February 17 by Michael Carrell
As someone who thinks full time about subscriptions and revenue management at Apttus, “A leader” by Forrester in their Wave on B2B Order Management and especially well-suited for B2B in the Forrester Wave on Subscription Billing Platforms. I’m excited about all the news recently on the Subscription Economy. I am a Subscription Economist!
The Subscription Model is Growing
First, I’m inspired to see new industries adopting subscription business models. One cool one is already heard about as it was covered by almost every major news site. It’s Cadillac’s decision to create a subscription service for cars. Subscribers will pay $1500 per month without a contract to use a car of their choice – registration, insurance, maintenance, mileage and detailing included! Nope, it’s not a lease. No contract; subscribers able to swap out the vehicle! From a billing and revenue management standpoint, the math behind the offer is super simple. Super subscription-centric. But I like it! Like a box of razor-of-the-month club showing up at your door and hitting your credit card every month. No measurement of mileage, no billing based on mileage. Maybe I should roll into work in an Platinum Trim Escalade Monday morning and expense it as research for my job?
And almost as good as Cadillac, Eleven James just raised $30 million in funding to let users rent Rolexes. In the article, Randy Brandoff, founder of Eleven James says “The sharing economy and the subscription economy are way past the point of being trends,” highlighting how critical this business model is to their success. I like how you can take a high priced item and use it for a slice of time and pay for that slice of time. In B2B terms, that’s called converting a Capital Expense to an Operating Expense – or converting CapEx to OpEx.
There was also news about how subscriptions are becoming a core part of the travel industry – being leveraged by organizations providing senior travel, taxi options for millennials, and public transportation.
The Subscription Economy from Investors POV
The second topic I loved is from an investor’s point of view, the shift to subscription models, because it benefits the customers of companies that leverage this model, is drives an increase in shareholder value in those companies. Consumers want to buy in this way, so companies who sell this way – well, they WIN! In this article from Investing.com, they highlight how stocks of companies who have a subscription model are on the rise. See this great chart they provided if you don’t have time to check out the whole post:
Who couldn’t be inspired to create a subscription business after seeing how Dion McKenzie, a writer for Huffington Post, changed his routine for a week by leveraging subscription options. This included creating efficiencies in his life by using toothpaste, vitamins, shaving cream, car rental, socks, movies, and more from subscription companies. Meals (including bacon!), coffee, and even wine was also ordered via subscription based businesses.
Enterprise Apps today stated in part of their 13 ERP Predictions for 2017, that companies are going to be changing their subscription models based on upcoming regulatory changes. Apttus has a webinar coming on this topic – and accounting standards changes will affect MORE than those in Accounting and Finance! It could affect Sales and Legal as well!
The Subscription Economy Comes to in Retail
In retail? Mike Bornhorst, a retail management expert on Retail Touch Points, discussed how the modifications in how customers access and pay for goods are driving an increase in subscription-based business models. And it’s not just retail! RNR Market Research says the cloud billing market is estimated to grow from 5.68 billing (USD) in 2016 to 16.59 billion (USD) in 2021. They highlight that this is because of the changes in the way customers like to purchase. They also talk about the great cost efficiencies for customers as a major driver. Plus, Gadget Magazine declares the only way for a business to be competitive is to be customer centric and adjust your business model to the subscription economy. Who needs more proof?
And, last but not least, if you’re company who can’t leverage a subscription business model but are having recurring revenue envy (and according to this post this month by Business Zone this model is addictive), simply increase your business success by acting like you’re a subscription business. Check out how and why in this great post from Business 2 Community.