A person attending Zuora’s 2015 user conference could well get the impression that our economic system will soon be permanently upended. In the keynote, Zuora emphatically stated that in the future very few of us will be consumers. Most will be subscribers and/or renters, paying for what we want & need only for the duration that we want or need it.
I think that Zuora exaggerated this trend (e.g. the kick-off’s promotional video included a quote from someone who stated “Yeah, ownership is lame.”) However, I acknowledge that buyer behaviors have changed. This article “Millennials Don’t Care about Owning Anything…” appeared on Business Insider last week. This internet meme, taken from a Tom Goodwin article on TechCrunch , certainly makes a meaningful point about the sharing economy.
It is hard to ignore that this movement to subscription and sharing revenue models is a real thing.
I believe that the required technology and architecture needed to sustain the B2C subscription economy is already in place: Hadoop data storage systems, digital commerce systems, API’s, mobile devices , and consumer apps. Is it possible that all that remains is the pace at which consumers will change their purchasing habits?
No, I don’t think that is all that remains to change; supply-side considerations are paramount. The subscription revenue model is attractive to buyers, but less so for suppliers.
As Joel York explains here, subscription revenue growth must continually outpace the churn rate. When the latter overtakes the former, a death spiral begins. To avoid that fate, companies have two choices:
- Build significant operational resources and process discipline to make the recurring revenue model work over the long run.
- Build guaranteed revenue flow, which can only be attained by raising prices continually, or writing long-term contracts, or getting much of the contracted revenue up-front
I am not yet convinced that all suppliers can or should make this type transition. Even B2C companies that were born subscription-first (Pandora, Trunk Club, Zynga) have found profitability (which is my measuring stick for long-term viability) difficult to attain. If it is comparatively more difficult to maintain revenue streams in this type of model, then we could see many traditional businesses collapse, unable to make the transition. Obviously, if the suppliers disappear, then the subcription revenue model necessarily collapses.
On the whole, I am bullish about the subscription economy. The sooner that the marketplace rationalizes the revenue model in a way that provides for the long-term revenue flow of the suppliers, the better.
Lastly, on a more abstract level, the implications of this transformation to a subscription economy cannot be overstated. It upends entire manufacturing, disribution, and retailing business models. And it has the potential to disrupt all levels of political governance, due to decreased tax revenues. I hope fervently that our political leaders are ready to address this sooner, not later.
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