Arlo’s search for subscriptions gets desperate

This week, Arlo launched what I generously think of as its pay-for-customer-service enticement for its smart home camera products. As of Oct. 4, customers without a subscription who’ve had their devices for more than 90 days no longer get phone support. And after one year, they lose access to live chat support.

Those non-subscription customers will only have access to customer service via the forums. This is an unprecedented move in IoT customer service. Sure, my free Google or social media accounts don’t often come with phone support or even chat, but when I purchase physical hardware from a legitimate company, I expect help when I need it.

Yet, Arlo’s customer support framework now requires a $2.99 to $14.99 per month Arlo subscription, a free trial plan, or the device to be within 90 days of purchase for phone support. Then you’re downgraded to chat support for the remainder of the year.

After that, absent a plan, Arlo customers with problems will only have access to a virtual assistant or the public forums. That means no phone support and no chat. This feels pretty punitive for a product that can cost between $130 and $300 depending on the device. 

As of June 2021, Arlo had 695,000 paying subscribers, which was 13% of its customer base. This was up significantly from the same period a year before, when it had 298,000 paying subscriptions, or 7% of its customer base. Put another way, the number of registered accounts increased year over year by 22% while subscriptions increased by 113%.

This presumably means new features are enticing Arlo customers to subscribe to a paid service. This is essential for the survival of the company. The company clearly spells this out in its risk statements as part of its annual report, where it says, “Our future success depends on our ability to increase sales of our paid subscription services.”

With the changes in support, added to newly announced features such as package detection and more capable integrations with Google displays, Arlo is clearly relying on both a carrot (new features) and a stick (subpar support) to drive subscriptions.

The push for more subscriptions might be driven in part by the COVID-19 pandemic because the cost of purchasing new hardware to sell devices and ship them has risen. Arlo has paid 89% more to ship freight as a result of the pandemic and also has to commit to buying more products upfront to ensure enough parts from component and chip suppliers.

In light of increased costs, it’s unsurprising that the company is focusing on convincing existing customers to pay a monthly fee. Hardware has a per-unit cost that every company has to recoup, and when it’s an IoT device, every piece of hardware also has annual ongoing costs associated with software updates and cloud hosting.

Shifting more of the costs to updates and software-provided features that can scale across a network of existing devices is the best use of a company’s resources, especially if that company, like Arlo, operates at a net loss.

So, even as Arlo rolls up its sleeves and fights a little dirty in its quest to get subscriptions, it’s likely we’ll see a new push for such monthly service plans as hardware vendors try to boost or maintain their margins by leaning hard on their installed user base to pay up.