The subscription business model is an ongoing trend. When Cerillion asked a group of senior IT professionals about their future plans it became clear that the number of businesses using one-off pricing models is set to fall by 39 per cent in the near future.
In contrast, new relationship-based services built around subscriptions are on the rise.
But companies adopting a subscription model must beware. Selling this way has multiple advantages – not least, the promise of a steady stream of recurring revenue and regular contact with customers to strengthen the relationship. However, it involves more than putting a new business model in place, implementing the right technologies to launch, and then sitting back to enjoy the rewards.
The digital revolution has made it far easier and quicker to start up a new business or launch a new service. Which means that if an idea is a good one, it won’t be long before the front runner finds there are others staking a claim to the same market space.
Because these competitors are offering a copy-cat service, they often have only one way to succeed and that’s to undercut current prices. This scenario is especially common in the digital services market where the barriers to entry are much lower than in the physical goods market, for example.
So the original business has to stay one step ahead, to add to and update its services – and above all, to innovate to ensure its proposition remains compelling enough to keep its customers loyal. Time to market becomes crucial, as well as being able to easily track success and failure.
No sooner than a company has launched one product or service on the market then it needs to know what is coming next and how it will continue to evolve its offering.
Organisations in this situation need look no further for mentors than the digital giants. Consider how Google has evolved from being just a search engine. It’s continuously adding new strings to its online bow – from maps to cloud storage. Take Spotify as another example. Just as YouTube enters the subscription music market with bundled videos, Spotify has launched a new family plan offering 50 per cent discount for up to four other family members signing up to the Premium service.
It’s worth looking a little more closely at Amazon’s tactics too – in particular, how it has evolved its Prime membership subscription proposition. Amazon Prime was launched originally to provide fast delivery of millions of its products for a simple annual fee. They could see that by offering ‘free’ delivery at the point of purchase, they were increasing the likelihood that customers would buy from them regularly, rather than spreading their purchases around a variety of online retailers.
But the challenge became how to entice the occasional user into paying an annual fee for this delivery option. Amazon addressed this by bundling access to other services as part of the subscription deal, first with Amazon Prime Instant Video which put it head-to-head with Netflix, and more recently with the launch of Amazon Prime Photos offering unlimited photo storage and competing with other cloud services.
As a result, Amazon has developed a membership package offering added value, from what started out as an enhanced delivery service.
Of course this is not to suggest that all subscription-based businesses will grow to the size of these online goliaths. But it does underline that long-term success is about agility and being responsive to the needs and opportunities of an evolving market.
It’s vital to be able to push boundaries and try out new ideas. But this kind of innovation depends on being able to fail without causing a crisis. Failure is fine, but it needs to be fast. Finding a winning formula means being able to learn from mistakes and then quickly adapt the offering to the demands of a dynamic market.
While innovation is the key to growth, unfortunately it’s not the only consideration. Cost will always be an issue – and no matter how creative and innovative, a business can be held back by key processes such as billing. Traditional on-premise billing systems are typically too expensive or lack the agility needed to handle the demands of a fast-evolving subscription business.
This is where cloud technology can make a big difference. Cloud billing, for example, can deliver the agility organisations need to monetise new ideas without major overheads. This flexibility enables constant innovation over the long term and sustained value as a business expands. It also helps make it as easy as possible for customers to engage with a business and spend money with them.
So whereas in the past billing systems have proved a barrier to progress, now they are being used to enable innovation, to make the changes needed to quickly respond to shifting markets and to maintain leading market status, even when competitors are biting at the heels.
The subscription business model is obviously here for the long-haul. But to make it work, ideas must be allowed to flow thick and fast and then be quickly and effectively monetised.
But it’s rarely a lack of creativity or innovation that holds organisations back. It’s an inability to act quickly and responsively. Thankfully this is where technology can lend a hand.
By Louis Hall, CEO of Cerillion Technologies.