The Recurring Revenue Revolution: Ten Years Of Change
Over the last decade, the world has seen a seismic shift towards the adoption of the subscription-based business model. Companies have woken up to the potential of recurring revenue streams, whilst consumers enjoy the convenience, flexibility, and affordability of making the switch – in business terms, moving specific purchases from a capital expense to an operating expense.
When Subscription Factory founder, Timo Zuidgeest, started the business in 2013, the subscription economy mostly consisted of software as a service (SaaS) company. Today, they help businesses across multiple industries implement recurring revenue models, from connected services to contact lenses.
In this blog post, Timo shares his insights into what’s changed over the last decade and why there’s been a revolution in recurring revenue models.
Subscription services have existed for decades in the form of physical products like magazines and newspapers, and services like milk delivery. So the subscription-based business model in itself is nothing new. What’s changed is the way in which innovators have used it to disrupt other industries.
In consumer markets, streaming giants Netflix, for film and television series content, and Spotify, for music and music video streaming, were notable pioneers of subscription services, blazing the trail for everything that’s followed since. Salesforce.com was one of the first major software providers to transition from the transactional licence model to a subscription-based one.
In both cases, these new models challenged existing ways of selling products and services, and the early innovators have ended up becoming market leaders.
Key Drivers Of Change
Moving to a recurring revenue model can be driven by a range of factors. It might be championed by a CFO, and driven by finance, or it could be kickstarted in response to the competition, launching a rival subscription model to stay competitive.
An obvious example would be the slew of streaming services which followed in the wake of Netflix, such as Amazon Prime Video, Disney+, and Apple TV+. Another common driver is the current trend to offer solutions that unburden consumers from everyday chores, such as food boxes, and repeat deliveries of commonly used household items.
In the last ten years, there’s been a marked shift in people’s attitudes towards subscribing to products as opposed to owning them. For example, the music industry has seen a gradual transition from purchasing music in physical formats, such as CDs, through digital music sales, via vendors such as Apple’s iTunes Store, to streaming services like Spotify, which enable customers to stream any music they like for the equivalent monthly price of a CD.
Building a business model around recurring payments not only gives companies a more predictable revenue stream, but for companies like Adobe, who moved their software products from a one-time licence fee to a monthly subscription, it can also help to counter fraud.
Increasingly, customers are choosing the convenience of subscriptions over ownership – and it’s hidden expenses.
Removing The Cost Of Ownership
Many traditional businesses are transforming the way they do business by finding new and innovative ways to offer subscription-based services that make people’s lives easier.
By removing the cost of ownership and the associated maintenance and repair costs, the subscription model offers consumers flexibility and freedom to dip in and out of products and services as and when they need them. In recent years, this attitude has spread into a variety of industries, and through companies such as Swapfiets, which offer bike rental services and servicing for a fixed monthly-fee, it’s grown to encompass a broad range of products and services.
Directly offering a subscription service means companies are able to get closer to their customers, understanding who they are and learning what other products or services might be of interest to them. For example, you might purchase an electric toothbrush and then subscribe to a monthly delivery of replacement toothbrush heads.
Established businesses develop hybrid business models which combine transactional and subscription services to create new monetization schemes. In the automotive industry, a customer might purchase a car and then subscribe to a service that unlocks extra features to enhance their driving experience, or covers the cost of servicing and maintenance.
Getting Support With The Subscription Model
Around the world, all kinds of businesses are adopting a recurring revenue model, but sometimes they can underestimate the challenges associated with getting started, evolving, or transitioning. That’s where Subscription Factory can help.
Subscription Factory has over a decade’s experience in helping businesses get started and take their subscription services to the next level. Find out more about what we do and how we help businesses like yours implement a recurring revenue model by joining us for a live event this autumn.
Register for your place at GoRecurring 2022.