Traffic doesn’t work? Member Economy to help you

"Prime has become the central nervous system of Amazon," Bezos, with his sleeves rolled up to reveal his Popeye-like strong arms, told Forbes. "Prime is closely tied to our consumer products."

After Prime became the fulcrum for Amazon's continued high growth, the market generally developed a religious-like belief in the "membership economy."

New York University professor Scott Galloway has always been harsh on technology companies. He once asserted that Zuckerberg's "castle is about to collapse" and Tesla is doomed. But he praised Prime, saying, "44% of households in the United States own guns, 51% of households go to church, and 52% of households have Amazon memberships."

This "belief" has also captured Chinese companies, and 2018 is known as the first year of China's membership economy.

At Alibaba, 88VIP membership is its "No. 1 project"; unicorns that once insisted on the free model and fell into losses are trying to turn losses into profits through the membership model; it is too late to fight alone, and cross-border cooperation has gradually become the mainstream, and the video industry with a huge user base has become the first choice for cross-border cooperation. Youku has just launched a family membership with China Mobile. Its previous list of partners also includes Weibo and Huawei; while iQiyi has successively joined hands with JD.com, Ctrip and others.

After the dividends of mobile Internet have disappeared, can the membership economy draw a second growth curve for the Internet industry?

1. 60 years of membership economy: five major models, which one dominates the rise and fall

What exactly is the membership economy that is becoming ubiquitous?

Robbie Kellman Baxter, founder of an American strategic company that once worked for Netflix and Yahoo, defined this in his book “The Membership Economy”: find your super users, master permanent transactions, and establish recurring revenue.

If we trace back to the past, the membership economy was first born in Europe in the 15th century. The feudal aristocracy, disdaining to associate with common people, organized various types of closed membership clubs - membership became the admission ticket to aristocratic life.

Based on the same logic, the earliest modern membership economy is actually threshold membership, or native membership. Users are members, and members are customers. The relationship between the three corresponds one to one - they only provide services to members.

Typical representatives include Metro founded in 1963, Costco founded in 1976, and Sam's Club founded in 1983. This type of threshold membership store is actually the product of the polarization of the rich and the poor and the stratification of consumption. The middle-class people with high incomes need products and services that far exceed those of the general public, and their abundant financial resources, vigorous desires, and frequent consumption are enough to support the healthy operation of Metro, Sam's Club, and Costco.

This threshold membership system has increasingly shown its shortcomings in the Internet era. The membership consumption model means that it can only serve a small number of loyal customers, and the ceiling effect is obvious. Moreover, with the fierce competition in the retail market, its supply chain advantages are being reduced and it is no longer monopolistic. The uniqueness of its products and the preferential prices are also declining, making it less and less attractive to members. Because of this, membership retailers are generally in trouble. In October, Metro China was sold to Wumart; in the United States, Sam's Club closed 63 stores in one year.

The second model is subscription membership, a typical example being Netflix. Under the subscription membership model, membership fees are the platform's main or even entire source of revenue. 98% of Netflix's revenue comes from membership.

In China, when the Diaosi economy was in the early days, users of video websites were accustomed to the free model, and a variety of advertisements were the price of free services. Now, they are willing to pay to avoid being disturbed by advertisements - the background of subscription membership payment is the upgrade of entertainment consumption.

The third model is value-added membership. The so-called value-added memberships include Amazon's Prime, Alibaba's 88VIP, and China's video website memberships, etc.

As of the end of 2018, Amazon's global Prime members have exceeded 100 million, and their annual spending continues to grow, from US$1,300 to US$1,400, while the average annual spending of non-Prime users has dropped from US$700 to US$600.

This membership model is suitable for companies serving the mass market, and it provides value-added services to paying core members that exceed those of ordinary users.

The fourth type of membership is the points incentive membership.

