Enough With the Boxes Already…

Subscription commerce is one of the over-invested sectors in the Valley today. At this point, it seems like it’s in every vertical you can imagine. There is Birchbox for monthly curated beauty samples, Blissmobox for organic products, Babbabox for entertaining kids, and even Boinkbox for adult toys (and the list goes on). Is subscription commerce a sustainable business model in the long-term or is it just a matter of time before consumers reach subscription overload?

The Model

The idea behind Birchbox is to surprise and delight consumers on a monthly basis, with a box filled with beauty products curated based on their needs. Customers sign-up online and fill out a “beauty profile” so that products can be curated based on their preferences. For $10 per month, the customer then receives a box with five to six beauty samples ranging from skin care to make-up and hair care to nail color. The samples are sourced from popular brands as well as niche brands. Sometimes the box also includes a bonus sample for example, a cute heart-shaped nail file or a chamomile teabag. The Birchbox website also features “how to” videos and interviews on latest products and trends. There is also the opportunity to buy full-size products directly through the Birchbox website and earn loyalty points through these purchases that can apply towards subsequent purchases. In 2011, the New York City-based startup raised $10.5 million Series A funding from Accel Partners, First Round and others².

The subscription model has several advantages for both businesses and consumers. For businesses, especially for start-ups, the upfront payments, recurring revenue stream, and the element of predictable demand are crucial. For consumers, subscription commerce has become a way to discover new products and experiment in categories ranging from beauty to food (any many more) with products being delivered right to your doorstep. At the same time there is an element of surprise when you open a box you have just received (full disclosure: I have an annual Birchbox subscription and have enjoyed it thus far).

Is This Sustainable?

Given the proliferation of subscription boxes, especially in the beauty space, Birchbox has seen a lot of competition via domestic and international clones. One way to beat competition is to acquire it – which is exactly what Birchbox did in September 2012 with the acquisition of JolieBox which offers a nearly identical service in Europe³.

In contrast, the Amazon “Subscribe and Save” model for items such as toilet paper, toothpaste, and other consumables is a lot more compelling. While it lacks the surprise and delight aspect which comes along with a Birchbox subscription, I have no reason to stop my Amazon subscription; the free shipping is a plus and I get a subscription discount on essentials. Additionally, it saves me a trip to the grocery store and having to lug home bags of consumer staples. However, I have little incentive to renew my annual Birchbox membership. The ‘surprise and delight’ aspect loses its charm after 7-8 boxes because when you get your 6^th face cream which you throw away or you see your ever-growing and unused stash of sample fragrances, the rational side of the brain kicks in and you think, “do I really need another year of beauty samples?”

ShoeDazzle, a Los Angeles-based online personalized styling and retail service, recently moved away from its subscription model. Historically, members paid a monthly $39.95 fee in exchange for a pair of shoes which could be picked from a ‘personalized showroom’ curated by Hollywood stylists. In its new model, the retailer continues to send its members a monthly email including the showroom option, but consumers are not charged if they do not respond. Additionally, consumers can go to the website and make purchases whenever they like, and as often as they like, bringing ShoeDazzle’s business model closer to an online shoe retailer such as Zappos or Piperlime. Is ShoeDazzle the first of many subscription commerce businesses to get squeezed out of a crowded marketplace?