Brace yourselves, because the end of outright ownership is upon us. According to a new report from Zuora, the subscription economy (opens in new tab) in the business world continues to blossom, at the expense of ownership-based models.
The trend, which has been gathering momentum over the past eight years, has also been catalyzed by the global pandemic, which has seen business scramble to shift operations to the cloud.
Sales contracted at an annualized rate of negative 10 percent in Q2 2020, the report states, while subscription businesses in the SEI expanded at a rate of 12 percent, beating 2019 results.
According to Dr. Carl Gold, Chief Data Scientist at Zuora, one of the ways subscription businesses boosted their relevance during the pandemic is by offering discounts - something sales businesses weren't capable of.
Subscribers receiving discounts grew by 10 percent in the first two quarters of the year, with the average discount being 18 percent higher, compared to the same period last year.
“Many subscription businesses had the flexibility to rapidly shift their pricing and packaging. During any economic crisis, discounts are critical to both retaining customers and strengthening relationships to maintain long-term loyalty. Manufacturing and SaaS businesses, in particular, benefited from this approach,” he said.
While evergreen renewals helped subscriptions expand, growth in revenue per account slowed, according to the report.
“In some cases, this slowdown could represent users who refrained from upgrading services in an economic downturn, in others, it could represent the short-term result of businesses offering users steeper discounts. Still, subscription spending continued to expand while sales in the non-subscription companies contracted,” Dr. Gold concluded.
- The subscription economy – a dance between customer and business (opens in new tab)