As often happens in evolutionary systems, availability precedes demand. That’s a complicated way to say that we build products then figure out what they’re good for. It’s not that innovators develop things willy-nilly, but no matter how well thought out an innovation is, the marketplace has the last word on its utility. When we speak of early adopters and mainstream users it’s this dynamic we’re referencing.
In recent years one of the best examples of this evolution in action has been subscription billing. Today we speak of the subscription economy and subscription billing as mutually reinforcing but when it was first introduced subscription billing was targeted at a more narrow business problem. Initial buyers were companies that began offering their products as subscription services rather than as products to be bought once and then serviced. Their need was for flexibility, speed and accuracy in the billing process, things that conventional billing systems could not adequately handle given the number of customers and transactions that subscription vendors were encountering.
If subscription billing merely stayed in that expanding niche its future would have been assured as increasing numbers of companies were converting to subscription business models. But then the marketplace changed in two fundamental ways opening up even greater opportunity for the subscription model.
The first change was the rapid adoption of subscriptions as a new way to deliver products to customers. Subscriptions proved to be so much better than conventional purchases with their large cash outlays, that customers rapidly concluded that subscriptions were better. Market demand has driven numerous companies to scrap their decades old business models in favor of subscriptions. Those companies that have not converted see evidence mounting daily that tells them to convert of perish.
The second change, which has not been remarked on nearly enough, is the credit crunch that has hobbled the economy since the housing debacle of 2008. While business is still obviously being done, the economy is barely growing but a consistent bright spot is subscription companies because their business models enable customers to use their products while effectively amortizing the cost — without involving a lender. This enables them to sidestep a conventional financing process that is crippled due to still tight credit conditions resulting from weak bank balance sheets.
The subscription economy isn’t a band-aid that companies put on their business models to weather a tough economy. Driven by customer demand, the subscription economy is increasingly the way that customers prefer to do business and this preference is driving the market.
But the benefits that the subscription economy delivers are hardly one sided in favor of the customer. Vendors have discovered that their old billing systems had been dictating the kinds and types of products they delivered to the market. For instance, a good idea that could be built but not billed accurately and timely — which is the case with many subscription services — was simply a non-starter. But the flexibility of the subscription model enables companies to break their complex products into smaller units that customers can then assemble in ways that make sense for them. Customers are increasingly able to custom design products that fit their needs much better than the one size fits all products that are relics of the industrial age. And vendors can flexibly respond to customer needs even if those needs change very frequently.
The marketplace has discovered many uses for the subscription economy and its enabler, subscription billing in the handful of years since the idea was first introduced. As we can see, some of subscription billing’s uses were not even envisioned a few years ago but alert innovation by users and, especially, Zuora, have made subscriptions a phenomenon.
We’re certainly passed the early adopter stage in this market and mainstream adoption is well under way. Companies that once would not consider a subscription business model are discovering that with subscription billing they can make their transition and preserve their cash flows and in these tough economic times that says a lot.
(Cross-posted @ Beagle Research, LLC.)