ONE of the most fashionable ideas in business is that companies should earn their crust from subscribers, who are “locked in” for a period of time, rather than from customers who can easily switch to another provider at any time. Subscription models are seen by many investors and executives as the holy grail, because they promise a recurring stream of revenue. But the approach suffers from three underappreciated problems. Acquiring subscribers can be eye-wateringly expensive. Their urge to run away is often only temporarily suppressed. And consumers may have more than one relationship at a time.

The best-known subscription model is probably Amazon Prime. It has about 80m members in America alone and for $99 a year offers films and music, speedy delivery of goods and even discounts on goods such as baby food. There are many other examples. Netflix offers a wall of TV for a monthly fee. And more are coming. Venture-capital firms are pouring money into subscription-based home-delivery firms that bring to your doorstep meals, pills or even fresh underpants. Zuora, a software firm, talks of the rise of the “subscription economy”.

Several star firms floating their shares this year have subscription models. Dropbox, a cloud-storage firm, listed on NASDAQ on March 23rd and is worth $13bn. It boasts 500m registered users and wants to convert them into “paying users”, of whom there are already 11m, who get a superior service. Spotify, a music-streaming firm that listed on April 3rd, has 159m users but derives its $27bn valuation from 71m “premium subscribers” who pay to listen without adverts. On average each generates 13 times more sales and 27 times more gross profit than users who pay no fee.

The attractions of subscription businesses are obvious. Firms can predict the future better and build deeper relationships with customers who have less incentive to shop around. Some venerable firms discovered long ago how to transform one-off purchases into recurring sales. Gillette gets customers to “join” (by buying a subsidised razor) and then charges them “monthly fees” (buying replacement blades). Rolls-Royce, General Electric and Pratt & Whitney rarely sell passenger-jet engines in one-off transactions, but instead offer “power by the hour” through complex service contracts that tie them to airlines for decades.

Subscription models are becoming more popular, in part because technology has made it easier to rent rather than own assets. Instead of buying software, for example, users can get access to it as a cloud-based service. Data mining means that the insights gained from a sustained relationship are more valuable than before, for customers and firms—Netflix purports to know what viewers want to binge-watch. And after a scandal involving Cambridge Analytica’s dubious acquisition of data from 87m Facebook users, there could be a shift from digital businesses built around advertising to subscription models that protect privacy.

The subscription approach also makes investors and creditors more comfortable with intangible businesses, which have no factories that can be relied on to generate goods and sales year after year. Instead, a subscriber base can be thought of as an enduring “asset” in which firms can invest. Businesses that rely instead on a frantic series of one-off transactions—Uber, for example—may be more volatile and vulnerable because barriers to entry are lower.

The subscription boom will doubtless continue. So much so that antitrust regulators may eventually become nervous if too many consumers are unable to switch from their providers, either because they are contractually bound in or because the cost of doing so is prohibitively high (for example, if they lose their historical data). Yet before assuming that world domination beckons, it is worth noting the flaws of the subscription approach.

First, firms have to pay upfront to attract new subscribers, either by keeping prices artificially low or by spending heavily on marketing. Consider half a dozen subscription-based firms: Amazon Prime (defined here as Amazon excluding AWS, its hosting business), Blue Apron, Dropbox, Hulu, Netflix and Spotify. Next, compare their meagre combined free cashflow last year to the amount they would need to earn a 10% return on capital. The total shortfall is $14bn, or $4bn excluding Amazon Prime. This is a proxy for the subsidy being paid to attract and retain subscribers. Eventually these firms may have to raise prices in order to boost profits, or sell a broader range of services, stepping on the toes of other subscription businesses. All these companies use statistical models to try to ensure that the “lifetime value” of a customer exceeds the cost of acquiring them, but it is still a guessing game.

The second problem is that subscribers are annoyingly disloyal. At the end of a contract period some turn to a different provider. Netflix is thought to lose less than 1% of its customers per month to “churn”; this is in line with established subscription-based firms such as mobile-phone operators. For Spotify, a music-streaming service, the figure is a more worrying 5%; for some meal-delivery firms, it is a lethal 10%. Churn could rise further for all these firms as competition intensifies or if they raise prices.

Ménage a trente-trois

The final shortcoming is the lack of exclusivity. Consumers love two-timing companies—corporate loyalty clubs have 4bn members in America alone, as people sign up with lots of different airlines and hotels. Saturation could occur in the digital subscription world, too. America’s 118m households now have over 200m subscriptions to streaming media, e-commerce and other web-based services. The high valuations of the listed firms they subscribe to imply that this will grow to well over 350m by 2027. From newspapers’ digital offerings to car-navigation services and startups selling web-based home-security services, America is at the forefront of a giant boom in subscription businesses. A first sign of trouble could be that there are not enough Americans to satisfy them all.