This article originally appeared in Inc. If you like this article,
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Amazon. Netflix. Uber. Apple. These companies aren't just industry leaders -- they're industry dominators. When most people look at this lineup, they conclude that it's easy to dominate an industry when technology is involved. However, while these companies are certainly connected by the use of innovative technologies, the technologies themselves aren't what make these companies absolutely dominant. Instead, what ties these companies together is a similar business model -- namely, that each operates as a subscription service.
Remember those mail-order companies of yesteryear? Those companies benefited from knowing all sorts of things about their customers; however, without the number-crunching programs of today, that data had only limited usage. Today, however, our dashboard-style platforms can digest and compute data on a real-time basis, and convey incredibly valuable insights that can help us make business changes on the fly.
This proliferation of big data, coupled with the power to derive insights from that data, is what separated Netflix from Blockbuster, Uber from taxi cabs, and Amazon from Wal-Mart.
Let's take this last comparison as an example. Think of the enormous number of people who visit a Wal-Mart every day. Now, ask yourself, what does Wal-Mart know about me when I walk through the doors? Does it know who you are? What you're looking for? What you typically buy? No, no, and no.
By comparison, Amazon knows exactly who you are as soon as you start browsing. It knows what you've browsed for previously, and what you typically purchase. It even knows what time of day you typically buy; where you are in the world when you purchase; how many reviews you look at before pulling the trigger, and more. That amount of data allows Amazon to intimately know what it will take for you to buy -- and Wal-Mart doesn't stand a chance in that fight.
That huge competitive advantage is part of what Zuora calls The Subscription Economy. Zuora is an enterprise software company that designs and sells SaaS applications for companies with a subscription business model. It's no surprise that -- in a rapidly-growing online world -- Zuora itself was named to Deloitte's Technology Fast 500 in 2016, with an astounding 273 percent growth rate on its way from start-up in 2008 to 600 employees worldwide as of last year.
To illustrate the prolific rise of subscription business models, Zuora recently concluded a five-year study of subscription companies, called the Subscription Economy Index. In the study, Zuora found that subscription companies grew revenues more than 9 times fasterthan S&P 500 companies (15.1 percent vs. 1.7 percent).
With all that data pouring in from subscription sources, it's easy to see why subscription growth has been so meteoric. Luckily, if you've wondered whether a subscription model might be right for you, there is still plenty of time to pivot.
Subscription Models Are Disrupting...Everything
Given that I run several businesses with a subscription model and even help other subscription companies grow their revenues, I reached out to Zuora to see what they think the future of subscription looks like. According to Zuora's Chief Marketing Officer, David Gee, "we're still in the early innings of a generational shift in the way consumers and businesses interact with the suppliers of the world -- in other words, going from an ownership model to a subscription model."
As a poignant example of the coming disruption, he pointed out that ride-sharing with subscription services like Uber will forever change the automotive industry: "The number of new cars sold may have peaked, or will be soon," David warned. "As the next generation thinks about car ownership differently, automotive companies will have to become more of a software company than a car company."
Think of the fundamental shift that means for our economy. In a world where self-driving cars are powered by the sun and linked to your smartphone's subscription app, why would you want to own a car? This is just one example of a cascading trend towards recurring "lease" models and away from one-time "own" models of doing business. Seeing what Netflix has done to Blockbuster forces us to wonder what our entire lives might soon look like in an on-demand, everything-shared society.
For another example, take the super-exciting and tech-forward world of flooring -- yes, as in, what we walk on. For this unlikely story, David highlighted a company that is creating a subscription model off of floor tiles in malls. How? By putting RFID tags into the tiles, the tiles can pass along data about foot traffic, traffic patterns, peak hours and more. In turn, that data can inform malls about how to appropriately price their spaces based on traffic and other data, and it informs the retailers themselves when their optimal times of business might be.
As you can imagine, this changes the way a flooring company might earn revenue. In essence, they no longer need to be bound by a one-and-done sale and installation. Instead, for instance, they can put down tiles for free, and charge a subscription fee for the data.
What a Subscription Business Model Can Do For You
Before you assume that this kind of thinking is reserved for big companies, think again. Dollar Shave Club proves that theory wrong. Dollar Shave Club is the little upstart that used shaving data to take valuable market share from Gillette and Schick, the giants of the shaving space. What does Gillette know about their customers? That's right -- nearly nothing, which is why Unilever bought Dollar Shave Club in 2016 as a competitive play against Gillette's owner and Unilever rival, Procter&Gamble.
What Unilever recognized in Dollar Shave Club (and what Wal-Mart recognized in the e-commerce Amazon rival, Jet.com, which Wal-Mart purchased in 2016 as well) is that if you own the subscriber data, you own everything. With subscription data, not only will you know who your customers are and how they behave, but you will also benefit from automated algorithms that take the guesswork out of labor-intensive business processes like customer service and marketing. Even pricing becomes a mathematical problem in subscription services, because subscriptions allow companies to charge on a wide variety of models -- flat fee, per usage, per occurrence, per time period, etc. -- depending on the product or service.
So, if you're a small or midsize company, ask yourself, how do I attract and retain subscribers vs. having a one-time relationship with my customers? If you can leverage big data to serve your customers better than anyone else, you'll have the opportunity to disrupt even the giants of your industry.
That's the kind of growth worth subscribing to.