Subscription Economy Reaches Dizzying Heights
Zuora’s SEI shows 300 percent growth
Subscription management platform provider Zuora has released the latest edition of its bi-annual Subscription Economy Index (SEI), which measures the collective health of subscription businesses and tracks their impact on the economy as a whole.
The Lowdown: According to the index, sales for subscription-based businesses in North America, Asia-Pacific, and Europe have grown 300 percent over the past seven years. From Jan. 1, 2012, to Dec. 31, 2018 – over the course of 28 consecutive quarters – those businesses increased their revenue about five times faster than that of S&P 500 companies. That growth was also 10 times the sales growth of the DAX index (Germany) and the ASX index (Australia).
The Details: Zuora’s SEI also found that subscriptions are gaining a solid foothold in the IoT and telecom industries. While the fastest-growing sector for subscriptions in 2015 and 2016 was SaaS, the IoT cohort grew even faster as of mid-2017, and telecom companies were the only ones unaffected by a subscription slowdown in 2018, allowing them to catch up to SaaS players.
Background: Although Zuora’s findings are dramatic, the rise of the subscription economy has been noted for some time by market research firms and industry observers. Gartner, in its Digital Commerce State of the Union survey, found that 70 percent of organizations have already deployed, or are considering deploying, subscription services. Also, the firm has forecasted that three-quarters of B2C organizations will offer subscription services by 2023.
The Buzz: “The subscription economy has been a leading indicator of broader economic trends for the past seven years,” said Tien Tzuo, CEO and founder of Zuora. “For the first time with the Subscription Economy Index, there’s data suggesting that the growth of subscription revenue tracks ahead of the U.S. Gross Domestic Product.”
“Everywhere we look we see new ways the subscription economy is expanding into new spheres and putting down deeper roots as a core part of the global economy,” added Carl Gold, chief data scientist at Zuora. “In the current report we see the subscription economy flourishing far beyond its birthplace, in new regions like Europe and Asia. And in the U.S., we’re finding the subscription economy is now the leading edge of the national economy, leading in growth rates and leading the way in and out of economic cycles. All these data points suggest the subscription economy is getting bigger and more important than anyone expected.”
Channelnomics Point of View: Zuora’s findings merely underscore the channel’s need to embrace subscription- and recurring revenue-based business models, a transition that vendors have been nudging partners toward for quite some time.
In their embrace of the cloud, solution providers have already begun the shift, but there’s still work to be done. Many channel players remain entrenched in a legacy culture and mindset. Instead of focusing on margins, rebates, and one-off transactions, they need to become experts in customer retention, churn rates, and monthly recurring revenue.
