Subscription-based Businesses – Did They Get It Right?

The market was starting to experience some fatigue from subscription-based services and the various startups behind them.

Then the COVID-19 pandemic happened and the landscape for that niche changed overnight – and for the better, it seems.

Monneo digital banking - subscription-based business
Monneo digital banking – subscription-based business

Social distancing and business innovation.

The subscription-based business model is starting to look more appealing and attractive as consumers hole up in their homes and avoid social contact. As mentioned this later proved to be a fantastic business opportunity for those able to spot it on time and multiply the benefits to come. This stands valid for businesses with already existing subscription-based services models and others that endorsed the opportunities and amended their core business models.

And with no end in sight – as well as the potential for permanent shifts in social behaviors and consumer sentiments – these businesses might have gotten it right all along.  From the very beginning. Currently, all they need is to fuel their growth with business innovation and industry consolidation, analysts suggest.

One aspect that is helping to fuel the latter trend is virtual IBANs which allow for subscription-based services supplement their business models through effective digital banking solutons and to scale at breakneck speed and optimal fintech solutions. ZDNet cited a recent survey of subscription-based business model firms and found that half of them had suffered no impact on subscriber acquisition during the lockdown. Another evidence to back up the logic outlined above.

The numbers speak for themselves.

Some, at least 23%, actually reported growth in their subscriber numbers. This stands for various business industries that have adopted the model. Overall trends are showing that thier subscription based businesses have amazing resilience. This is contrary to naysayers which had proclaimed many of these startup companies dead as early as last year. How wrong they were.

Now the economic situation has changed and these companies look set to harvest the gains from their first-mover advantage.

Past, present, and future.

Industry leader Tien Tzuo explained to ZDNet the changes being brought about by the subscription-based business model: “First off, subscription businesses start with money in the bank, while product-focused companies start with zero. That means that if you’re a product-focused company and your customers stop shopping, your revenues will see a sharp decline. However, rather than a focus on driving product sales, subscription businesses are focused on preventing churn and finding new ways to offer innovative value to customers. Secondly, subscription businesses are built for scale and are using this time to innovate and launch new plans — efforts that will make their businesses stronger when the economy shifts back.”

Multichannel Merchant largely echoed these optimistic sentiments last year, a particularly bearish period for some of these companies in terms of the market outlook on them. Trends that Multichannel Merchant sees driving segment growth in the near term include industry diversification and consolidation. In other words, companies are going to expand into new niches and then those services are going to combine together in economies of scale.

None of that is truly groundbreaking but the insinuation that all market niches are susceptible to the subscription model is an interesting proposition. If more subscription-based business model firms infiltrate other market segments and succeed then, given their abundant cash advantage described by Tien Tzuo above, the whole retail landscape could become radically altered in the process. If even half of that happens, it would mean that many of us got this emerging segment completely wrong and that the lucrative subscription model could be the new model of business for retail in the future.

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