The Basics of the Subscription Economy
What is the subscription economy?
The Subscription Economy refers to the new way that users and customers can enjoy products and services without having to own them. Instead, people subscribe to a business and get access to what they need for a set period of time. The subscription economy has advantages for both the customer and the company. For customers, the subscription model provides convenience and continuity in the form of regular deliveries of goods and services. For companies, subscriptions are an efficient way to monetize their products or services.
Subscriptions are all about convenience. The idea is that we don’t want to be burdened with owning many products or services, but instead want access to what we need when we need it. This is why subscription businesses are booming. While this trend has been around for some time, it’s only now that people are really starting to see its full potential.
It is often seen as a way for brands to provide value and create loyalty from their customers. In the past, people would buy products or services from companies and then use them until they ran out of use. Now, with the rise of the subscription economy, people are much more likely to buy a product or service that they use regularly and can rely on month after month.
What are some of the examples of a subscription economy?
Many companies and startups have been adopting this model for their products and services. Some of the most well-known examples of subscription services are Netflix, Amazon Prime, Apple Music, Spotify, and HBO Now.
Benefits of the Subscription Economy
Allows customers to buy into a model that is aligned with their needs and goals
Access to products and services without having to pay upfront costs
Constant engagement with the service provider due to automated, regular billing
Constant cash flow for the company
Reduction in marketing costs for service providers
Monitors customer behavior and data analytics to improve product development
Subscription economy landscape
The subscription economy has become more popular than ever in recent years, especially with the rise of digital platforms like Netflix, Amazon Prime, and Apple Music. According to Forbes, the number of consumers paying for subscriptions has grown by 75% since 2013. The recurring revenue model benefits the company by decreasing customer acquisition costs, increasing customer lifetime value, and making it easier to calculate accurate revenue forecasts.
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Subscription models have been around for a while now, but in recent years there has been a rise in the number of startups that are providing subscription services for various industries. The main model that is being used by startups today is the "freemium" business model. This means that the service is free to use up to a certain point and then there is a monthly fee charged. The "freemium" business model has been quite popular because it allows people to try out the service before they buy it.
In recent years, we have seen an increase in companies using this business model because it monetizes very well and has been proven to produce great results. There are many reasons for this, but one of the main ones would be that people will pay for convenience - especially when it comes to their personal time.
In 2017, the subscription economy was worth $1.4 trillion globally and has expanded rapidly every year. It is predicted that in 2022, the subscription economy will be worth $2.7 trillion.
This increase in subscriptions has been driven by a number of factors including cost-conscious consumers, an increase in demand for convenience, and a lack of trust in traditional retail. And it isn’t just entertainment that has shifted to this type of model—we’re now seeing an entirely new economy emerge that revolves around subscriptions.
The business models that fall under the “subscription economy” umbrella include:
Pay for software as a service (SaaS)
Pay per use for digital content or services
Automatic renewal of products or services
What is the subscription economy market size? / subscription economy total addressable market
The total subscription economy market size is an estimate of the revenue that will be generated by the subscription economy in 2022. It was estimated at $2.4 trillion in 2017 and is projected to grow to $3 trillion in 2020. The growth of the Subscription Economy has been steadily increasing for the past 9 years. The Zuora reports show that the growth is based on subscription management platforms and services. It has grown 6x (over 435%) over this time period.
There are multiple factors for this growth, such as increased smartphone adoption, increased high-speed Internet penetration, increasing demand for personalized services, and increasing customer spending on entertainment.
Subscription economy outlook
The impressive subscription economy statistics might indicate that brick-and-mortar stores are on the verge of extinction. If you're smart enough to position your company effectively, retail businesses may find that subscription economy growth offers them plenty of opportunities. There may be a way you can use your subscription services to drive foot traffic into your stores (such as an after-shave subscription box that offers in-store coupons). Traditional retailers may also offer subscription brands logistics support, collaboration, or acquisitions in the future. In summary, you will still be able to prosper from the subscription economy even if you don't run a subscription business.
In addition, we've all heard about SaaS (software as a service); how about XaaS: everything as a service? In the coming years, you can expect to see more and more industries adopting the concept of subscription services as the market size of the subscription economy grows. XaaS is already gaining traction in the auto industry, which is adopting monthly vehicle subscriptions (such as Volvo's Care by Volvo). Future subscription and lease models are likely to include brands you might not associate with subscriptions or leases.
What is the subscription economy index?
The Subscription Economy Index is a new measure of the world’s largest subscription-based businesses. The index includes companies with annual recurring revenue of more than $1 billion. It also includes all the companies in the S&P 500. It also includes the weighted market cap and operating margin for each company.
The ranking looks at various factors such as customer value, retention rates, and revenue growth to find the top subscription-based companies in the world.
The annual Subscription Economy Index evaluates over 800 companies and ranks them in order of their performance based on these metrics: Customer Value, Retention Rate, and Revenue Growth. The index covers all sectors and regions and ranks both publicly traded and privately held companies.
5 Pillars of The Subscription Economy
1. Subscriptions: the primary concept, the one that ties the other four pillars together.
2. Monetization: how to make money from subscriptions, and how to make it efficiently and predictably.
3. Customer Engagement: how to get customers engaged with your business through subscriptions, and keep them there for as long as possible.
4. Marketing: how to market your subscriptions effectively, and at scale; why this is important; and what you should be doing in order to maximize customer engagement and conversion rates over time. The Role of AI & Machine Learning in the Subscription Economy.
5. Data-Driven Decision Making: using data analysis and insights from customer behavior analysis to inform decisions about which items are worth offering on a subscription basis, which channels provide the most growth opportunities, and how best to optimize customer acquisition channels.
Consumers are adapting to this new way of consuming and the way they prefer their goods and services. Here are three ways companies can respond to this trend:
1) Develop a subscription service for your product or service: This strategy is perfect for those who want to increase recurring revenue but don't have the capital to invest in inventory.
2) Offer a trial period: This strategy enables consumers to try your product or service before deciding if it's the right fit for them. It also boosts customer engagement and satisfaction.
3) Make your assets available for borrowing: Instead of selling assets, offer them as a rental option so you can better manage demand and inventory.
The Future of the Subscription Economy
We live in a time where we are obsessed with convenience and not dealing with the same hassles we once did. For example, we don’t want to wait in line for groceries and instead order them online and pick them up later at a store. We also don’t want to find parking and walk to grocery stores anymore, so we order groceries online as well. This “subscription economy” is starting to take shape as more companies offer subscription services to their customers.
Some of the most popular industries that have been disrupted by the subscription model are healthcare, entertainment, food delivery, clothing, etc. The list doesn't stop there though as numerous other industries have been seeing an increase in subscriptions over the past 10 years. Millions of people are subscribing to streaming services, food delivery services, fitness classes, and more. The idea is that people only subscribe to what they use, rather than buying something just because it's on sale.
The future of the subscription economy is looking brighter than ever. Monthly subscriptions are becoming more popular for all kinds of services. From Netflix to Spotify, to Amazon Prime; people are signing up for monthly subscriptions rather than paying for individual transactions.
Most subscription-based services require a constant flow of content and updates to keep people subscribed, but it's getting harder and harder for companies to maintain this flow as more members start canceling their subscriptions. This is where AI comes in; AI can monitor trends and provide regular updates or new content on demand.
Furthermore, the future of the subscription economy is not just about selling items. It is also about selling services, such as online education and music streaming. The potential for the subscription model to be applied to other types of goods and services is huge. It would allow people to buy less and consume more, which might make the world a better place in terms of sustainability.
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