The end of ownership and the subscription economy

Amy Konary, VP of Business Innovation at Zuora, and Chair of the Subscribed Institute, talks about the growth of the subscription economy.

Today, the world is witnessing a new economic era defined by the “the end of ownership” and the rise of the subscription economy.

Consumer expectations have drastically changed over the last decade. A combination of high upfront costs, the hassles of ongoing maintenance, and the frustration of technological obsolescence have resulted in product ownership losing the charm and status it once held in people’s lives. Simply put, consumers just aren’t as interested in filling their homes with physical goods anymore.

Instead, they increasingly favor outcomes and unique experiences — a ride, a place to stay, the latest handbag to accessorize with. Why buy and own something if there is an easier way to get the same or an even better outcome? In other words, “Why own when you can subscribe to a service?” This is the new mindset amongst consumers.

Consumer trends

Consumers around the world increasingly want fluid services over static products. This is the trend that the Harris Poll discovered, when they recently surveyed (on behalf of Zuora) more than 13,000 adults across 12 countries around the world.

Ownership is clearly losing favor with consumers:

  • 57% of international adults wish they could own less “stuff.”
  • 68% of international adults believe that a person’s status is no longer defined by what they own.

And subscribing to services is gaining favor:

  • 70% of international adults agree that subscribing to products and services frees people from the burden of ownership (e.g., maintenance, clutter, declining value).
  • 74% believe that in the future, people will subscribe to more services.

In the subscription economy, consumers want the freedom to access services anytime, anywhere. They want the latest technology or product model available at their fingertips, at all times. They demand a choice of payment methods, flexible pricing options, the ability to customize the package, and the freedom to pause and resume services. For instance, many of Zuora’s customers value the easy integration with Amazon Pay, because they’re in need of more options and better payment experiences.

Business implications

What do all these trends mean for businesses? It’s pretty straightforward: Every company has to become a service company focused on positive customer outcomes. Over the past decade, services such as Amazon Prime and Uber have irrevocably changed not only how we experience retail and transportation, but also our expectations of every other industry. Innovative business models built around recurring payments are emerging in every major industry – from food and clothes to more traditional industries such as construction and manufacturing.

The “as-a-service” business model is undoubtedly the most important and fundamental shift that businesses need to make in order to compete and win in this new era. In this new world of subscription services, companies need to orient their business around their subscribers, not their products. Unlike the old product model, the product itself is no longer a one-time transaction but an ongoing service. And so, the focus is on building long-term, personalized relationships with loyal subscribers, not on unit sales.

Brand loyalty, which once upon a time guaranteed a minimum ROI, is no longer something to be won once and relied on forever. Today, you have to win your customers repeatedly with every interaction. They need to see the value of your service every time they use it and every time they pay for it. Not only that, but your customers expect a personalized experience that gets better over time. If you aren’t able to deliver on these expectations, your customers are often just a click away from churning.

Subscriptions drive growth

The good news is that businesses that are responding to changing consumer preferences with newer and more flexible subscription business models are seeing immense growth. According to Zuora’s Subscription Economy Index, over the past seven years, subscription companies across North America, Europe, and Asia Pacific have seen their sales grow by more than 300%, representing an 18% compound annual growth rate (CAGR). That’s about five times faster than S&P 500 company revenues and U.S. retail sales.

While the shift from ownership to access is being driven by customers, businesses have a lot to gain. For companies that offer services that create positive outcomes for loyal customers, the recurring revenue model can lead to long-term sustainable growth. The shift to subscription-based services is a fundamental economic shift that every business needs to make to succeed in the subscription economy.

To learn more about the Subscription economy, join us in Boston at the Subscription Show, November 4-6. Amazon Pay and Zuora will be teaming up to host an exclusive dinner during the weeks events. Email us for more information.