Innovations: Ideas in Action
Walker Digital’s mission is to create new business systems and profitably bring them to market, either by creating a start-up or enabling another company with a license. Examples can be helpful to illustrate how the process works.
The Idea:
Continuous Magazine Subscriptions
Background:
Ben Franklin invented magazine subscriptions in the late 1700s -- and the publishing industry did almost nothing to change that sales method for the next 275 years. Magazine subscriptions have been articulated as products sold in finite amounts, typically one year at a time. Each year publishers must mail repetitive and costly renewal notices to essentially re-sell their current customers. Consumers are deluged with unwanted mail. It was as if consumers loved the product but hated the buying experience. And publishers were no happier. The high costs of direct mail renewal series and low success rates on renewals (30% for new subscribers) contributed to an enormously inefficient system.
The financial consequences of the traditional system were and are severe. For most publishers, the circulation P&L (mostly subscriptions) is a money-loser, which burdens the advertising P&L as the sole profit contributor.
Key Insight:
Walker Digital Chairman Jay Walker and Synapse co-founder Michael Loeb recognized that magazine subscriptions had a lot more in common with services than with products. The two inventors anticipated that consumers and publishers would greatly benefit from applying the business model of services to magazine subscriptions.
The founders invented a disruptive model called “continuous service” to transform the magazine industry. Our patented model replaced traditional fixed-term subscriptions with open-ended subscriptions that automatically continued until cancelled by the customer (just like Internet access, cable TV and wireless service.)
The key to the new model was deploying the unique assets of the credit card industry to give consumers confidence to accept a brand-new way of sourcing magazine subscriptions. This was not about offering credit cards as a payment option. Instead, we sought partnerships with every major credit card issuer to gain access to their customer communication media and brand. This allowed us to use the bank’s trust-mark to position the new model as a service of the bank, making the use of the credit card a natural part of the transaction.
Results:
Synapse, the operating company formed to bring the invention to market, went on to develop partnerships with every major financial services company, including Citibank, Chase and American Express, as well as leading brands in several other industries.
Synapse deployed the new model industry-wide and became the industry’s leading third-party provider of subscribers. With more than a 10% market share and 30 million customers, the new subscription model has been enthusiastically embraced. Consumers benefit from a carefree buying experience and publishers enjoy superior customer economics. Recognizing the power of the model as an emerging new standard for subscription sales, Time Warner purchased control of Synapse in 2001 and made it a wholly owned subsidiary in 2005.
