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The Subscription Service Bubble Is Part Of The Tech Bubble

This article is more than 6 years old.

I wrote not too long ago that there is obviously a tech bubble and pointed to subscription companies as proof. Economist Matthew Martin posted recently on twitter that these subscription companies are not “tech startups”, because subscription companies “go way back and there has been essentially no innovation”. On the one hand, I’m happy to say “fine they are just startups and what I mean is there is a startup bubble”. I don’t really care about quibbling over the definition of a tech company, and my point is that there is bubbly corner of the economy filled with startups and many of them look alike, whatever you want to call them. On the other hand, no, I am right. Subscription services are tech companies caught up in a wider tech bubble.

The first clue that these are tech companies is who they are hiring. If you go to the job listings pages, they are hiring lots of people that a tech company would hire. Consider Dollar Shave Club, the company that just mails you razors. Seems pretty simple, right? On their job listings page, one of the biggest categories is engineering. This includes a senior data scientist, software engineers, and data engineers. If you search the jobs site Indeed for listings at Birch Box, ipsy, Trunk Club, or other subscription companies you can find jobs like lead machine learning engineer and many other data science positions.

Of course, you can reply that many traditional retailers are increasingly hiring data science and other tech people. But this is really all a matter of degree. Maybe these are retailers who rely a lot on tech, and maybe they are tech companies that sell directly to consumers. The key thing is that technology is a big part of what they do, and they exist in the same general business milieu of the overall tech bubble, startup bubble, or whatever you want to call it.

So even if you don’t think they are tech companies, I think you should agree tech is a big part of what they do, and I don’t just mean having a webpage. In particular, these companies rely on data science to try to do a better and better job of predicting what their customers will want. As an article in the MIT Sloan Management Review put it, “The role of data analytics is absolutely crucial to the success of the subscription e-commerce model”

The article goes on to discuss a clothing subscription company that is using “AI-based machine-learning algorithms to assist the stylists in selecting only those things that clients are likely to keep”. Another article at Fast Company says that a major breakthrough for subscription company Ipsy came when they hired a senior researcher from Netflix who “took on the task of making sense of all the data points he had about the millions of customers in the database, then tagging different products based on information about which users liked them”

So are these tech companies? Okay, I’m back at not caring about that. What matters is that they are startups selling a story about disruption, hire lots of tech people, have big data science teams that constitute a core competency and often poach from tech companies, rely on venture capital, and are flooded with dozens and dozens of obviously garbage ideas doomed to fail. It’s a tech-centric startup bubble at the very least. The big picture is that we have a ton of businesses that are obviously bad ideas, but there is enough uncertainty about the promise of machine learning and enough disruption happening that people are holding out hope to be one of the very very few winners. Subscription services are definitely part of this.