Thursday, 03 October 2013 05:49

Subscription models ‘disrupting global commerce’

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New research finds the business community expects subscription, rental and sharing models to herald significant new revenue opportunities – but to disturb current models.

A study by the respected Economist Intelligence Unit (EIU) study shows that a major societal shift in global consumption preferences is changing the way businesses are pricing and delivering their goods and services.

The sudy, sponsored by sponsored by billing and subscription company Zuora, found that four out of every five (80%) businesses are currently seeing changes in how their customers prefer to access their services.

As a result, over half (51%) are integrating new pricing and delivery models such as subscriptions, sharing and rental goods and services, rather than selling products outright. Of those, subscription-based models have emerged as the primary means to do so, with 40% of these companies implementing subscription services as part of their core business.

“Consumers and businesses are looking for more flexible and convenient ways to access the services they want,” says Zoé Tabary, Deputy Editor at the EIU. “New models of ownership have risen through the emergence of subscription, rental and sharing businesses, causing a major transformation in a wide range of sectors including financial services, healthcare, media, retail, technology and telecommunications.”

The survey of 293 business executives in the US, UK and Australia reveals that while the move to new consumption and delivery models is being driven by consumers’ desire for more flexible pricing and greater convenience, the trend is being recognised by businesses as a powerful new revenue opportunity. Key findings:

  • Businesses across the globe are expecting to see significant long-term economic benefits from this shift to new business models based around subscriptions, sharing and rental - 12% of respondents say these already represent more than half of their revenue. Critically, this number is expected to grow rapidly, as 84% anticipate that this share of revenue will increase somewhat or significantly over the next two years.
  • Businesses also recognise new revenue opportunities (37%), competitive differentiation (27%), and increased customer loyalty (25%) made possible by these new methods of pricing and delivery.
  • Reduced transaction costs (36%), more convenient use of goods and services (35%) and the ease with which you can upgrade or downgrade services (33%) are identified as the key consumer benefits heralded by these new subscription models.

“While confirming that a major global shift in how businesses engage with their customers is underway, and that the majority of businesses understand the implications of this shift, the study also reveals concern amongst businesses about their ability to navigate the disruption, says Tabaray.

“Respondents believe that recent advances in technology, including cloud computing, have been the primary drivers in this societal shift to new consumption and delivery models (selected by 37% of businesses). But technical complexities are identified by a third of businesses (30%) as one of the most significant challenges of moving towards these new models.

“Organisational challenges (33%) and compliance issues (27%) are the other two key challenges identified with achieving the business transformation required to implement these new consumption and delivery models.”

Zuora co-founder and CEO, Tien Tzuo, comments: “Driven first and foremost by changing consumer behaviour, the development of the subscription economy is fundamentally changing the way successful businesses operate and opening up a worldwide market opportunity conservatively estimated at $500 billion.

“It is clear that businesses in many industries have recognised this transformation in customer expectations, as well as the benefits it is bringing which include longer, stronger customer relationships and increased opportunities for recurring revenues.

“But the shift to the subscription economy is not easy. How you price, sell, bill, collect payment and account becomes much more complex, and every line of the business must be aligned to meet the demands of this disruptive transformation in global commerce.”

EIU’s Tabary says the shift to new consumption and delivery models is taking place against the backdrop of more empowered consumers, who increasingly seek convenience and better value for money in goods and services. “This is creating technical and organisational challenges in implementing new models, but businesses are starting to take advantage of the opportunities that they represent.”

The survey results were released at Zuora’s Subscribed Europe 2013 event in London, At the event, Zuora has also unveiled its ‘Subscription Manifesto’  signed by leaders of 75 companies committed to the establishment of a modern operating model, includes a set of core values and nine guiding principles for subscription businesses to adopt.

“Through the collective learning and experiences of the signatories, the Manifesto provides the world’s first framework for global success in the US$500 billion Subscription Economy,” says Tzuo’

An executive summary survey results, along with insights from leading business executives and independent experts, will form the basis of an Economist Intelligence Unit briefing paper, sponsored by Zuora can be found at http://info.zuora.com

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Graeme Philipson

Graeme Philipson is senior associate editor at iTWire. He is one of Australia’s longest serving and most experienced IT journalists. He is author of the only definitive history of the Australian IT industry, ‘A Vision Splendid: The History of Australian Computing.’

He has been in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time weekly IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism.

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