This type of membership is common in airlines, hotels, etc. There is no additional fee for membership, just register. Once the mileage and accommodation have accumulated to a certain level, they can be exchanged for physical products and air tickets and enjoy VIP services. Although the airline's points system has maintained the loyalty of its members, it has also been criticized - as the number of VIPs has increased, the supporting VIP service system has not grown in tandem, resulting in a continuous decline in the services enjoyed by VIP users. For example, many priority services of Air China's gold and silver cards have been cancelled one after another.

The fifth membership model is essentially prepaid, such as various offline hairdressing cards, fitness cards, and Internet education course cards, etc., which will not be elaborated.

With the changing times and different industries, the membership economy models are very different. In the past two years, the membership economy that has been popular in the Internet industry is both a continuation of the traditional membership economy and an evolution and improvement.

In order to cure their thirst for traffic , China's Internet giants are "going up and down" - going down to seek growth while tapping the potential of existing users and upgrading them to paid members. Members can contribute higher revenue and bring better cash flow. The average annual consumption of Alibaba 88VIP is more than 100,000 yuan, and the richness of consumer categories is more than 6 times that of ordinary users. Members have continuous sticky consumption, and the platform does not need to pay extra high customer acquisition and marketing costs. For consumers who subscribe to Amazon Prime for the first time, the renewal rate in the first year is 91%, and the renewal rate in the third year reaches 96%. The membership fee is like a dam, which blocks traffic from flowing into the pool of competitors, such as the package services of operators.

Among the five models mentioned above, which ones are more suitable for the Internet?

We believe that the value-added membership model will become mainstream.

First, it can seamlessly cover the entire market. Generally speaking, users can be roughly divided into three categories: loyal users, insensitive users and wavering users. While Amazon and Alibaba open an extra window for Prime and 88VIP members, they do not close the door to ordinary users, allowing ordinary users to become an incremental pool for core members. On the contrary, the models of Metro and Sam's Club have completely blocked the entrance and channel for hesitant users to upgrade to core members.

Secondly, tiered services are provided. In the complex Chinese market, the stratification of wealth and consumption is the truth, and a more inclusive value-added membership model is the mainstream model of the Internet membership economy.

2. Closed-Ecosystem-Sharing: Openness Becomes the Mainstream

In the early years, the growth of membership relied on the companies to climb slowly step by step, but the impatient Internet industry could not wait any longer. Membership moved from closed to open, and from exclusive to shared. This change was the product of the upgrade of the membership system against the backdrop of traffic hunger and slowing growth. From this perspective, the membership economy can be divided into three stages.

The first stage is a closed mode of fighting alone, where the platform dug canals, built rivers, and constructed dams on its own to target users. Early membership systems were all of this type.

The second stage is the ecological stage. The so-called ecological stage is more suitable for major economies. Member rights are connected between companies and business units with close equity relations, cooperative relations, and interest relations. This is true for Amazon's Prime membership and Alibaba's 88VIP membership. Prime members’ rights and benefits cover media, logistics, video, reading, etc.; Alibaba’s 88VIP membership covers eating, listening, playing, watching, buying, etc.

The advantage of ecological membership is that it provides richer rights and interests and is more attractive to C-end users. As for the platform, each business segment can divert traffic to each other. Alibaba once released a piece of data that 38 out of every 100 88VIP members were converted into Youku members, 32 opened Ele.me memberships, and 27 were Taopiaopiao members.

The third model is alliance membership, or shared membership. The membership system has entered the stage of cross-industry integration. This is the highest stage of the openness of the membership system - two platforms that connect membership rights to each other are completely independent.

A typical example of this model is the cooperation between video website Youku and telecom operator China Mobile. On November 26, Youku and China Mobile jointly created the first family membership service system on the entire network. China Mobile provided traffic resources and call resources, Youku provided content resources, and then through social fission, "one person purchases and three people share", targeting the three basic needs of families: video entertainment, Internet traffic and mutual calls.

Judging from the price, this membership system is really quite conscientious. Three Youku memberships, 15G traffic for three users per month, free calls, etc., the original price for the year is 1,128 yuan, and the discounted price is 269 yuan for the year.

Why would two companies from completely different industries come together on membership operations? The answer lies in the fact that this cooperation is an example of utilizing membership economy to the extreme.

