Columbia House Looks a Lot Like SaaS in Hindsight

Ernie Smith has a great retrospective at Tedium on Columbia House, which is finally shutting down after 71 years.

I expected nostalgia about those ridiculous offers for a pile of CDs for a penny.

What I didn't expect was how clearly Smith connects Columbia House's business model to the subscription software economy we have now.

Once you see it, it is hard to unsee.

Columbia House's famous deal looked absurdly generous.

Send in a penny and suddenly you had enough CDs to start filling a shelf.

That was the bait.

The actual business started after the cheap music arrived.

Customers agreed to keep buying albums at regular club prices, and Columbia House also used negative-option marketing. If you didn't tell them you didn't want the next selection, they could send it to you and bill you for it.

The customer had to take action to stop the transaction.

That sounds remarkably familiar.

Free trial.

Enter a credit card.

Get all the features for 14 days.

Forget about it.

Get charged.

Then discover that signing up took 30 seconds while canceling requires navigating six screens, finding a hidden account setting or talking to someone whose job appears to be preventing you from leaving.

The implementation changed.

The incentive did not.

Columbia House had to pull this off using magazines, postcards, mail, checks and telephone calls.

Modern subscription companies get instant payments, stored credit cards, push notifications, email, analytics and software designed to optimize every step of the funnel.

SaaS made the Columbia House model much more efficient.

That is the relationship in Smith's article that really caught my attention.

He suggests thinking about Columbia House less as a mail-order record company and more like a SaaS company.

That is a surprisingly useful way to look at it.

The initial CDs were essentially the customer-acquisition cost.

Get someone through the door with an offer so attractive that refusing it feels irrational.

Make the money later through the ongoing relationship.

There is nothing inherently wrong with that.

A good free trial is useful.

A good subscription can align a company's incentives with its customers because the product has to remain useful enough that people continue paying for it.

The problem starts when the company realizes that preventing cancellation is cheaper than continuing to earn the subscription.

Then retention stops meaning:

keep making something people want

and starts meaning:

make leaving sufficiently annoying

Columbia House understood that distinction decades before anyone started talking about churn rates, recurring revenue or SaaS metrics.

It also understood something else modern software companies know very well.

People are bad at canceling things.

We forget.

We procrastinate.

We decide we'll deal with it later.

A small recurring expense does not always feel important enough to stop what we're doing and fix it.

That behavior becomes economically valuable.

Once a company begins designing around customer inattention, the line between a useful subscription and a trap gets thin.

There is also something strange about how warmly people remember Columbia House.

I remember those advertisements everywhere.

For a lot of people, those offers helped build real music collections. Someone could suddenly own albums they could not otherwise afford to buy all at once.

That part was genuinely fun.

But nostalgia can obscure how aggressive the underlying model was.

Smith points out that the free CDs were effectively a lead magnet attached to a system designed around recurring purchases, negative-option billing and substantial friction after the initial bargain.

The technology industry didn't invent this.

It digitized it.

And software made the mechanics nearly invisible.

Columbia House had to put another CD in a box and physically mail it to your house.

A SaaS company only has to increment another billing cycle in a database.

That may be the most interesting part of Columbia House disappearing.

The physical business model finally became obsolete.

The business model itself is doing just fine.

Read Ernie Smith's full retrospective, "The Negative Option."