The effects of churn on the growth of subscription services: Adopters, users, money

Abstract

Subscription-based service model, where profitability arises from sustained service relationships with consumers, has emerged as the dominant business paradigm across various industries. A notable characteristic of the growth in service markets is the indirect relationship between adoption and monetization. While adoption marks the initial stage of user engagement, monetization occurs gradually as users integrate the service into their routines over time. Consequently, the focus has shifted away from emphasizing adoption rates to prioritizing the total number of users. The difference between adopters and users is due to the fact that not all users integrate the service to their routine and some (or many) of them churn away from the service. The growth of adopters and users, and the ensuing monetary growth, are highly affected by churn, hence the critical issue we investigate in this paper is the valence and size effect of churn on adopters, users and revenues of the firm. We build on the service modeling approach of Libai, Muller, and Peres (2009) to first explore the impact of churn on dynamics of growth for new subscription services. We explain how churn affects key interest topics, such as the size and time to peak for adopters and users, the market potential of those who have not adopted yet, adopter categories, and conversion of users to money. We hope this work can motivate further explorations of this critical area for new product research in marketing.