Gartner forecasts that by 2015, 35% of Global 2000 companies with non-media digital products will generate up to 10% of their revenue from recurring models. Are you ready?
Ongoing monetization is a key part of disruptive digital selling. Consumers flock to these businesses because they offer a superior product experience, enable costs to be amortized, and provide a guarantee that vendors will always work hard to ensure their satisfaction.
In return, enterprises maximize customer loyalty, secure predictable revenue, and often gain a significant competitive advantage.
Those of us in verticals that haven’t transitioned to the subscription economy yet can learn a few things from media and telecommunications companies, where the rise of new technologies and digital distribution have driven profound shifts in their business models:
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Other industries are catching on quickly. As James McQuivey of Forrester Research puts it, “every business–no matter how analog–is susceptible to the same digital overhaul.” Companies in fields as diverse as life sciences, computer hardware, and traditional manufacturing are all seeking new ways to create revenue through subscriptions to diagnostics, data analysis, consumables, and professional services.
I recently spoke with an executive from a heavy equipment company whose top strategic priority is switching to digitally-enabled subscription pricing for tractors and excavators. The times are indeed changing.
Both vendors and consumers are deeply in love with recurring business models. For enterprises, the advantages come in the form of predictable revenue, lower cost of acquisition, and the ability to scale revenues with expenses.
Combined successfully, these traits almost always translate into higher company valuation. For consumers, spreading out costs over time evens out cash flow and provides an assurance that the vendor will continuously strive to improve their offering on an ongoing basis.
All recurring business models can be boiled down into three basic flavors:
Correctly triangulating the above flavors with your product offering and the needs of your customers is vital to success in the subscription economy. It’s important to remember that even within a brand, different products demand different types of monetization.
For example, Apple markets an ongoing service like iTunes Match as a subscription while charging unit costs for individual media titles to your account.
Once a model has been determined, the next step is to deploy technology that can quickly capture, monetize, and manage individual subscriptions. This is the domain of subscription and billing management systems, whose capabilities fall into several key areas:
With these capabilities in place, businesses can quickly monetize their offerings and start earning recurring revenue. But it would be a big mistake to just stop here. As I mentioned earlier, the benefits of a subscription business come with the responsibility to continuously improve, or else customers will pick up and leave. Doing so effectively requires a little more technology.
To fully realize a recurring revenue business, enterprises need to develop a few more competencies.
Because everything in the subscription economy revolves around the customer relationship–identification, authentication, entitlements, preferred touchpoints, usage data, and key metrics like lifetime value and churn–it’s vital that companies deploy the right technology to capture, analyze, leverage, and distribute this information effectively.
Developing these capabilities will allow you to participate fully in the disruptive subscription economy.
Researchers and analysts agree that recurring business models based on digital commerce will soon be adopted in every industry, and that they will drive significant revenue growth in the coming years. Will you earn your share?