The rise of subscription economy10/09/2019
Learn more about the subscription business model that is changing consumption patterns and remaking the economy.
For decades, subscription purchase models were common, especially for newspapers and magazines, gyms, schools, etc. However, more recently this model has transformed with the times, becoming very popular in digital environments and adopted in various industries, such as media, retailing, software and telecommunications.
Digital technology has been changing the way we consume products and services, as well as people’s preferences. The most popular players in this subscription business model are streaming services such as Netflix, HBO Go, Amazon Prime, as well as music applications, such as Spotify and Deezer. In the entertainment world, TV channels and radio stations have lost ground as these new platforms give customers complete autonomy with an approach called “on-demand.” As a local example of this success, Brazil is Netflix’s second-largest market, behind only the United States, and expectations are for subscriptions in the country to double over the next five years.
Many other types of subscription businesses have emerged with proposals for specific consumer niches, such as wine, craft beer, delicatessen products, articles for comics fans, apparel, beauty products and more. The advantages of the business model include faster delivery, lower prices, availability of unique products and possibility of testing new trends.
No industry has been changed more by the subscription model than the software business, specifically software as a service (SaaS). According to the consulting firm Gartner, the segment will post global sales of around US$85 billion in 2019 (excluding the infrastructure as a service (IaaS) market).
One success case in the SaaS segment from adopting a subscription model is Adobe. In 2013, the company stopped selling its design software through single-user licenses to migrate to a subscription model. The amount paid by customers went from a lump-sum payment of US$2,500 to monthly installments of US$10-50. The change had a huge impact and contributed to cumulate revenue growth of 700% through 2018.
In addition to the software segment, which already has consolidated the model, the manufacturing and industrial goods segments should be the next wave, given the very high amounts involved in acquisition and maintenance, which make leasing equipment without any repair costs for users more competitive.
Supplementary to the advantages to users, the business model benefits sellers with constant feedback from customers, given the longer-term nature of the relationship. With this huge wealth of consumption data, companies can conduct critical analyzes to continually improve their products and services.
Companies need to stay creative and innovative to successfully retain customers in order to keep subscriptions high and users engaged. Companies adopting this model also must have an adequate platform for managing all recurring payments and for monitoring flows in a simple and organized way.
Key factors contributing to the success of subscription products include the payment processes available for acquiring the service and the client onboarding process. When it comes to contracting a cross-border service, foreign exchange rates also become a relevant factor. In addition to these practical aspects, another important factor is the value of customer support for defining the products and services to achieve large-scale sales success.
Software as a service companies have been adopting the model for entering the Brazilian market, which supports the same payment processing as local companies, facilitating access and purchasing for customers.
Bexs Bank develops solutions that combine local payment means with foreign exchange transactions via digital platform (APIs).