers who review each month’s offering. They care about two things: First, how well-curated the box is. Too many samples and not enough full-sized products? More than one perfume? Gross snacks? No good.

Second, they want to know the value: If they’d bought all of the products in-store, would they have paid more, or less, than they paid for your box (plus shipping)? Many companies guarantee the value you’ll receive, often promising either a certain dollar value or number of full-size items. High-value boxes are rare—and celebrated; bloggers universally love the POPSUGAR Must Have box, which consistently comes in at more than $100 of value, far more than the $40 subscribers pay.

A high-value box might even supersede curation. “Even if I don’t like half the things, I still feel like I came out ahead,” Cadman says. The January POPSUGAR box included a giant book of juicer recipes; she admits in her review that she doesn’t even have a juicer, but she’s no less excited. “I feel like you could make any juice recipe a smoothie recipe?” she asks her readers.

Anyone trying to determine which of the many boxes they want to subscribe to will come across a raft of reviews, labeled by the subscription, month, and year. As a whole, they’re overwhelmingly positive, willing to overlook small mistakes, and slightly more generous toward big brands with kickback schemes than small, new-to-the-market companies. One positive review on a site like My Subscription Addiction might lead to dozens of sign-ups, and even more “hearts” in Cadman’s database, where readers keep record of the boxes they love for when their finances are kinder.

The relationship between PR and bloggers is a complicated beast. “You can think of bloggers as a really loud consumer who has lots of friends,” Bennett says. “You might pay special attention to one of your customers who had referred a bunch of people, just like you’d pay special attention to a blogger.” Many bloggers receive free boxes for review; Gold says he receives between two and 10 box review requests each day.

“Blog reviews are the most successful of any marketing efforts,” he says.

Cadman and Metcalfe pay for most of the subscriptions they receive; the ones they don’t are clearly marked. Metcalfe has only accepted one free box, from Wantable, and after February 2014’s “seriously shit Wantable box” (to quote from her review), she unsubscribed.

Bloggers, it seems, aren’t nice just because some company’s PR department sent them a free box. The bigger incentive to review things more positively are the elaborate rewards systems on sites like Birchbox, which has a notoriously generous points program that awards customers $5 in site credit for a referral. Say a box is great, and more people will sign up through the link you provide. That money, basically free cash, adds up quickly.

“You get points to get free shit when people subscribe through your link,” Metcalfe says. “For the normal consumer, you’ll get a few points, but blogging about beauty boxes is so different. Birchbox and Ipsy have created an incentive for people to say nice things about them. I wouldn’t subscribe to Birchbox without the points.”

Essentially, companies create a culture of blogger fluff through their rewards programs. For Birchbox, each referral earns the customer 50 points, or $5 to spend freely in their store, which stocks any number of mid- to high-range make-up. If you can get even five people to sign up through your referral link, that’s $25, enough for decent mid-grade make-up like a Smashbox mascara or Stila lipstick.

“Being a blogger and realizing how much incentive there is for very small bloggers to say nice things has affected the level of trust I have in reviews,” Metcalfe says. “You have to make a conscious effort to not let points affect your actions. It takes work not to be biased.”

But even an overhyped, too-good-to-be-true review can be beneficial to a customer searching for a box to subscribe to. Bloggers can’t lie about what they got—the proof is in their own photos. “You can see, ‘I don’t want this tiny little foil sample of facewash,’” Metcalfe says. “Nobody is pretending that they got stuff they didn’t get.”

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(Photo: POPSUGAR)

WITH OR WITHOUT BLOGGERS, it’s understandable why subscription boxes are appealing, and why subscribers flock to new boxes the moment they’re released. Ultimately, it’s a cheap way to treat yourself to a little something. Knowing there’s a package at the door, and it’s all for you ... it’s a powerful feeling, to give yourself a present, like figuring out how to tickle yourself.

“There’s an element of novelty to the box thing,” Metcalfe says. “It’s kind of this cool idea to not pick it out, and have it show up at your door.”

Cadman agrees: “As an adult, it’s a nice way to send yourself a gift every month that surprises you.”

But if you had simply saved that money and gone to the store next door, what could you have purchased that you actually wanted? And why support an industry that leaves piles and piles of unused product in its wake?

Like Pandora’s original box, we just don’t know.

We’re telling stories all week on the theme of booms and busts. What’s on the edge—of becoming a big thing, or of falling off the radar? Read the entire series here.

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