The One-Click Economy

This article appears in the June 2024 issue of The American Prospect magazine. Subscribe here.

You’d think that having subscriptions to three online fitness programs would make me the healthiest person in the world.

I have: (1) a Zumba subscription, because until recently, I was an instructor at a local gym and I needed choreography to teach; (2) an Essentrics subscription, because it emphasizes dynamic stretching and elongating your muscles, and doesn’t that sound so delightful; and (3) a Les Mills subscription that I got during the COVID-19 pandemic, because I didn’t want to quit body combat.

Do I use all these subscriptions regularly? Heck no! Should I give them up? Probably. Would I like to receive reminders that I subscribe to these online programs, so I can finally decide whether I should lace the sneakers or find the cancel button? Also probably.

I’m pretty sure I’m not the only person in North America faced with this dilemma. A May 2021 article from consulting firm McKinsey said businesses offering subscriptions grew by more than 300 percent from 2012 to 2018—and this was before the pandemic forced people to socially isolate and shop for hammers online. According to Statista, a business intelligence firm, subscription revenues from media and digital content are expected to increase by another 13.5 percent between 2021 and 2025, with consumer spending for subscriptions globally estimated to grow as high as approximately $1.26 trillion by the end of 2025.

Subscriptions “seem to be models that consumers are really liking. You see retailers moving toward those kinds of models because consumers are responding to them,” said Mike Lemon, vice president of legal affairs for the National Retail Federation (NRF).

But while subscriptions can save consumers from the hassle of having to renew wanted services every month, they can pile up, and go months or years without being used or even remembered. Companies can also trick people into enrolling in a subscription, or make it difficult to cancel; this is something that the Federal Trade Commission (FTC) is looking into. And with artificial intelligence and machine learning poised to increase a company’s information advantages, it begs the question of how consumers—and government—should respond to a form of commerce that’s likely here to stay.

The Inattention Economy

Consumers used to associate subscriptions with having newspapers and magazines delivered to their front door. (Like this magazine, for example.) But the rise of the internet cleared the path to online subscriptions, enabling access to so many things without leaving the comforts of home. Need new razors? Join the Dollar Shave Club and get razors delivered to your door. Need ideas for dinner? An assortment of prepared meal services are available by subscription. You can get subscriptions for boxes of clothing or makeup, or treats and toys for your dog. There are even subscriptions for meditation, or washing your car.

Subscriptions have also risen up for services that were previously bundled together, like cable television. Now, many favorite shows and movies are scattered on Netflix, Max, Apple TV, Paramount+, or Disney+. Said my friend Janice Huang, a software developer living in Fairfax, Virginia, “I like the contents/service that my subscriptions provide. Disney and Amazon allow me to keep up with the newest Star Wars content and to watch movies that I either enjoy or want to see but am unwilling to pay theater prices for.”

That brings us to Amazon Prime, which is sort of the ultimate mega-subscription. For $139 a year, members get access to free shipping on hundreds of millions of items, plus Amazon Prime Video for first-run TV and movies, Prime Reading for e-books, Amazon Music for music streaming, Amazon Photos for unlimited file storage, and Prime Gaming for free games and a Twitch channel. You also get discounts on other services and subscriptions, from Whole Foods groceries to One Medical health care. Prime is like a gateway drug for making your whole life dependent on subscriptions, and the rise of the subscription economy can be attributed to Amazon’s path-leading efforts.

A survey found that consumers estimated they were spending $86 per month for their subscriptions. The total was actually $219.

Companies offering subscriptions often make money off access to a product, not the product itself, according to Marco Bertini, an associate professor of marketing at Esade Business School in Barcelona and co-author of the book The Ends Game: How Smart Companies Stop Selling Products and Start Delivering Value.

“Imagine me buying all of the movies that Netflix offers outright. All the music I like to hear. All the clothes I want to wear. Or I have to buy a gym itself. I mean, I cannot afford this stuff, right? So, a subscription allows me to have access to something at a much lower amount,” Bertini said.

Jimmy Fitzgerald, CEO of Paddle, a tech provider that enables software-as-a-service (SaaS) companies to develop a payment infrastructure that can manage subscriptions, says they offer three core benefits to consumers: convenience, predictability, and value for the money.

“A subscription means they don’t have to go through the purchasing process again and again. They can rely on the business renewing their subscription automatically, ensuring they have an uninterrupted customer experience,” Fitzgerald said. Customers can fold that recurring fee into their monthly and annual budgets, he added, and the company can offer consumers discounts as an incentive for signing up and making a long-term commitment to the product.

But the danger in free trials is that a consumer can easily forget about them unless they actively commit to making a note in their calendar about the trial’s end date. Companies can also vary in how well they explain to consumers just what happens when the free trial ends.

