Subscription payment spike is a starting point, not a foregone conclusion

One of the highlights of the holiday season for retailers has been the vast growth of e-commerce, but subscription businesses are also enjoying a sizable bump, providing a potential threat to more static retail gifting.

But retailers cannot take for granted that this seasonal spike in subscription revenue will translate into year-round loyalty.

The San Francisco-based Recurly, which manages subscription payments for companies like AccuWeather, Sling Media, JibJab Media and Twitch.tv, reports sales saw significant growth, with total payment volume (TPV) increasing 17% on Black Friday and 16% on Cyber Monday, compared to 2015 data. It also reported total payment volume for its top businesses grew as much as 131% on Cyber Monday and 126% on Black Friday. The company did not provide dollar figures for sales by deadline.

There are a few reasons for this growth, said Dan Burkhart, the CEO and co-founder of Recurly, including attention for expanding media entertainment that piques consumer interest in digital subscriptions and the popularity of a "gift that keeps on giving" as a lure for people to order subscription-based products for others.

"There are forcing mechanisms that are getting people into purchase mode," Burkhart said.

Subscription businesses include companies that offer recurring services such as movies, music, games, television shows, or "box of the month" services for food, wine, home care or security, like Netflix, Dollar Shave Club and LifeLock. Payment for these services is typically digital and involves a complex mix of ordering, billing and payment processing.

These services lend themselves to digital gift giving because they promise regular benefits, according to Burkhart.

"A gift of an ongoing relationship with a brand is something that grow over time," he said. "It's more compelling than a one-time purchase."

Recurly's reported expansion in holiday subscription payments comes as other retail models also show growth, particularly in e-commerce. Mobile sales over the Thanksgiving weekend set a record this year in the U.S. Singles Day, the Chinese equivalent to Black Friday, also smashed records this year.

There are questions over whether this growth is sustainable. Some experts, such as Intuit's John Shapiro, contend loyalty and marketing are more important in winning repeat consumers than holiday sales. Also, the rising tide of mobile and digital payments in the holiday season was limited to in-app purchases—point of sale contactless mobile payments did not share in the growth.

The use of major shopping days as a jumping off point would suggest a spike in a certain type or mode of payment would not necessarily be sustainable, according to Gareth Lodge, a senior analyst at Celent.

"It would seem cheaper, time-limited offers sell more. I'd also say it's the start of the gifting season, when people are buying," Lodge said, adding the recurring nature of subscriptions creates some momentum. "Building the trust that the merchant can keep delivering what the customer wants does led to that subscription model. At the same time, the subscription is the final link, not the primary link, in the value chain. If they won't come, they won't buy."

Offering a product that's differentiated from a traditional retailer helps build a base for recurring payment and sales volume, Burkhart said.

"We are seeing a growth in companies that are taking advantage of recurring revenue opportunities, but the underlying premise is they have a responsibility to deliver value to consumers over time," Burkhart said. "Consumers vote with their feet and companies that can deliver will do well. It's not just the same box of beans coming up each month. It's something that you can't buy in a store."