Why Marketplace Businesses Don't Have Subscriptions

I was on a bike ride deep into Marin recently, and thought to myself, "If I blow a tire, it's going to be a really expensive Uber back home." Then the entrepreneur in me spoke up, "Wouldn't it be awesome if I could sign up for a subscription for rides, regardless of the distance?"

That will never happen, of course. Business models are optimized for the needs of the customers they serve. If the business is run any other way, it will fail.

For example, imagine if Salesforce.com, the $40 billion company that bills sales teams on a subscription-as-a-service (SaaS) model, acted like a marketplace. I might log in at the end of the quarter and face surge pricing because other sales representatives are logging in at the same time. Or I might log in at 2 a.m. in the middle of the quarter and find a blank page because demand was low, and they decided to let the servers sleep.

Let's look at this the other way. Imagine if Uber was a subscription business. I'd pay for a fixed number of rides, but rather than taking a short ride to a restaurant, I'd go to San Francisco International Airport (SFO) during rush hour -- every Friday. Or I'd load a group of friends into the car and have the driver take us all home to different parts of the city. Four rides for the price of one!

Uber and Salesforce have business models that are optimized for their particular markets. Uber will always face inconsistent supply and a high cost of goods sold (at least 80 percent, by some reports.) When someone hails a car, the cost of that specific ride can't be predicted. To do a fixed fee per ride, they'd have to assume the worst, and charge everyone as if they were going to SFO during rush hour. I'll never see the day when Uber charges me $100/month for 10 rides. It just won't happen.

Similarly, Salesforce would be blasted for allowing downtime or queues to log in. Customers would revolt if they put up a higher pay wall to access during peak periods. We all know it's just software. We won't let them do it.

SaaS models in marketplace businesses don't work. Marketplaces models for SaaS businesses don't work either. These two business models are parallels that don't cross. There is some gray area in between, though.

Hybrids are popping up in the content marketing space. Percolate and NewsCred are SaaS businesses that charge on a per seat basis every month for access to their scheduling, distribution, and curation software. They offer add-ons from marketplace businesses Visual.ly and Scripted on a per job basis, rather than a subscription. Contently, on the other hand, started as a content marketplace but pivoted over to workflow management. Now they charge a flat monthly SaaS subscription fee on top of fees per writing job.

There are larger retail companies offering subscriptions now too, like Amazon's Subscribe and Save service. However, they only provide this for certain products, and the core of their business is still a marketplace. You won't see Amazon suddenly transition to a subscription-based company.

Market forces dictate how businesses behave, but there are also certain truths that will never be broken. The fact that marketplaces and SaaS models don't mix is one of them.