Apart from AI, stem cell research, clean energy, and a planned voyage to Mars, one of the most potent innovation is the creation of a fundamentally new business model which is altering the way we use any service or product.
Subscription economy is the gift of our times. Over the past decade, it has grown 6 times or ~435% and it seems everyone is happy about it – consumers, companies and the investors.
Here’s a quick take:
The idea of a subscription where the consumer is paying for what she gets brings a continued sense of delivering value to the customer. Earlier while the customer used and owned the product, now a more aware customer knows what she wants and is willing to pay only for the same. This takes out ownership hassles that are attached to any product while leaving out the work to core experts.
A company providing subscription services is offering a specific, well-defined value to a targeted consumer and is on the toes to keep providing the value on a continuous basis. This brings in a data-driven shift where they understand and analyse the behaviour of the customers which leads to further innovation and value add for both parties.An increased usage of data to understand customers makes the companies fundamentally more resilient and more innovative.
The high repeatability quotient of revenues makes it a darling for investors. The model also allows one to charge the customer upfront before the service is actually delivered which improves the cash flow.
recurring revenue + fixed cost leverage = superior cash flow
The fixed cost investment allows a differentiation through IP, network effects, license fee or branding that has been developed over the years.
Overtime increasing the % of recurring revenue helps the bottom line as well as the valuation and returns associated with the company.
The buzz around Software-as-a-service moving on to flights-as-a-service, tyre-as-a-service, pay-as-you-laugh is more closer than ever. Here’s to value delivered 🥂.