The subscription model is fast becoming popular. While it was prevalent in the use of software, it’s now gaining ground in everyday consumer usage as well. Research by Zuora and YouGov indicates that 90% of the people in the UK now have at least one subscription service. A survey by Coupon Follow with over 1,000 people indicated that consumers had two active subscription boxes on an average and spent about $58 a month on these subscriptions.
Subscription services are not just limited to consumer products. Subscriptions in the software world have been popularized through the rise of Software as a Service (SaaS) solutions over the last few years. Salesforce, a pioneer in SaaS solutions, provides cloud-based CRM applications for sales, service, marketing, and more, all through a subscription service. It has proven to be a successful business model for the company, and one that has since been replicated by several other companies including the largest global software companies. With the rapid pace of changes in technology, companies must ask a few pertinent questions – how to face the competition, how to ride the disruption wave, and how to stay relevant to the business and customers.
Next-gen technologies for the subscription economy
Next-gen technologies like artificial intelligence (AI), Internet of Things (IoT), automation and many more are disruptive. They are also innovations that essentially displace existing technological establishments. Several companies across industries have adopted these next-gen technologies to future proof their business, deliver services to customers with agility, reduce costs, and enhance operational efficiency. The tremendous amount of data and the ability to generate insights proffered by these technologies helps companies realize these benefits seamlessly.
On Earth Day this year, Google pledged to run all of its data centers on carbon-free electricity by 2030. CEO Sundar Pichai tweeted: “Within a decade, we aim for every Google data center, cloud region, and office campus to run on clean electricity every hour of every day.”
While all these companies should be lauded for their sustainability efforts, the key reason why cloud service companies prioritize efficiency and sustainability is because the manufacturers own the assets, not the consumer. When companies become service providers from product vendors, they can easily be innovative and efficient.
Manufacturers have faced an uphill battle during the pandemic - from supply chain and workforce disruptions to demand upheavals. Yet, the overall outlook for the sector remains strong. While manufacturers were already looking at digitalization to enhance business, the COVID-19 pandemic accelerated these efforts. Zuora’s annual Subscription Economy Index (SEI) has indicated that manufacturers with subscriptions in areas such as after-market services are continuing to see a 6% revenue growth. The report also noted that the subscription economy is resilient, and is showing steady growth.
The subscription model and what it means for manufacturing
In the last decade, among manufacturers, we have seen the automobile industry attempting to dabble in the subscription model. However, Tesla is one company that seems to focus on this – they start with the software that goes into the vehicle. This software then provides automatic upgrades directly to the customers. In turn, the data generated is leveraged for analytics to provide fresh insights into customers and enhance their experience.
Subscriptions have been around for decades. However, with increased adoption of IoT, subscriptions have gained value and popularity. In addition, the stability offered by the recurring revenue model is a key growth strategy during the pandemic. Manufacturers are now beginning to adopt the subscription model. Honeywell has leveraged IoT to transform itself into an industrial software and services company. In early 2019, the company launched Honeywell Forge, its industrial IoT platform that provides insights to operators of buildings, airlines, industrial facilities, and other infrastructure. With a deep legacy of over 100 years, Philips has transformed its business to meet digital demands - from innovative healthcare to lighting as a service. The company launched Interact in 2018, a cloud-based IoT platform that could collect and analyze data gathered from lighting and other sources.
Customers are for life
The world is shifting to a new kind of business model. The way people buy has changed for good. It is time for your business to change. Customers have changed, with renewed expectations - outcomes, customization, hyper personalization, and continuous improvements. Customers want the subscription experience to provide: ongoing value, memorable experiences, on-demand fulfillment, anywhere real time availability, and personalized service.
The subscription model is set to disrupt manufacturing. Companies can avail of the many monetization methods available:
- Unlimited subscription – Subscription plan with unlimited quantity, features, devices, etc. for a set period
- Predefined subscription – Subscription with access to a specified quantity of the product or features for a pre-defined period, generally with a minimum commitment
- Subscription plus coverage – Subscription with access to a predefined amount for a specified period, with any overage billed based on actual usage
- ‘Freemium’ - Access to basic services for free, while charging a premium for advanced or special features
- Consumption-based - Monetization on a pay-per-use basis, generally with no minimum purchase or commitment
- Outcome-based - Monetization based on value delivered to the customer, measured as quantifiable outcomes
It is worthwhile to note that shifting to subscriptions is not good for subscribers alone. Subscription models create predictable, recurring revenue streams. The subscription economy is a new era with a new imperative for all manufacturers to turn your customers into subscribers. This will ensure a mutually beneficial relationship for everyone involved.