Consumers can subscribe to pretty much anything these days. Food delivery, razorblades, clothes, and even toilet paper can be delivered regularly to you for a monthly price. In the past few years, we’ve seen a second wave of the subscription economy take hold of the B2B market with incredible success.
During the last eight years, subscription businesses have grown five times faster than the S&P 500 companies, and ten times faster than companies featured in the DAX index and ASX index. This amounts to a growth in sales of 321 percent in that time.
And the subscription model has even reached industries that one might not expect.
For example, GE now offers a subscription for their jet engines, while Caterpillar charges their clients based on the number of metric tons they move monthly. So, why has the subscription economy taken over both our personal and professional lives?
Usership wins over ownership
The world has changed, and the way we live and work has changed with it. Owning things has always been a bit inconvenient, when you think about it.
First of all, it’s expensive. Physical possessions can not only have a pretty high upfront cost, but they can also be expensive to maintain and move. For example, these days, people move more often and don’t buy apartments until later in life. Given this lifestyle, buying new furniture every time you change apartments, or moving what you already have, is expensive. Perhaps that is why companies like Fernish have found success; they offer subscription services for furniture, and they deliver and pick up, as well.
Secondly, it takes a lot of time to go out and buy things. Convenience is another big benefit of subscriptions. Food delivery services are a prime example. People want to eat healthy without sacrificing time at work or with their families. The same goes for subscriptions for household essentials like soap, cleaning products, etc. that you can find at places like Amazon.
Essentially, usership wins over ownership. According to Zuora, 71% of adults in 12 countries, including the U.S., China, Germany and Japan, have at least one subscription service. That trend is only predicted to grow in the future.
The same mindset that drives us to subscribe to Netflix and HelloFresh transcends into our professional lives.
Why companies choose subscriptions
In a way, it’s no surprise. The traditional B2B purchasing processes already resemble the subscription business model quite a lot - customers buy products or services from the same vendors on a regular basis. The core difference is reordering. The subscription model has alleviated the anxiety of anticipating the exact needs for products and services every month.
The reason why B2B subscriptions work so well is rooted in two factors: access and efficiency.
Access to skills and knowledge
Through subscriptions, businesses can get access to virtually unlimited resources at a reasonable price. They don’t have to own the resources that they need to run their business. They can just pay for what they need when they need it.
That means that as a business, you can get access to talent and technology you otherwise couldn’t afford. And you can get it quickly. And you can combine different services and products from different companies to create a stack that fits your businesses to a T, instead of settling for an incomplete solution.
Solutions at a reasonable price
From the cash flow perspective, B2B subscriptions can be lifesavers. Firstly, the monthly cost is often small, especially when compared to the upfront sum that a company would have to pay if they bought the resources they’d need to do it themselves.
Secondly, cancellations are easy. The risk involved in pursuing a new idea is tremendously reduced when you aren’t committing to huge, long term expenditures. Worst case, you cancel your subscription and cut your losses. Compare that to legacy software or on-premise hardware and their massive switching costs.
Things like hosting and software solutions are two of the most popular B2B subscription-based services. The companies that essentially “outsource” technology by turning to subscription services get faster access to the newest technology with none of the headaches of trying to keep up themselves.
Subscriptions are here to stay
The subscription economy changed the rules of business operations entirely. The concept of anything-as-a-service (XaaS) allows businesses to focus their limited resources on their core competencies. For consultancy companies, subscription services provide access to a broader spectrum of technologies, and therefore solutions, that they can offer to their clients.
The subscription model is going to continue to spread in the coming years, and businesses that aren't offering their services or products as a subscription might be left with a disadvantage. If you want to leverage the power of subscriptions for your business, get in touch with us.