Why Subscriptions May Be the Wave of the Future

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Free, massively popular products are the hallmarks of tech giants like Google and Facebook. But customers are giving up a lot even if they’re not forking over any money. On the latest Pivot podcast, Kara Swisher and Scott Galloway discuss why paying for the privilege of privacy could be a major trend going forward.

Kara Swisher: Okay. Scott, what is your prediction today?

Scott Galloway: Look, the whole world is digressing to two business constructs. And it’s either iOS, where you pay a premium and you get more privacy, a more elegant solution, kind of the premium — or it’s going to Android, where you get essentially the product for free, and they figure out a way to monetize you as a user. And by the way, the majority of the world picks Android. Two-thirds of the world — 70-plus percent — says, “I love having a free phone. I love having free platforms. And if they mine my data and use it and there’s some externalities, I’ll complain about it. But every day, I vote to go Android.”

I think we’re going to see increased market share across the iOS-subscription part of the world, even around vouchers and emails. I think individuals are really coming into touch with, or starting to understand, just how negative some of the externalities are, and the extent that they are as individuals being monetized. And this is a long-winded way of me talking up one of my recent investments that I was actually introduced to because of you. I’ve invested in Neeva, which is a subscription search. And if you think about search, it’s a $150 billion sector with one player that has a 93 percent market share, and that has never happened.

Swisher: That would be Google.

Galloway: Google. That has never happened in the history of business. And it is unsustainable. And the business model of ad-supported media essentially says the key stakeholder is the advertiser. So, we’re not necessarily going to always look out for the person making the queries. We’re going to take him or her not to the best place for their query, but a place we can further monetize them. And then the content creator gets less than maybe one percent of the value generated by their content because our focus is on the advertiser, and trying to figure out a way to enrage people and kind of get their attention more. And it leads to really negative externalities.

Subscription, whether it’s the move to Netflix, whether it’s the move to LinkedIn — more and more people like the idea of saying, “I don’t want my data molested. I want more privacy. I want a business model that focuses on the relationship with me.” And the smartest people aren’t pitching advertisers, they’re pitching new product ideas that enhance my relationship and make it worthwhile for me to spend $12. Anyways, Neeva has launched its beta, five bucks a month.

Swisher: We talked to (Neeva co-founder) Sridhar Ramaswamy. I think we brought him here, right? Didn’t we have him on here?

Galloway: We didn’t have him here. I think you had him at Sway.

Swisher: No, I didn’t have him on Sway, but I’ve had him on. In any case, I should have him on Sway. He’s a really interesting guy. He was a top executive at Google. He was right in the center of all that and sort of got tired of the way they were sucking up information. I mean, that’s his story. Obviously, he was there while he was doing it. He brought an incredible team of people, technologists. It is an uphill battle for him, I’m sure. He’s so used to being on the death star, essentially. And now he’s in a tiny little ship, but the ideas are really interesting. And he’s a real brainy and interesting entrepreneur. And I like him.

And I think someone’s going to have to do this. I mean, you have DuckDuckGo, you’ve got that. But you’re right, it’s unsustainable. What’s hard is the thing that you’re fighting is inertia. Like, oh, Google, it works. And people like it. No matter how monopolistic they are and how much they’re abusing your data, they’re not Facebook, and you don’t feel that way about them. And there’s a lot of positive brand attributes for Google. Same thing with Apple. There’s a lot of problems at Apple, but they have really positive brand attributes. So, I think it’s tough, but you’re right. I think in search, in lots of areas, even Twitter Blue — if they actually put together something that you would want, is something I would consider paying for.

Galloway: Twitter and subscription. That’s a novel idea.

Swisher: I just don’t think they’ve got it together.

Galloway: Think about it this way. Subscription is such a superior business. If other players in search capture one percent of the revenue of the search market, they’ll capture 10 percent of the market cap, which, by the way, is $160 billion.

Swisher: Yep.

Galloway: So, you’re going to see a variety of niche players, including Neeva, that say, we’re going to exit the ecosystem that paints us into a business model where we’re no longer focused on the end consumer, the creator.

Swisher: Where advertising is out of the picture.

Galloway: Yeah.

Swisher: I think that’s a very good prediction.

Pivot is produced by Rebecca Sananes.

This transcript has been edited for length and clarity.

Why Subscriptions May Be the Wave of the Future