SSD Guest Blog | New Study: Global Subscription Sales are a Huge Growth Opportunity

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Today’s guest post was contributed by Carl Gold, Chief Data Scientist of Zuora. Zuora is an enterprise software company that designs and sells SaaS applications for companies with a subscription business model. Zuora’s applications are designed to automate billing, commerce, and finance operations…  Learn more at Zuora.com and follow Zuora on Twitter at @Zuora


Zuora, the leading SaaS platform for running a Subscription business, has found that subscription-based companies are growing their revenue nearly 9x faster than the companies of the S&P 500, according to the Subscription Economy Index (SEI) released today. The report also shows that the SEI tracks with economic trends like the overall US GDP slowdown around the end of 2016, and the subsequent acceleration in 2017.  Now, for the past two quarters both the GDP and the SEI had their strongest growth since 2015.


This is no surprise, since many reports over the last few years have documented what looks like a global subscription movement: The Economist found that 80 percent of customers are asking for new consumption models and moving away from traditional ownership. Credit Suisse reported that people in the U.S. spent $420 billion on subscriptions in 2015, up from $215 billion in 2000. And in 2016, YouGov found that 58 million adults in Britain, 89% of the adult population, were subscribing to at least one product or service.


We’ve watched companies like Ford, Caterpillar, Dow Jones, GM and HBO, all choose subscriptions as the future of their business and a new stable recurring revenue opportunity. Others like PTC, an IoT software company, are the market’s next Adobe stories, betting their entire company on subscriptions. In fact, the SEI finds the highest growth in companies with over $100M in revenue, 31% faster than the index average.


It’s truly a global phenomenon. The US has been met by EMEA whose subscription companies are growing just as fast. One of our biggest growth markets is Japan with customers like Toshiba and Komatsu. And from an industry perspective, the Subscription Economy is booming due to The Internet of Things.


Any company can transform itself into offering services that deepen its relationship with its customers. As more devices come online, they only way to monetize the data is to create a subscription service. It’s the future all companies. Our primary focus is continuing to innovate and help these companies succeed in this new world.

 

KEY FINDINGS OF THE SUBSCRIPTION ECONOMY INDEX

 

  • The Subscription Economy Index (SEI) accelerates in Q2-Q3 2017. Overall subscription businesses grew revenues about 8 times faster than S&P 500 company revenues (17.6% versus 2.2%) and about 5 times faster than U.S retail sales (17.6% versus 3.6%) from January 1, 2012 to September 30, 2017.

 

In 2017 the index level increased by 46 points for the year, from 209.1 to 254.2 from October 2016 to October 2017. That represents annual growth of 22.0%, which beats the long term average of 17.6%.

 

Looking only at revenue growth of subscription businesses from Q1 2015 to Q3 2017, the SEI growth was more than 20 times that of the S&P 500: The SEI grew 64% over period, while the S&P Sales index posted only 3.1% growth after slumping in 2015 and only started growing again in mid-2016.

 

  • The Subscription Economy tracks with broader market trends. The SEI Index generally tracked with the overall US GDP slowdown around the end of 2016, and the subsequent acceleration in 2017. Both the GDP and the SEI had their strongest growth in the past two quarters since 2015.

 

  • Usage-based pricing is an effective growth tool. The first of a series of planned guides into successful Subscription Economy growth strategies has determined that subscription companies that employed a small amount of usage-based billing in their revenue mix (less than 10%) grew more than twice as fast on average as companies that did not employ usage-based billing at all. Companies that employ usage-based billing also have significantly lower churn rates than those that do not, at all levels of usage-based revenue mix.

 

  • Global Markets: Europe on the ascent. An EMEA Index was added with a history dating back to the beginning of 2016. Since April 2016, the EMEA Index grew a cumulative 35.2% (annual rate of 22.3%), just beating North America with 34.7% cumulative growth (22% annual rate).

 

  • Company Size Trends: Bigger is still better. Over the last 6 months, the largest companies ($100M+ in revenue) in the SEI grew at an accelerated rate (31%) compared to the prior 6 months, while smaller companies all saw their growth rates decline slightly (15-21%).  

Jennifer Jennifer Carl is the Program Manager for SIIA's Software & Services Division. Follow the Software team on Twitter at @SIIASoftware @SIIAJenn