The Subscription Economy Grows More Than 300% In The Last Seven Years
Zuora, Inc. (NYSE:ZUO) the leading cloud-based subscription management platform provider, today released the newest edition of its biannual Subscription Economy Index (SEI) designed to measure the collective health of subscription businesses and track the impact of these businesses on the overall economy. Over the past seven years, the companies featured in this study, across North America, Europe and Asia Pacific, have seen their sales grow by more than 300 percent, representing an 18 percent compound annual growth rate (CAGR). The SEI reveals that over 28 consecutive quarters (January 1, 2012 to December 31, 2018), subscription businesses grew revenues about five times faster than S&P 500 company revenues and U.S. retail sales and 10 times the sales growth of the DAX (Germany) index and ASX (Australia) index.
This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20190321005245/en/
Recent years have shown increasing correlation between the trends in the Subscription Economy and in the traditional economy. This graph shows how the Subscription Economy Index growth rate correlates with GDP growth rate from 2016 to 2018. (Graphic: Business Wire)
Leading analyst firms have also dedicated resources to researching this global business trend. Gartner predicts that "by 2023, 75 percent of organizations selling direct to consumers will offer subscription services" and in its Digital Commerce State of the Union survey, Gartner found that 70 percent of organizations have deployed or are considering the deployment of subscription services.
Yet no company, until now, has published hard evidence of the impact of subscriptions on the overall economy. “The Subscription Economy has been a leading indicator of broader economic trends for the past seven years,” said Tien Tzuo, CEO and Founder of Zuora. “For the first time with the Subscription Economy Index, there is data suggesting that the growth of subscription revenue tracks ahead of the US Gross Domestic Product.”
Key findings from the SEI report which details the Subscription Economy’s long-term magnitude and viability of the business model include:
1.) The Subscription Economy is a leading indicator of broader economic trends
- Overall, subscription businesses grew revenues about 5 times faster than S&P 500 company revenues and U.S. retail sales (18.1% versus 3.6% CAGR for both the S&P 500 and US Retail sales) in the seven years from January 1, 2012 to December 31, 2018.
- When compared to GDP growth quarter over quarter, the SEI data tends to lead the ups and downs in growth rates one quarter ahead of the US economy.
2.) Subscription company growth was lead by subscriber acquisition
- The SEI report monitors two growth levers: Average Revenue Per Account (ARPA) and Net Accounts. In 2018, average subscriber growth was 14%, up from 11.7% in 2017. Subscriber acquisition was fueled by moderate price increases: ARPA rose by just 8% in 2018, compared to 11.3% in 2017.
- Over the past seven years, the companies featured in this study have seen their sales grow by 321%.
3.) Consumer-focused subscription companies made a comeback
- As recently as 2016 the average churn rate at a Business to Consumer (B2C) Subscription Economy company was well above 30%. But 2017 and 2018 showed marked improvement leaving the B2C churn rate at 24%, below the churn rate at Business to Business (B2B) subscription companies which currently have an average annual churn rate around 28%. What’s more, B2C growth beat B2B growth by 23% to 20% in 2018.
4.) European growth surpassed that of North America, with APAC close behind
- Over the past 33 months, EMEA subscription companies have bested their North American counterparts’ CAGR of 21.6% with an even faster rate of 25.6%. APAC subscription companies within the SEI report saw a 16% growth rate this year.
- The EMEA index had more than ten times the sales growth of the DAX (Germany) index, seven times the sales growth as the CAC (France) index, and more than three times the sales growth as the FTSE (UK) index.
- The APAC index had almost ten times the sales growth of the ASX (Australia) index, four times the sales growth as the NZX (New Zealand) index, and 2.5 times the sales growth as the Nikkei (Japan) index.
5.) Subscriptions are for more than SaaS companies, IoT and telecom are on the rise