At this year's Subscribed Conference, Zuora, the world’s leading provider of subscription billing, commerce and finance solutions, unveiled a report by MGI Research (registration required for free report) that estimates the global market for Subscription Economy SaaS tools will be more than US $100 billion through 2020, with 20% of Fortune 1000 companies adopting these solutions.
In the report, Mark Sisco, Director of Operations at NCR, is quoted as saying, “Ability to switch from Capex to Opex has been one of the main drivers from NCR to explore new business models. The subscription model has allowed us to introduce offerings that are very robust, quite affordable and easy to access by small customers who don’t have a lot of technical knowledge or a lot of capital to outlay.”
The report also forecasts the total addressable market (TAM) for Zuora’s Subscription Billing platform will be nearly US $15 billion by 2020, growing at a 50% compound annual growth rate.
“We have claimed that all companies are moving to the Subscription Economy, and this study shows that to be true,” said Zuora CEO Tien Tzuo. “It’s clear to us that the shift to subscription business models requires Relationship Business Management (RBM tools that will drive deep subscriber relationships and create opportunities to monetise virtually anything. We will continue to lead the industry in supporting our customers’ need for rapid innovation, flexibility, and agility to grow and prosper in the future.”
The MGI report is a comprehensive study of Subscription Economy SaaS services and tools, described as Agile Monetisation Platforms (AMPs), which includes nine categories: agile billing, financials, order management, e-commerce, customer support, CPQ (Configure-Price-Quote), contract management, revenue recognition, and mediation. The study includes 34,796 companies in 116 countries across ten major geographic regions. The report accounts for almost $50 trillion in revenue or 60% of worldwide GDP and more than 70% of North American GDP. North America has led the move to these SaaS services and tools, and over the next 24 months, markets beyond North America will accelerate adoption, led by Japan, China, Germany and the UK.
Companies are no longer focused on just shipping products. They are building new services and experiences for their customers -- experiences that deliver outcomes, not assets. This requires companies to move from "selling units" to "monetising relationships." To meet the changing needs and expectations of today's customers, businesses are realising they need to offer new services that can be monetised in more flexible ways. The rise of the Internet of Things creates further possibilities to offer whole new classes of services and experiences from established industrial companies -- creating an unprecedented opportunity for a mix of recurring and usage-based pricing models.
Matt Anderson, Chief Digital Officer at Arrow Electronics, is quoted as saying, “If you had a pacemaker that had sensors in it you could charge for a subscription for heartbeats! If you had shoes that had sensors in them, you could charge for how many kilometres do you want to walk per month! Those kinds of business models never existed before.”
The report further suggests that because these new SaaS services and tools can support rapid scaling for top-line growth and increased customer engagement via data and analytics, spending for these solutions is now being prioritised. Similarly, companies seeking to improve their efficiency by consolidating some out-of-date and disparate systems through a new monetisation platform will also benefit, fuelling additional demand.
“As enterprises attempt to shift to new subscription and on-demand business models, they realise their existing business systems are wholly inadequate,” said MGI Research Analyst Andrew Dailey. “In fact, in some industries, legacy business tools are delaying business model migration, creating an existential threat for some well-known companies. Also, recurring revenue business models require new approaches to product management, sales, marketing, and even finance.”
At US $50.441 billion, North America is the largest geographic component of the overall TAM. On a combined basis, Asia (East Asia, South Asia and Southeast Asia), at $24.847 billion, is the second-largest component, and Europe, at US $22.757 billion, is the third. The report projects growth in AMP sales in Australia, New Zealand and Oceania from US$88 million in 2016 to US$413 million in 2020 (CAGR: 47.18%)
- More than 80% of the overall TAM is represented by companies with over US $1 billion in annual revenues.
- Industrials at US $26 billion, Information Technology at US $22 billion, and Consumer Discretionary at US $14 billion represent the top three opportunities for Subscription Economy services and tools. Energy, Consumer Staples, and Financials also have a five-year TAM of more than US $5 billion.
- IOT adoption will be a significant factor in driving spending, as increasing control capabilities and data collection will stimulate innovation with new pricing models.