Why the subscription economy is transforming B2B operating models forever

Jaco Frederik Möller, Solutions and DIMS Product Manager, Canon South Africa.

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From Hello Fresh to Spotify, subscription services are now so commonplace they’ve almost become the norm. Subscriptions started life in the media world, with newspaper and magazine subscriptions dating back centuries. But in the last 10 years, the subscription business model has exploded in popularity across consumer industries including fashion, food and beauty, creating what has been dubbed, the ‘subscription economy’. The model, which promotes a more convenient, cheaper way of accessing goods, has revolutionised the way we buy and sell consumer products. 

It should be no surprise then, that it’s now transforming B2B operating models. In the last few years, we’ve seen the proliferation of cloud-based ‘anything as a service’ products, paid for on subscription. These new offerings addressing a demand from businesses who wanted to access the benefits of innovation, without the difficulty, expense and skills required to manage on-premises technology themselves.

Origins of the subscription economy

While physical newspaper and book subscriptions have existed for hundreds of years, the arrival of digital and cloud technology created brand new opportunities. In the mid-2000s, digital subscription services began to emerge, most notably Spotify in 2006 and Netflix in 2007. Combining cloud-based delivery and subscription payment allowed these companies to change the way we consume media. Customers no longer owned individual media products, but paid on an ongoing basis to access as much music, TV or films as they wanted.

In the B2B world, the transformation was slower, but began in 2000 when Salesforce launched its organisation under the banner “the end of software”, promoting a pioneering business model for accessing software through the cloud. Salesforce were the first company to offer software as a service, providing a standard, distributed solution at a lower cost of entry, so customers wouldn’t need to worry about costly installation or maintenance.

Salesforce also created the subscription model’s greatest advocate, Tien Tzuo. Tzuo, who started his career at Salesforce and was inspired by their business model, founded subscription management service Zuora. He coined the term ‘subscription economy’ and by 2018 was predicting that subscriptions would soon be the de facto operating model for the vast majority of businesses. By 2019, the market for subscription or ‘anything as a service’ products was predicted to hit $344.3 billion by 2024, with a 24% CAGR.

Keeping up with the competition

One of the main reasons behind the rise in B2B subscription service models is the speed at which the world is changing. Innovation is speeding up exponentially, driven by new technologies. This puts a lot of pressure on companies working with a typical ownership model; technology bought today may be out of date next year, depreciating expensive investments and leaving them one step behind again.

Subscription models offer a way out of this problem by allowing customers to easily access the latest software capabilities and innovation. Subscription technology providers make it their top priority to keep improving their service, including integrating the latest technology. This allows their B2B customers to enrich their own offering and pass on better products and services to their own customers, keeping them competitive.

Subscription services are also geared towards convenience, so they typically offer the best avenue to try out new strategies. Subscription SaaS, for example, usually entails almost instant set-up, simple scalability and easy cancellation. This allows businesses to adjust the type or level of service to meet changing needs or adapt to new demands on a more agile basis – this is increasingly important for staying one step ahead in a fast-moving environment.

Lowering the threshold for transformation

Not only do subscription models make it easier to keep up, but they also make it cheaper. Buying technology requires a significant upfront investment, which may take time to raise, or be beyond some companies’ budget capabilities altogether. By removing the upfront expense of installation, subscription services reduce the budget threshold to innovation, making it easier to implement improvement through digital transformation.

For example, automation has rapidly become a differentiator for business success. By enabling many large corporations to optimise manual processes, automation helps increase efficiencies, reduce costs and in turn gain a competitive advantage. But automated technologies are often deployed as a bespoke solution, requiring not just the original price tag, but the budget for professional services to tailor a solution to your specific needs.

This is a particular disadvantage for small and medium-sized businesses. Those without the capital expenditure budgets for expensive transformation projects can easily be left behind by larger competitors. As SMEs struggle to keep up with the bespoke solutions and digital transformation budgets of larger enterprises, cloud-based subscriptions can offer valuable quick wins for SMEs to automate processes and advance on their digital transformation journey.

SMEs may not have the budgets for large, bespoke solutions – but they also don’t necessarily need them. The smaller the company, the less complexity to their workflows and often their needs, meaning automation and other solutions don’t need to be as extensively tailored. Instead, a more standardised, tried-and-tested service can work just as well.

A flexible solution for the future

In the last few years, we’ve seen an explosion of cloud-based B2B subscription services being brought to market, addressing a demand for access to the benefits of innovation, without the difficulty, expense and skills required to manage on-premises technology. Cloud-based subscriptions offer a host of benefits, one of the most crucial being that they help to "level the playing field" when it comes to transformation. By lowering the cost of access to digital and automated technologies, they allow smaller companies to compete with larger competitors, even without the same deep pockets.