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When membership works
A membership program works best when the cost base is fixed. Netflix spends a set amount on programming, and an extra member costs nothing to serve beyond the cost of acquiring them. Travel memberships often hand out upgrades to rooms and seats that would have been empty anyway, which is why membership started in travel and entertainment.
Variable costs
The model gets harder when serving a member has a variable cost. Amazon went first: an Amazon Prime membership costs more the more it gets used. Amazon worked through a stretch in which public-market investors did not understand the growing losses, because it understood the unit economics of membership.
How Uber One followed
Uber One followed the same logic. A new member gets a lot of money back, so the first few transactions are much less profitable, on the prediction that the member will spend more on the platform over a lifetime. The program took time to get up to speed and is solidly profitable now, with 50 million members, growing 50% year over year.
How did Amazon Prime begin?
Amazon introduced Prime in the United States in February 2005 as a 79 dollar a year plan with free two-day shipping. The offer was costly because heavy shoppers could place many orders and each one carried a shipping bill. Over the years, Amazon added video, music, and other benefits to the same fee.
Why did streaming change Netflix's costs?
Netflix launched in 1998 as a DVD-by-mail service, where every rental carried postage and handling. Streaming made an extra viewer cost very little for a title already licensed or produced, so content spending became a mostly fixed expense spread across all members. Netflix began streaming in the United States in January 2007.
Why did frequent-flyer programs start with airlines?
An airline seat that goes unsold at departure earns nothing, so giving a loyal customer that seat costs almost nothing. American Airlines launched AAdvantage in 1981, the first large frequent-flyer program, and other carriers followed within months. Hotels adopted the same model with free room upgrades, since a room unsold tonight is lost for good.
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