Furthermore, while a consumer might experience financial pain or discomfort from opening up a wallet, that consumer is unlikely to feel the same stress when a subscription automatically charges a credit card or deducts money from a bank account.

For example, if I had to pay, let’s say, $150 in cash each month for my various subscriptions, I might think twice about keeping all the subscriptions that I own. But automatically billing on a credit card? Out of sight, out of mind.

“Because these things operate in the background, on autopilot, with little in the way of monitoring, credit card companies have made it more difficult—not less—to figure out what charges on your bill are for,” said Ted Mermin, executive director for the Center for Consumer Law & Economic Justice at the University of California, Berkeley, School of Law. “And that’s not an accident. There’s an overarching effort to make it less obvious to consumers what they’re paying for.”

Consumers tend to underestimate not only how many subscriptions they have but also how much they pay every month. A survey conducted by market research agency C + R Research in May 2022 found that consumers estimated they were spending $86 per month on average for their subscriptions.

But how much were they really spending? After itemizing expenses, C + R found that the total was actually $219, 2.5 times more than the initial estimate.

Companies are also banking on consumers being complacent with their subscriptions. An August 2023 study from the National Bureau of Economic Research entitled “Selling Subscriptions” looked at what happened when consumers were faced with the choice of renewing subscriptions after they got their credit and debit cards replaced. From that natural experiment, the authors determined that inattentiveness can actually raise seller revenues by anywhere between 14 percent and more than 200 percent.

“It can be a powerful tool for growth, as well as guaranteed recurring revenue,” Fitzgerald said. “Subscription models benefit businesses by allowing them to build stronger and longer-term relationships with their customers; lower customer retention spend; improve demand forecasting; and identify opportunities for upselling/cross-selling.”

Spotlight on Dark Patterns

Tons of thought and engineering design goes into the subscription offers you see on the internet every day. The FTC describes the most deceptive of these efforts as “dark patterns,” which it defines as “sophisticated design practices … that can trick or manipulate consumers into buying products or services or giving up their privacy,” according to a September 2022 report.

One example of a dark pattern is an advertisement that looks like content. You can find comparison-shopping sites for subscription-based services all over the web. What you might not know is that companies pay to be rated highly on those sites.

Countdown timers that say a subscription offer is only available for a limited time create artificial urgency to sign up. Companies using a prechecked box for a subscription, or automatically adding a subscription to a one-time purchase, can also lead to someone being signed up without their knowledge.

Another dark-pattern technique involves hiding or burying key terms and conditions. Hewlett-Packard’s “All-In Plan” for a printing subscription stresses convenience. For between $6.99 and $12.99 a month, consumers are sent a printer, without having to worry about maintenance (which is included) or the familiar loss of printer ink. The printers deliver feedback to the company on when ink is running low, and a new cartridge is shipped the next day.

But the low base rate only guarantees as few as 20 printed pages per month; consumers are charged $1 for every set of 10–15 pages above the limit, or can upgrade to the higher rate. And after 30 days, you get locked into a two-year contract. Cancellation triggers a fee of as much as $270.

A free trial period can also be seen as a dark pattern, if it’s not clearly disclosed that after the trial a recurring subscription will kick in. Often the words “free trial” are prominent, while the explanation of future terms is buried at the bottom in tiny type. The Restore Online Shoppers’ Confidence Act of 2010 was intended to fix this by requiring the terms of a transaction to be conspicuous and mandating that businesses obtain the consumer’s explicit consent. But even that can fall short once the remembrance of the trial offer fades.

“There are considerations consumers should be aware of when paying for a subscription,” said Eden Iscil, public-policy manager for the National Consumers League (NCL). “Generally, a seller can raise their prices and change other material terms of their services, and charge you this new price, without any action or new consent on your part. This moves the burden from the business—which outside of a subscription would have to convince their customers to purchase a new offer—to the consumer.”

Artificial intelligence and machine learning can also be used to harness even more insights about how to ensure customer retention. Users who are less sophisticated or web-savvy are often the ones tripped up.

“Even an honest business that says, ‘I don’t think that’s a fair way of treating our customers because we understand how consumer psychology works and we know that people will find this tempting and they may get in over their heads’—well, they might find that their competition is doing it and that they’re losing market share,” Mermin explains.

A Subscription for Your Subscriptions

When Jordan Mackler was a student at MIT’s Sloan School of Management, he and his classmate Yohei Oka were paired together to play fantasy football. Since it was the first time that Oka, who was originally from Japan, would be playing, he wanted to study up and research the teams by using free trials to streaming services such as Fubo and YouTube and news sites such as The Athletic.

The duo lost, and they eventually forgot that Oka subscribed to these services. However, they got a rude awakening when the bills came after their free subscription trials ended.

