Due to the success of businesses like Netflix and Spotify, more and more companies are turning to the subscription business model to generate revenue.
In April, new startup Wanderift announced it was bringing the subscription model to airline travel. That same month, financial services firm Charles Schwab announced it was moving to a monthly subscription model. And rental car business Enterprise announced its own automobile subscription service soon after.
“With the anticipated compound annual growth rate (CAGR) of the global automotive subscription services market through 2022 at 71%, I would be surprised if Enterprise decided not to jump into this hot market,” Kathy Greenler Sexton, CEO & Publisher of Subscription Insider told ConsumerAffairs.
“…46% of of consumers surveyed have stated that they would prefer buying a vehicle subscription service over buying [a vehicle] and if that holds true and consumers embrace the subscription model, this may be the start of something big.”
Subscription services are commonly found in the software and e-commerce industries, but new inroads are being made in other sectors as well. Subscriptions have become an integral component of our daily lives, changing the way we consume media and purchase goods.
Here are 11 recently published statistics about the subscription business model and the impact they’re having on the global economy.
1. By 2022, 53% of all software revenue will be generated from a subscription model
Source: Digitalist Magazine
International Data Corporation, a global market intelligence firm, recently released a report looking at how consumer preferences for cloud services are shaping the software industry. According to the report, while the subscription business model isn’t applicable for all software companies, most will make the transition to enable new cloud service offerings while leveraging existing delivered software.
2. All new software entrants and 80% of historical vendors are offering subscription-based business models
In agreement with other recently-published research, a report by Gartner, a global research and advisory firm, argues that the Software-as-a-Service (SaaS) model has not killed the software market. However, the model is growing rapidly and pressuring legacy providers to include SaaS options or risk losing market traction.
3. 63% of publishers say turning audiences into paying subscribers is a key challenge when creating subscription products
According to online media trade magazine Digiday, media publishers are increasingly eyeing subscriptions as a revenue-generating alternative to advertising. However, these publishers admit to struggling with conversions. Additionally, 43% of publishers pointed to developing products that people will pay for as their biggest challenge to subscription model adoption.
4. The car subscription market is set to grow by 71% by 2022
Luxury car manufacturers are switching up their traditional business models and adding subscription options. Cadillac, for example, launched a car subscription concierge service of cars and SUVs in 2018. The service allows for the company’s vehicles to be delivered and picked up on demand for customers via a smartphone app.
5. By the end of the year, 34% of U.S. households won’t have a traditional TV subscription
While subscription businesses are seeing growth across the board, legacy subscription services like cable television and satellite are on the decline. A report by Convergence Research Group estimates that the pay TV industry will see a 5% decline in subscribers this year.
6. 69% of households now subscribe to one or more video streaming subscription services
Replacing traditional TV subscriptions are video streaming subscription services, according to Deloitte’s 13th edition of their digital media trends survey. Their report indicates subscribers utilize an average of three video streaming services. Additionally, 43% of U.S. consumers have both pay TV and streaming subscriptions.
7. 41% of households subscribe to one or more streaming music services
Deloitte’s report includes survey responses from 2,003 U.S. consumers. According to the results, music streaming service adoption saw an increase of 58% from last year. At close to 60%, adoption among Gen Z and millennial consumers is even higher. In fact, Spotify recently announced it has reached 100 million paid users, the first music streaming company to do so.
8. 70% of business leaders say subscription business models will be key to their prospects in the years ahead
Manifesto Growth Architect, a growth strategy consultancy, surveyed 504 senior business leaders across the retail, finance, leisure, automotive, and utility industries for their ‘How to Make Money from Membership Economics’ report.
While many leaders saw the value of the subscription model, only 24% were currently implementing it, and a mere 7% were generating significant revenue via membership. Another quarter of businesses were trying out membership models but were not sure how they would evolve, and 22% saw potential but were unsure how to proceed.
9. 53% of senior finance executives say at least 40% of their organizations’ revenues are recurring
According to a report by CFO Research, in collaboration with software provider Salesforce, recurring revenue business models (also known as subscription or usage-based models) are on the rise. The report indicates that 23% of C-suites—top senior officers in a company—and boards are incorporating such business models into their strategic planning. Additionally, 17% of C-suites and boards are planning to launch a new or additional recurring revenue business in the near future.
10. 48% of businesses with a recurring revenue model struggle to meet accounting and reporting challenges
As a result of regulations enacted in the past few years, subscription revenue has to be recorded according to certain standards. Revenues earned through a subscription model have to be recognized when realized and earned, versus when it is received. If not properly managed, subscription model businesses can face audits and compliance issues around revenue recognition.
11. The average subscription billing vendor is growing 30%–50% annually
Source: The Paypers
The rise of the subscription business model has led to a corresponding increase in the necessity for subscription billing management platforms. The subscription and billing management market was valued at $3.8 billion in 2018 and is expected to reach $10.5 billion by 2025, according to Zion Market Research.
FAQs about Subscription Business Model
Q: What is the impact of the subscription business model on the global economy?
The subscription business model has significantly impacted the global economy. It brings in recurring revenue for companies and has become an integral part of consumer lifestyles, influencing the way we consume media and purchase goods. Additionally, the model is growing rapidly and pressuring traditional providers to adjust their services accordingly.
Q: What are the potential challenges faced by businesses with the subscription model?
While the subscription model offers plenty of opportunities, businesses can face challenges, such as struggling with customer conversions and developing products that people are willing to pay for regularly. Additionally, accurately managing revenue recognition as per regulations is critical; otherwise, companies can face audits and compliance issues.
Q: What sectors are adopting the subscription business model?
Various sectors are implementing the subscription model, including software, e-commerce, media, luxury car manufacturing, and financial services. This model is also making inroads into other industries, disrupting traditional business models and creating opportunities for recurring revenue streams.
Q: How prevalent is the subscription business model among senior business leaders?
A survey of 504 senior business leaders by Manifesto Growth Architect indicates that while many leaders see value in the subscription model, only 24% are currently implementing it, and just 7% are generating significant revenue through this model.
Q: What are some examples of companies that have adopted the subscription model?
Examples of companies adopting the subscription model include Netflix, Spotify, Wanderift, Charles Schwab, Enterprise. Specific industries, such as luxury car manufacturing, has brands like Cadillac leveraging subscriptions.
Q: What are the findings of the International Data Corporation on the subscription business model?
The International Data Corporation identified that while the subscription business model isn’t applicable for all software companies, most will transition to support new cloud service offerings while leveraging existing delivered software.
Q: What is the future of the subscription business model?
The subscription business model is expected to continue growing, given the success it has brought to several businesses across various sectors and its acceptance among consumers. The subscription and billing management market alone is expected to reach $10.5 billion by 2025, indicating a well-sustained growth trajectory.
Q: How prevalent is the subscription model in the media industry?
Following the report by online media trade magazine Digiday, media publishers are increasingly focusing on subscriptions as an alternative to ad-generated revenue. However, converting users into subscribers remains a considerable challenge for them.
Q: What impact has the subscription model had on the TV industry?
Traditional TV subscriptions are declining as more and more consumers switch to video streaming subscription services. Deloitte’s report indicates an average of three video streaming services per subscriber, with 43% of U.S. consumers having both pay TV and streaming subscriptions.
Q: What are some significant statistics about music streaming services?
Music streaming services have seen an increase in adoption, with Spotify announcing it has reached 100 million paid users. According to Deloitte’s survey, the adoption among Gen Z and millennial consumers is even higher, close to 60%.