Today, the world is entering a new era that we see as "the end of ownership."
What do we mean by that? To put it simply, product ownership and the old product economy is becoming a thing of the past. People aren't as interested in filling their homes with physical goods anymore. They don't want to deal with upfront costs, the hassles of maintenance, and the frustration of obsolescence. Why buy and own something if there is an easier way to get the same or even better outcome? In other words, "why own when you can subscribe?" is the new mindset amongst consumers.
To better understand global subscription services business model trends and consumer spending behaviors, I invited Mark Heller, Vice President of Global Brand and Communications at Zuora and a subscription economy expert, to join Ray Wang, CEO of Constellation Research, and co-host of our weekly video podcast DisrupTV. Zuora creates cloud-based software on a subscription basis that enables any company in any industry to successfully launch, manage, and transform into a subscription business.
Our homes don't have to be cluttered with things --- overflowing shelves of CDs, DVDs, and books. Heck, many of us don't even own cars or bikes or clothes anymore. Instead, we subscribe to them as services. It's the same for businesses, where SaaS and cloud solutions have replaced traditional servers and other on-premise hardware. Or how many companies are opting to ditch multi-year real estate leases by subscribing to workspaces through services like Servcorp or WeWork. The fact of the matter is that, while we are witnessing the end of ownership, we also see the rise of "usership" i.e., people are owning less but using more and more services. Just look at how much all our lives have changed over the last decade.
Why is this happening? As consumers, our expectations are changing, and we increasingly value access and outcomes over ownership. We want the freedom to access services and use them anytime, anywhere. We want the latest technology or product model available at our fingertips at all times. We demand choice in how we pay, flexibility to pause and resume services, and the ability to tailor them to meet our specific needs. And thanks to the Subscription Economy, all of this is now easily possible.
It's not just customers who are benefiting from this -- businesses are also seeing immense growth by responding to changing customer demands with newer and more flexible subscription business models. According to Zuora's Subscription Economy Index, over the past seven years, subscription companies across North America, Europe, and the Asia Pacific have seen their sales grow by more than 300%, representing an 18 percent compound annual growth rate (CAGR). That's about five times faster than the S&P 500 company revenues and U.S. retail sales and 10-times the sales growth of the DAX (Germany) index and ASX (Australia) index.
Let's dig deeper and look at how the end of ownership and the rise of user-ship is playing out across a few industries:
- Music: Sales of CDs and song downloads continue to decline, but the music industry is in its fifth year of consecutive growth, driven mainly by digital subscriptions. Subscriptions now account for 62% of total music sales revenues, crossing the $10 billion mark for the first time.
- Automobiles: Global auto sales are down 2.8% from 2017, but overall miles driven are on the rise. It's not that people are not driving around; they are just doing it differently by using car subscriptions, ride-sharing services, etc.
- Newspapers: How many of us wake up to a newspaper on our doorstep every morning? Newspaper sales declined to around 30 million copies last year, roughly on par with numbers from the 1940s! But here's the thing -- digital news consumption on mobile phones has grown by over 300% in the last few years according to the Pew Research Center. We don't want to be stuck with a pile of old newspapers (things) to recycle anymore.
So, what's driving all this change? The Harris Poll, a company that's known for its insights on consumer sentiment, recently surveyed (on behalf of Zuora) more than 13,000 adults across 12 countries around the world and discovered some fascinating trends that are driving growth in the Subscription economy.
1. More than half of the people surveyed wished that they could own less stuff.
It's not surprising that nearly 6 out of 10 people around the world are saying they don't want to own things anymore. With advancements in technology, changing customer expectations, and the emergence of successful business models focused on recurring payments, the incentives for owning things are less and less relevant than they once were. People are increasingly questioning the need to own when you can subscribe to services. Transportation and media are classic examples of industries that have been changed irrevocably by this trend.
2. A person's status is no longer defined by what they own.
A generation ago, success meant materialism and keeping up with the Joneses. But not anymore. Instead, our social media feeds are filled with photos of what people are doing -- everything from exercise to food to vacations. Experiences are the new status symbols.
And as concepts of status and personal fulfillment move away from material wealth in favor of engaging experiences, consumers around the world are increasingly demanding flexible services that offer more value, better experiences, and fewer hassles.
3. Subscriptions free people from the burden of ownership.
Think about it. If you're not interested in owning the burden of maintenance and upkeep of products, preferring access to ownership is way more reasonable. This trend is evident in our daily lives in several ways with newer subscriptions coming up for everything from food and healthcare to movie tickets and camping gear.
4. In the future, people will subscribe to more services.
Industries across the world are responding to changing consumer demands and transforming themselves with new subscription business models. And consumers are willing and ready for these new offerings.
5. The number of people subscribing to services is growing rapidly.
Overall, more than 7 in 10 adults currently have subscription services compared to just 5 in 10 adults five years ago. As the Subscription Economy grows around the world, so does its customer base.
So, what do all these trends mean for businesses? It's pretty straightforward -- every company is becoming a service company. This holds across industries and geographies. And to succeed in this new "as-a-service" world, companies need to orient their business around their subscribers, not their products. A company's entire operations -- product, marketing, sales, and even finance -- must revolve around what's best for their subscribers because the value sits with the relationship, not with the product.
This is the most important and fundamental shift that businesses in every industry will need to make to compete and win in this new era. Are you ready?
This article was co-authored with Mark Heller, VP global brand and communications at Zuora.