But Oka and Mackler found a silver lining from the experience. They thought, why not create something that could help people keep track of subscriptions before consumers get charged for them? Their answer served as the impetus for their company ScribeUp, which enables consumers to use a virtual credit card to sign up for subscriptions. The service then notifies consumers of when subscription renewals are coming up, when trials will end, or if subscription prices change.

“There’s really no way for consumers to keep up with discretely managing all of the 20-plus services that they interact with on a day-to-day basis without [running into] the financial waste,” said Mackler, who serves as the company’s CEO. Oka is its chief technology officer.

“We thought that the financial tools that consumers have today just plug them into this recurring consumption model. And our opinion was that your cards and your payment forms that you use today are really built for you to make one-off purchases, [like] going to a grocery store or going to a pizza parlor and buying a slice of pizza,” Mackler said.

The service is free of charge for consumers. ScribeUp makes money by monetizing a data interchange on the virtual credit card, so they get a small fee from the merchant every time the card is used. It also works with financial institutions to offer the technology.

ScribeUp is just one of several services consumers can use to manage their subscriptions. Others include YNAB—which is short for You Need a Budget—Rocket Money, and Hiatus. These are all subscriptions that consumers sign up for and pay to manage their finances, including tracking digital subscriptions. YNAB costs $99 a year; Hiatus is $10 a month; Rocket Money can be anywhere from $3 to $12 a month.

That’s where we are in the digital age: You need to buy a subscription to manage your subscriptions.

Welcome to the Hotel California

A very informal poll of my friends found that each of them has had trouble canceling subscriptions. Nancy Dunham, a fellow journalist living in Tucson, Arizona, says she’s encountered situations where she’s had to make a phone call to cancel an online subscription. Deborah Beckwin, a content strategist based in Seattle, said she tried to end an annual subscription to the online meeting platform Zoom. Although customer service said she had successfully canceled it, the account was actually still active.

A 2022 FTC complaint against online phone provider Vonage notes that the company offers only one way to cancel: by speaking to a live operator by phone. The cancellation number is hard to find on Vonage’s website, and calling the general line did not lead to Vonage transferring customers to where they can cancel. The cancellation line was only available for limited hours of the day. And Vonage charged termination fees and even continued to charge users after cancellation.

Other examples of elaborate cancellation practices gathered by federal regulators on one-click subscriptions include having to go to the place of business in person to cancel, or sending certified mail. And even when users can cancel online, companies can revert back to dark patterns.

This includes presenting a screen where “Keep My Subscription” is displayed in bold or large type or is preselected as the default option, while “Cancel My Subscription” is smaller, or hidden behind a hyperlink. Or the language could be riddled with confusing terms (like having to turn off “auto-renewal”), double negatives (“No, don’t cancel”), or attempts to shame the consumer into changing their mind (“Yes, I don’t want to keep using this great product”). One website discovered 20 different dark patterns across 16 companies’ cancellation practices, and found that they lost $330.60 in nonrefundable fees after trying to unsubscribe immediately after signing up.

Subscriptions are “great for businesses in terms of recurring revenue, but I’m not sure how great they are for customers, especially when they make it like Hotel California and you can’t easily cancel your subscription,” Beckwin said. She’s referring to that famous line in the song: “You can check out any time you like, but you can never leave.”

The FTC’s proposed rule would require companies to make the cancellation of a subscription as easy as starting one.

Making it extremely difficult to cancel a digital subscription is something that the FTC is seeking to address through efforts to modify the 1973 Negative Option Rule, which addresses “unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs,” according to a March 2023 press release.

The proposed rulemaking would require companies to make the cancellation of a subscription as easy as starting one, with the same number of steps and clear indications of how to cancel (so no hiding of the cancellation button on the website). Sometimes described as “click to cancel,” it also requires sellers to provide consumers of digital products with an annual reminder ahead of an impending renewal.

The agency received more than 1,000 comments on the proposed rule. James Kohm, head of the FTC’s enforcement division, said that the agency is in the middle of conducting a formal cost-benefit analysis, after a federal administrative law judge determined that the rule could have a $100 million net impact on the U.S. economy.

The FTC has argued that this proposed rule would provide industry with a consistent legal framework instead of facing a patchwork of state laws. But trade groups such as the U.S. Chamber of Commerce, the Association of National Advertisers, and the Software & Information Industry Association have called the proposed rule ambiguous and impractical, resulting in consumer harm through raised prices as companies seek to fall into compliance. The groups have also argued the changes could hinder innovation and the free flow of commerce.

