With over 120 customers and more than $3.3 billion under analysis, we get to have a big-picture perspective here at Scout Analytics. We collaborate with our customers continuously on new strategies for accelerating recurring revenue growth, and that’s helped us identify certain trends emerging across industries—common themes that show the potential for tipping-point dynamics. Below are the top 5 trends which we predict will hit a tipping point and start to take hold more broadly in 2014: #1: Pay-per-use will drive market growth When Salesforce.com launched its per-user per-month subscription model, the pricing wasn’t aimed at big enterprises already implementing Siebel or other on-premises software packages. The new model was aimed at the unserved SMB customer segment—and this created huge [...]
Usage Capital™: A New Basis for Corporate Valuation in the Subscription Economy
On what basis do you typically value a company and reward its executives? Executives know the criteria: Profit. Assets and liabilities. Brand. People. Customers. But that’s how executives approach valuation in the traditional supply chain economy. Are those criteria sufficient in the new subscription economy? Consider a growing company like subscription car-sharing service Car2Go. They claim hundreds of thousands of customers, but their revenue is based on the actual car usage of those customers. The valuation question then quickly becomes how often and how much do their customers use the cars? Is car usage going up or down, and how quickly? It’s the car usage by customers—not the raw customer count—that is the primary driver to revenue, profit, and hence, [...]
99 Reasons to Care About Customer Usage
In the Subscription Economy, purchase-to-use is winning, and purchase-to-own is on its way out. Why? It’s simple: We only want to pay for the value we receive from a product or service—and we only receive value when we’re using that product or service. As the following graphs show, current subscription models could see as much as a 99 percent erosion in revenue based on some usage profiles—unless providers can develop strategies for pricing and customer adoption that prevent that loss. The evolution from purchase-to-own to purchase-to-use is inevitable, even though it will vary by industry and customer segment. The last research alert http://research.scoutanalytics.com/subscriptions/per-user-per-month-subscriptions-the-first-step-in-changing-customer-behavior/ documented how this trend might evolve in B2B SaaS, while this research alert will show impact to [...]
Per-User-Per-Month Subscriptions the First Step in Changing Customer Behavior
The Subscription Economy is fundamentally changing customer purchase behavior — it is teaching customers to only pay for what they actually consume. The popular per-user-per-month subscription model used by software as a service (SaaS) is only a first step. The true realization of utility computing as a revenue model is still on the way, and the providers that understand monetizing usage are the ones that will thrive. We are still in the early stages of the Subscription Economy. Many products from information and media to SaaS are being sold on a per-user-per-month model that create revenue with or without product usage. In B2B SaaS subscriptions, Gartner continues to warn of shelfware-as-a-service. A startup called Applango claims 30% of subscriptions are [...]
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