The Subscription Economy has grown nearly 6x (more than 435%) over the last 9 years, according to Zuora. The subscription management platform provider has published two reports which examine the growth of subscription services.
The Subscription Economy Index (SEI) report is based on anonymized, aggregated, system-generated activity on Zuora. It measures the growth in the volume of business for subscription based products and services.
The End of Ownership report is based on an international survey to understand consumer attitudes towards usage of subscription services. It involved 13,626 respondents aged 18+ across 12 different countries.
“A new, fully digital society is emerging”
The survey reveals growing consumer preferences for use of subscription services over the ownership of physical products. It has been accelerated by lockdowns and other safety measures connected to the pandemic.
A new, fully digital society is emerging. Everywhere you look—from ecommerce, to connected cars and transportation, to smart medicine and reader-driven news—the world of business is becoming defined by relationships instead of products.The End of Ownership
78% of international adults currently have subscription services (71% in 2018). And 75% believe that in the future, people will subscribe to more services and own less physical ‘stuff’.
Subscription businesses have consistently grown 5-8x faster than traditional businesses, according to the SEI report. In 2020, they demonstrated revenue growth at a rate of 11.6%, while revenues of product-based peers declined, changing -1.6%.
In Q4 alone, subscription companies in the SEI experienced revenue growth at a rate of 21%, compared to S&P 500 companies’ growth rate of 3%.
Growing interest in paying for news and information
According to the End of Ownership report, 16% adults in the US are interested in news and information subscriptions compared to 12% in 2018. The figures are 13% (11% in 2018) for the UK and 17% (13% in 2018) for Australia.
Subscription publishing companies grew revenue by 16% in 2020 (globally). The credit goes to an extraordinarily eventful year with the COVID-19 pandemic, Brexit, protests against racial injustice, and the US election.
Publishers were rewarded for their efforts to provide readers with crucial information and analysis (for free in many cases) despite widespread lockdowns. The Atlantic, for instance, added a record 36,000 new subscribers in four weeks, even after removing paywall from coronavirus coverage.
“What works is a direct relationship with a reading customer”
The average revenue per user rate for subscription businesses increased to 18% in Q4 2020 from 14% in Q4 2019.
This “indicates that subscription businesses in the SEI are deepening relationships with customers and delivering services that increase in value over time,” according to the report.
In fact 64% of the respondents to the survey say that they feel more connected to companies with whom they have a direct subscription experience versus companies whose products they simply purchase as one-off transactions.
Importantly, the benefits of subscriptions aren’t just seen as transactional or incidental. They actually have a cumulative, qualitative effect on building a relationship between brands and consumers.The End of Ownership
“Publishers know that what works is a direct relationship with a reading customer,” says Ken Doctor, President, Newsonomics. “If you can get $100 from somebody, it’s better than getting 15% of some kind of revenue pool that isn’t going to pay the journalists in the newsroom.”
Design “offerings for ultimate consumer flexibility and freedom”
The report recommends subscription businesses to give subscribers flexible and customizable subscription options.
We recommend that businesses design their offerings for ultimate consumer flexibility and freedom, so that customers can tap into them anytime, anywhere, to whatever extent that they choose.Amy Konary, Founder and Chair, The Subscribed Institute, Zuora
“It has become commonplace for companies to offer customized content, products, and services, including exclusive products only available to subscribers,” write the authors in The End of Ownership. “This bespokeness has become an expected feature in the Subscription Economy.”
They suggest that companies that want to employ this strategy should package their product offerings based on:
- Specific customer segments
- Specific customer needs
“Creative subscription models can help publishing companies offer readers customizable packages and seamless options to upgrade, suspend, or renew their accounts,” suggest the authors of the SEI report. “Ultimately, innovative approaches in digital publishing can help expand access to information that matters.
“To scale rapidly, we recommend subscription publishing companies offer their subscribers options to customize their pricing, packaging and, ultimately, their experience based on readers’ preferences.”
They emphasize the need for continuous iteration. “No matter what mix of strategies you adopt, the most important thing to remember is that you probably won’t get it right the first time.
“Consumer needs—and the perfect subscriptions to meet them—are not typically obvious. Constant iteration unlocks the data a company needs to understand their customers.”