“There’s additional information that consumers actually want to know before they cancel,” NRF’s Lemon said. “For example, say it takes you two clicks to sign up for your automatic renewal subscription, but when you go to cancel, you might actually want to know that there’s an option to pause your subscription … [Or] you’re canceling Amazon Prime. But did you know that means you’re also canceling your TV service with Prime and your music service? That’s actually pro-consumer because consumers should know exactly what they’re canceling.”

The proposed rule actually does allow for sellers to make competing offers to retain the subscriber. But the seller must first ask the subscriber whether he or she would be interested in seeing the seller’s pitch. If the subscriber answers no, then the seller must proceed through the cancellation process.

Lemon suggested that the FTC adapt their regulation along the lines of a 2010 California law preventing companies from charging consumer credit or debit cards on an ongoing basis without consumers’ explicit consent. Many states followed California’s lead with similar regulations, and companies have changed their operations to comply with those laws. That should be sufficient, Lemon asserted.

“The more we’re changing rules, the more expensive it becomes for both retailers and consumers at the end of the day,” Lemon said.

Meanwhile, consumer advocates either support the proposed regulation as it stands or are calling for stricter measures, such as forcing companies to increase the frequency of notifying consumers about recurring charges, and prevent instances where free trials automatically convert into paid subscriptions without the consumer’s awareness.

“Sellers should earn a profit by running an honest business and competing to offer the best product,” NCL’s Iscil said, “not trapping consumers in subscription plans with nightmare cancellation processes.”

Subscription for Performance

Even if the FTC were to revise the Negative Option Rule, the subscription model itself is evolving, in large part because subscriptions can now collect a lot of data about consumers.

In The Ends Game, co-authors Bertini and Oded Koenigsberg, professor of marketing and deputy dean at London Business School, describe subscriptions as being more of a means to an end. They argue that eventually, subscribing consumers and businesses might not pay simply for access to a service, but for how that service succeeds in obtaining or fulfilling the customer’s needs.

“This transition is exactly what all the SaaS businesses are going through right now,” Bertini said. “And the reason why they’re moving this way is, one, because I can measure it. And two, because the moment I take some of that consumption risk on my shoulders, the market expands and the willingness [of subscribers] to pay goes up.”

Examples of this kind of model are even cropping up within the consumer market. For instance, a textbook company may charge you not for access to the textbook, but for how well that textbook helped you ace a test, Bertini said. “As long as you can measure performance, that’s where the market will go.”

This is where artificial intelligence and machine learning come in, because they are enablers of the performance model. They “allow us to shape the product to the different needs of the customer as they are using it and then shaping the revenue model behind it,” Bertini said.

For instance, an airline purchases jet engines from Rolls-Royce or General Electric, and they ensure Rolls Royce or General Electric maintains the engine properly through establishing a contract. In the consumer market, Progressive Insurance might encourage good drivers by having contests, where a customer might compete against their grandmother or their brother for who was driving better in a given time, Bertini said. The winner then gets points and incentives to ensure good driving.

The downside with the subscription model is that people don’t get enough value from subscriptions, Bertini said. “And, by the way, the companies that provide subscriptions know this. That’s why they can have this very hard way of unsubscribing. That’s why it happens.” A performance model, by contrast, could align the business and consumer, so that the subscription would be concerned with keeping the customer happy.

Technology to Empower Consumers

Mackler, of ScribeUp, may run a company that helps people navigate the murky world of subscriptions. But he thinks federal regulation should ensure that consumers don’t get caught by bad actors. That said, he also thinks that as retailers and others garner new insights about consumers and even put them to use as a form of deception, companies like his can use AI to develop financial tools to counteract some of these practices and benefit the consumer.

Some subscription companies even do this now. Netflix identifies inactive users who haven’t watched the service for years, and sends messages to them asking if they want to keep their accounts. If there’s no response, Netflix cancels the subscription automatically.

“Consumers will demand the power of technology to help them,” Mackler said. “I do think technology ultimately exists on both sides of the equation. I don’t think you become bombarded by merchants and there’s nothing you can do about it.”

The question of data collection and uses of AI and machine learning tread onto the issue of data privacy. The range of views there is wide. Bertini says companies need to show customers that they’re managing their data responsibly, so that customers can clearly see the benefits. Meanwhile, NCL’s Iscil says that policymakers need to insist that companies should be directed to collect only the information necessary to perform actions that the consumer requests.

The FTC’s Kohm says all these questions and unknowns may be best addressed by Congress: “The FTC is not a legislature. So, it’s not like we see a problem and then we can address it with any regulation that we think would be beneficial. We are limited to our jurisdiction, which is over deceptive and unfair acts or practices.”

In the meantime, I should probably start by managing my subscriptions to online fitness programs and others the old-fashioned way: scour my credit card bills and create a budget spreadsheet. Bonus points for me if I can still add up my monthly charges using pencil and paper.