The Future of Subscription Economy

Harish Thyagarajan

24 Aug 2018

Subscription Economy

According to the CEO of Zuora-Tien Tzuo, Subscription-based businesses are growing nine times faster than traditional businesses.

 

However, the percentage of the total economy that is on this model (Subscription based business) is still low.

 

For instance, Caterpillar is a company that is worth $50 billion, even if they are billing around $1 billion via subscription business, it will sum up to only 2% of the company.

 

It is the same when it comes to cars, according to Mckinsey, $1.5 trillion of value will be created by connected devices/connected car services and this is where all the focus is over the next decade. Interestingly, this is just 10 percent of the entire car industry.

 

Now that we know the potential of this business model, let’s take a look at what can be expected from the subscription economy over the next several years:

 

Increased Personalization via Data

One of the best things about subscriptions is that you get to use products without having to buy it, and because businesses can track your product/services usage pattern, they will be able to offer you a more personalized version of that service at a much lower price than it would be to buy the entire package.

 

With the help of modern analytical tools, companies can understand your preferences and this allows them to send you more relevant and helpful content around that particular product or suggest new products that are similar to the one you already have.

 

Capitalizing on data to drive additional revenue streams   

One of the critical factors accelerating the adoption of subscription models is the data generated from subscriptions. As companies realize the potential of this rich data, they will have to start evaluating “how” and “where” the subscription services can be applied.

 

Data is a priceless asset for companies operating on a subscription model, it enables them to streamline their services and identify new areas of activity and thereby increase revenue.

Experimental pricing

The next big thing for future growth is to capitalize on the established subscriber relationship through experimentation with pricing.

 

As per the bi-annual Subscription Economy Index (SEI), Usage-based billing will be the growth accelerant.  For instance, the metered use on the NYT (New York Times)website, where, you pay based on how much you read.

 

All the companies that have at least ten percent of their revenue coming through usage-based model will witness growth rates that are almost twice as high as their competitors. This is a big opportunity to amplify revenue and increase future subscriber growth.

 

Of course, the success of a company embracing this model will depend on its ability to gather data, analyze it and make business decisions based on its analysis.  

 

With rapidly evolving smart subscription technologies, businesses can certainly achieve exponential growth in the future.

 

The shift to the subscription economy is rapidly growing. Companies that want to become industry leaders and maintain long-term customer relationships, must start planning their transformation today.


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