With Spotify reaching its 100 million user milestone, and Netflix having truly dominated the video on-demand market, our new report suggests that the subscription trend is set to branch out into new sectors and that the Subscription Economy is putting an end to ownership.
How can normal businesses benefit from the Subscription Economy?
The UK is a nation of subscribers. Our new report, which looks into the state of the Subscription Economy in the UK, showed that four in five people have at least one subscription service. Or in other words, that’s 40 million adults that prefer to access products and services on an on-going basis. And over a quarter of them think they will be using even more services in five years’ time.
This demonstrates the size of the Subscription Economy in the UK in 2016, and how it will continue to grow. We’re witnessing a once-in-a-century shift from a product era to one driven by customer-first interactions. Customers expect personalised services, including continuous improvements in the quality of these experiences. Any business that is not already making this shift is at risk of being left behind.
How can businesses capitalise on the Subscription Economy?
It makes perfect sense for all companies to adopt the subscription business model. Why? Well, in the modern world our needs are being fulfilled by services, rather than one-off product purchases. We want outcomes, instead of the burden of owning and maintaining those products. And not just as consumers, but also as businesses.
B2B companies have been following the ‘as a service’ model since the inception of Salesforce in 1999, when Marc Benioff decided to sell access to its software via the Internet for a monthly fee, as opposed to shipping CDs to enterprises. Today, many more B2B businesses have followed suit and realised that the subscription model is the modern way to conduct business. Not just in software-as-a-service, but also across the transport, health, internet of things and media industries.
Why is this a better model?
Every customer is unique and has different, ever-changing needs, so businesses that still try to sell one-size-fits-all packages that lock customers into long-term contracts will be left in the cold. 64 per cent of British consumers think it’s important they can discover new things based on their personal preferences, and almost as many request instant access to the things they want. Customers desire the flexibility with which they can tap in and out of their services when required, and the associated convenience of such an 'I-get-it-now' lifestyle.
For businesses, it's about customer relationships. Why? Because subscription services provide businesses with the opportunity to better understand their customers based on their preferences and behaviours -- to develop longer-lasting and more meaningful relationships. How many flowers are they getting delivered regularly, and when? What connected car features have they subscribed to? How much cloud storage do they need at peak times?
Long relationships in return drive new, more predictable revenue streams as loyal customers keep subscribing. This gives you a sharper competitive edge and a stronger business foundation.
Which businesses are already taking advantage of this model?
You can look at almost any industry to find lots of great examples of the Subscription Economy disrupting how business used to be done.
Schneider Electric is a 180-year-old electrical company that used to sell products that performed a function – such as motors controlling a light switch. To better address the complete shift in the way its customers want to access its products, Schneider Electric founded an organisation dedicated to collective learning in the IoT arena, supporting its 170,000 employees across all business units.
One of the results was the development of an industrial style version of Nest, able to integrate north of 50,000 IoT energy components on one central platform. It tracks employees’ movements in the building and automatically adjusts the temperature and light settings of the meeting rooms they enter, based on their preferences. Schneider Electric monetises the software on this platform using subscription technology, allowing contractors and facility owners to more easily manage their inspections, repair equipment, and control building costs for heating and cooling.
Another B2B company, Wheels Up, has applied the subscription approach to the luxury travel market. The company is enabling frequent fliers to fly by private jet, paid for with a recurring fee – and with great success too. Executives can simply arrive at their airport of choice ten minutes before their chosen flight time and be in the air in no-time – all without any of the risk and cost of ownership.
Then there is Sophos, which is using subscriptions to make it easier for companies to purchase security solutions when and where they need them. Or reviews platform Trustpilot, which gives companies insights into what consumers think about their business exclusively via a subscription service. And the list goes on and on and on!
Here in the UK we’re at a critical inflection point in terms of widespread adoption of subscription services. It’s a very sophisticated market and the broader message from our new report is: standalone products are simply no longer sufficient. We increasingly view owning something as simply managing the decline of a physical asset. So, failure to embrace regular payment models could well mean business failure.
Businesses that want to succeed in the Subscription Economy need to orient themselves around customers, rather than products. They need to understand how their services are being used and, based on this insight, create compelling customer experience.
However, this shift requires new models of thinking and new flexible systems. This change won't be easy but, in today's constantly transforming business climate, success depends on it.
Tien Tzuo, CEO and founder of Zuora