All hail the 'Subscription Economy'

It’s a great time to be a subscription business and the success of companies like Netflix and Lovefilm shows that the model can help newcomers beat the big boys.

Whether you’re shopping for the latest fashion, the flashiest cars, or even the tastiest snacks - there’s a subscription for that. And whether you’re challenging established industries or doing something new, it’s a great time to be an entrepreneur with a subscription business. But what many entrepreneurs don’t realise is how, with subscriptions, launching a company has never been easier.

It’s a great time to be a subscription business. Every day, you hear about how companies such as Netflix and Lovefilm have taken on the big boys and won. Now, you don’t buy a car or bike.  In the UK you can get around with ZipCar; you don’t book a hotel room, you subscribe to a bed and breakfast service through AirBnB. You can even have a dog through FlexPetz. The success stories are numerous.

I like to describe this shift to subscriptions and recurring revenue the 'Subscription Economy' – and it’s growing every day. In fact, there’s never been a better time to launch new businesses, knowing that you can use the subscription business model to disrupt incumbent businesses and build the next billion dollar company. 

With so many new pay-as-you-go services, there’s a huge potential to scale in a cost-effective, efficient manner. Most of the things that a company needs to survive - phones, storage space, even offices - can now be handled via subscriptions at a fraction of the cost.

Why would a company invest in disk drives when they can simply use a subscription service like Box? Phone systems and renting properties can now be handled by companies like Servcorp. With subscription-based services like for CRM, and Ninefold for cloud hosting, start-ups have support to automate back-end processes, protect their data, and host their services without the hassle of dealing with out-dated CRM or ERP.

Businesses can now scale and grow in the 'Subscription Economy' like never before, and a great number of companies can rely on third party subscription partners to handle some of the workload.

Additionally, the flexibility of subscriptions make launching a business much easier and infinitely cheaper. During a company’s life cycle, software necessary for one stage can become burdensome as the company shifts strategy or grows. GDocs may suffice one week, Office365 may be needed the next or vice versa. Buying a product on-premise is foolhardy, expensive, and short-sighted - especially when a new business may outgrow said product within weeks. Companies need to rapidly scale a business with new growth strategies and pivot in response to market changes - and to do that, they need subscriptions.

Pay-as-you-go services are also more cost-effective for launching companies because they provide a start-up with more reach. Subscriptions have the ability to match customers and companies of all sizes and sectors. Whether you’re launching a luxury retail business or SaaS solution in the Cloud, subscriptions can provide different, customer-friendly pricing tiers. And organisations have the flexibility to test pricing and packaging at an ever-increasing pace, allowing for longer lasting relationships with their customers- thereby reducing churn and increasing retention.

Before, subscriptions were used to augment or supplement a business' main revenue stream. Now, businesses can utilise subscriptions to handle infrastructure, provide flexible billing options, and offer incomparable customer reach - all at a fraction of the cost of conventional solutions. Subscription offerings are also now just as powerful as the solutions offered by the big boys, reassuring entrepreneurs that if they launch a business with subscriptions, they’ll still be able to scale as fast as and possibly even faster than their competitors.

Spotify, ZipCar, Airbnb and dozens of others have all realised that no matter what you’re offering, or who you’re offering it to, the most cost-effective business model for a start-up is one built on subscriptions.

Tien Tzuo is the CEO of Zuora.

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