The Rise Of The Rundle: A New Trend For Subscription-Based Services
Two longstanding trends in business might be merging, creating a new way for us to purchase and consume.
PHOTO CREDIT: Getty Images
When it comes to poorly branded concepts in business, the “rundle” is high on the list. It’s the brainchild of the very outspoken NYU professor, L2 founder, serial podcaster, and occasionally irreverent Scott Galloway. Even Galloway admits the slightly-crude-sounding concept deserves a more finessed name. Nonetheless, ever since he started talking about the rundle in Pivot, his podcast with Kara Swisher, he’s clung to it.
The rise of the rundle is the result of two well-established business trends: the recurring-revenue subscription model and bundling.
Subscription economy takes no prisoners
The “r” in revenue comes from the growing recurring revenue trend. Subscription-based services have been causing venture capital to salivate over for the past few years in both B2C and B2B. Subscription as a service, or better known as SAAS, has climbed to new heights, led by behemoths like Salesforce. Why buy expensive software just for it to quickly become outdated when you can just “rent” the software and always have the most recent version.
The reality is that you can make a lot more money charging businesses monthly for your offering rather than demanding one lump sum upfront. Leaders like Adobe learned this the hard way as it made the necessary shift from selling software to subscription-based services. In 2018, subscription sales accounted for 86% of Adobe’s total revenue, heaving their earnings up 77% over a year ago. The subscription economy is booming and crushing businesses that forgo adoption.
Bundle in more revenue
The idea of bundling has played a big part in retail strategies for years. When I started in tech at an eCommerce agency, I learned, firsthand, the power of bundling. Bundling items together and selling them as a package is great for a variety of reasons. First, you can increase the average order value (AOV) by getting the customer to buy more because of the perceived discount. Second, you can also eliminate less popular products by tossing them into the bundle and jacking up the “value” of the package. Third, you can introduce new products to customers by coupling them with best-sellers.
Walking into Sephora even knowing this concept I still get sucked into the marketing centrifuge and spun out with the one product I wanted, something I wanted to try and an over-priced face wash that I will never use. The bundle lets the consumer feel like they are winning with the perceived saving even though they are lining the businesses pockets.
Ready to rundle?
Weaving these two concepts together, the rundle is born - a recurring revenue bundle. Galloway believes that brands will build and even partner with others to build these lucrative bundles by combining services and charging a recurring subscription. Small brands can form strategic partnerships to create these subscription bundles and, in doing do, better defend against the goliaths. Bigger brands, such as Apple and Google, can build incredible high margin recurring revenue streams, further monetizing their immense fan base.
Think about the cult of Apple, which I admittingly subscribe to. I buy Apple products for a variety of reasons but primarily because they all play well together. Apple’s services business expansion has accelerated with Apple Music, Apple Care, iCloud, Apple Pay, soon Apple entertainment. Apple generated $39.5 billion in services revenue in the calendar year of 2018. With Apple's install base climbing by 100 million over the past year to 1.4 billion, it is clear that one of the fastest growing opportunities in the business. Now say a bundle of all these services, both the need (iCloud, Apple Care) and the nice-to-haves (Apple Music, Apple Entertainment), was delivered with one reasonable monthly fee that undercut my Spotify and Netflix subscriptions, for example. And say all of these services worked flawlessly on my laptop, iPhone, and AppleTV. People would probably have no problem pledging allegiance to one brand and opening their wallets on a monthly basis, err I mean authorizing their Apple Pay.
As Galloway put it, “Business has mistaken “choice” as a good thing. Consumers want less choice, but instead, confidence in the (fewer) choices presented to them. We begin to witness a finite series of consumer networks: media, apparel, travel, and health. It’s going to be an arms race, with cheap capital as the munitions, to see what brands and retailers can establish credible/compelling bundles.”
In a world of infinite options, consumers may choose simplicity. Strategic brands can align their offerings and sell subscription packages at a premium. The excess of choice has muddied the water and, in turn, diluted the value of many brands. This presents an opportunity for a select few to leverage their brand equity to enable a simpler way for their customers to over-consume.