Going Premium

Going Premium

Remember the last time you were feeling the vibes of your favourite artist on Spotify only to be interrupted by sponsored ads? Or that dreaded moment when you run out of swipes on tinder just as someone fit pops up? No matter what platform or app this infuriating inconvenience occurs you are always offered a simple solution.

Please pay x dollars per month for unlimited premium access.

There is no doubt that membership to subscription based app services have been on the rise with more and more apps realising the potential that feature monetization has to offer. However, not all premium app services are created equal. This notion led me to delve further into the question; why are some subscription-based premium app services used more than others?

For a consumer to justify a paying a regular subscription fee for a premium app service along the lines of Tinder Plus or Spotify Premium, they must wholeheartedly feel that the benefit they derive from the app at the very least offsets the monthly or yearly cost of subscription. However, benefit is all too often falsely correlated with usage time. After all, it’s natural to maximise your usage time on something which requires a flat payment regardless of usage – similar to an all-you-can-eat buffet. This inherently creates a problem which I will loosely define as “usage pressure”.

App developers take full advantage of this “usage pressure” – sending an abundance of push notifications as if to remind you that you are only losing by not logging in for another session of power swiping and self pity. However, usage pressure is rather paradoxical – whereby spending more time on an application does not necessarily correlate to greater benefit and utility. This is because many pay-to-play App users frequently over use apps – basing their judgement of the appropriate amount of time to devote to an app on how much they pay rather than the benefit they gain from doing so.

So what happens when you make the decision to buy the premium version of Tinder? “too many swipes and not enough matches” is a line repeated all too often after your best mate drunkenly decides to purchase tinder plus after 4 pints and a bit of emotion.

This frustration can be accredited to many premium service applications having a diminishing rate of return, where the marginal benefit of paying for the subscription is often overestimated by the consumer at the time of purchase. Unfortunately, this is all too true on Tinder Plus – as the app inherently relies on both the supply and demand side to generate matches for the individual. Put succinctly, unless you’re Chris Hemsworth, the algorithms will inevitably run out of pushing people who have swiped right on you to your screen. Buying Tinder Plus increases your access but does not increase your overall utility as it merely increases your supply of swipes and does not translate to more matches. This may be explained through economic matching theory, in particular Alvin Roth’s Nobel prize winning work on market design, as Tinder Plus does little to increase the “thickness” of a “matching market”.

The issue is further amplified by the harshly unequal levels of benefit that tinder provides to different users. As you’d imagine, a dating app relying on sexual objectification will naturally provide much greater benefit to those who belong on the cover of Vogue Magazine than to your average joe who you sat next to in your last lecture. It is this lack of consistent returns to all users which make the premium service Tinder Plus somewhat less attractive overall compared to other premium app services – assuming that utility is gained holding the “more is better” assumption for matches.

In contrast, some premium app services such as Spotify Premium offer benefits which are constant, worthwhile, and inelastic to the individual user. Whilst offering gimmicks such as offline listening, removing ads, and better sound quality, the main addition to utility by “going premium” is the ability to play any song on demand without being limited by 5 track skips per hour.  These are all benefits which are undeniably useful to anyone who uses the app, regardless of differences in individual consumer tastes.

The effects of this have recently been heightened with the introduction of the family package – allowing 2-6 users to pool their resources and pay for 1 account at $18 per month as opposed to paying $11.99 per user per month. While the revenue per capita may be less under this new arrangement, the consumer involvement will undoubtedly rise, creating a premium service with an added attraction of low-cost and perceived risk at merely $3 per person (if membership is split between 6 people).

So how do the numbers stack up? Spotify premium has over 30 million paying users out of a total of 100 million users as of May 2016 whilst Tinder Plus was estimated to have 5.1 million paying users out of a total of 50 million users at the same period of time. Although partially inconclusive, consumer economics and basic laws of supply and demand give us a valuable insight into the true benefit of “going premium”.