It wasn’t long ago when Apple met secretly with some of their key developers urging them to shift their products from ‘one-time purchasing’ towards subscriptions. Their logic: according to Apple, subscriptions generate consistent revenue, making more money for the app store, and allowing brands to establish deep and long-lasting dynamic relationships with their customers. Understandable, given how in Q3 2018, Apple’s services revenue climbed 31% year over year to hit $9.5 billion.
The proliferation of subscription offerings within Apple did not happen in isolation. In practically every sector, vast numbers of organisations that would have traditionally only sold products are trying to now wrap services around their offerings as a way to future-proof themselves from commoditisation. Be is subscriptions to cars, consumer tech, or food; we see no end to it as long as consumer preferences in this sharing economy continue to shift from “ownership” to “access.”
In the world of B2B, this trend is a the forefront of all competent business leaders. Most software vendors are used to as-a-service business models; they are aware of this multi-sector trend and are offering their solutions.
According to Tien Tzuo, CEO of Zuora, Europe is the next growth area for subscriptions. According to a recent study from the firm, In Q2, subscriptions in Europe raced ahead of North America with an annual growth rate topping 34% — the fastest quarter in a year and a half.
It appears that the subscription economy in Europe is clearly on the ascent. Over the past 27 months, European subscription companies (a new SEI category) have bested their American counterparts’ growth rate of around 22%. This is unusual because European economic growth rates overall have lagged behind North American growth rates for much of the past decade.
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B2B companies had the fastest growth rate overall for subscription revenues but slowed slightly in Q2 2018.
Gartner thinks that by 2020, over 80% of software providers will adopt subscription-based business models. Furthermore, IDC predicts that by 2020, 50% of the world’s biggest enterprises will see the majority of their business reliant on their ability to create digitally enhanced products, services, and experiences.
A spokesperson from Zuora added: “Recurring revenue-based business models are not new, but they have exploded in recent years owing to cloud-enabled, pay-as-you-go services. As globalisation has placed increasing margin strains on manufacturing and product sales, subscription-based businesses have benefited from stable and predictable revenue projections, data-driven insights from direct consumer relationships, and large economies of scale owing to relatively small fixed costs.”
“The message from this study is clear: When companies pursue subscription models, they find growth. While those growth rates may fluctuate and are susceptible to broader market trends, recurring revenue models offer sustained and predictable returns that largely avoid the volatility of traditional “boom or bust” product cycles.”