First, radical openness and sharing.

It is extremely difficult for two independent companies with no vested interests to coordinate member interests. There are two basic prerequisites for cooperation. First of all, the businesses of both parties are not in competition with each other and must be different in industry and cross-border. On the contrary, their businesses usually have upstream and downstream relationships. For example, traffic services are upstream of video entertainment services and have synergistic effects.

Secondly, they are a good match and can enhance each other's success.

As the big brother of operators, China Mobile has about 300 million family membership users, including 150 million Global Communication users, who are the payment decision makers in the family; and video members are the largest group in the current membership economy. The Alibaba ecosystem behind Youku also provides broad prospects for cooperation between users of both parties in other areas such as food, clothing, housing and transportation.

In terms of user age, China Mobile's users cover four generations, while the online entertainment consumer group is mainly concentrated in the 20-40 year old population in third-tier and above cities. Through cooperation, Youku can expand the age range of its users.

Second, social fission.

One person purchases and three people share. Taking into account the users' privacy needs for watching different videos, three people will each enjoy exclusive Youku membership benefits to ensure their privacy is not disturbed. The three-person sharing mode provides users with additional triple benefits, but for the platform, it anchors three member users at a time.

In the past, China Mobile was the largest operator, and mobile phone numbers gradually became the underlying account for logging into major platforms, such as bank cards, WeChat, etc. The cost of changing numbers was unaffordable, and based on the reality that it was impossible to switch networks, the operator's users were almost all lifelong users, and the operators did not worry about users "running away" at all.

But now the situation has changed. On November 27, number portability will be officially implemented nationwide. The entire operator market will usher in a major reshuffle, and new challenges are looming. In the past, operators were accustomed to price wars, but price wars were not unique. They killed 1,000 enemies but hurt 800 of their own. Therefore, striving for more additional unique rights and interests for their own users became a new selling point. This is also the reason why China Mobile joined hands with Youku.

Based on this fission model, for existing users, China Mobile has anchored three users at a time and will not switch networks; at the same time, for users of other operators who plan to switch networks, it has also formed a very tempting pull, attracting a whole family of new customers in one activity. Moreover, once the whole family’s network is settled here and consumption habits are formed, it will be difficult to migrate to another platform.

Third, the existing and incremental stocks attract each other.

In terms of the entire user scale, China Mobile has 1 billion users. Water flows from high to low, and China Mobile will definitely bring new users and new members to Youku. However, the cooperation between Youku and China Mobile is not a one-way traffic output by China Mobile. Youku also has the value of feeding back to China Mobile's 5G strategy.

In early November this year, China Mobile announced a small goal of its 5G strategy - to add more than 100 million new 5G mobile phones next year. You should know that 5G charges are much higher than 4G, and most of the users who are willing to pay a premium to try 5G are heavy users of videos and games. In 5G high-speed mode, there is no lag when playing games or watching videos. Miao Wei, Minister of Industry and Information Technology, has long concluded that 5G is a major opportunity for the development of ultra-high-definition video.

There is a high proportion of heavy video users among Youku members. Starting from June this year, Youku also launched a high-definition classic zone, and the high-definition film library has now expanded to more than 2,000. Through this cooperation, China Mobile can find seed users for its 5G strategy.

From this, we can see that the collaboration between Youku and China Mobile actually utilizes the existing user pool to attract traffic to each other and increase each other's growth - since the cost of attracting new users is getting higher and higher, instead of spending the budget on advertisers and freeloaders, it is better to give benefits to members and old users.

In the future, similar shared membership models will become more and more common, and various "you are good, I am good, everyone is good" membership alliances will continue to appear.

With the convergence of multiple trends, such as global consumption upgrades, universal consumption stratification, widespread traffic hunger, outdated free models, and the declining Diaosi economy, the membership economy that provides upgraded and stratified services has taken the center stage. It is the antidote for the Internet's search for new growth methods, and it is also a product of the consumption boom.

Author: Chen Jiying

Source: Financial Story Collection (ID:cjgshui)