A hot (relatively) new business book is making the argument that we are making a fundamental shift from an ownership economy to a subscription economy, where we essentially rent what we need for as long as we need it.
The book, “Subscribed: Why the Subscription Model Will Be Your Company’s Future and What to Do About it,” makes the argument that most products and services will eventually be sold via subscription, and companies that fail to catch up with the trend will be left behind. The book’s author, Tien Tzuo, is pretty adamant on this point.
“If you’re not shifting to this business model now,” Tzuo writes, “chances are that in a few years you might not have any business left to shift.”
The main reason for the shift is that customers (consumers and businesses) are increasingly uses to pay for products and services this ay, and they will demand this model for an increasingly diverse array of services. The subscription trend in this sense is tied in with the on demand and gig economy. Consumers want only to pay for what they use, when the use it and do not want to be tied down by long term obligations or heavy up front investments.
The book is highly relevant to market shift that spawned the Tech Adoption Index, this blog, the Above the Cloud podcast and the Tech Adoption Summit. In a B2B context the subscription model (along with the cloud) is what has enabled small businesses to access technology that once required a large cash outlay to purchase software that had to be installed locally. And re-installed as new versions were shipped. In many cases software was prohibitive for all but larger enterprises.
Now, the SaaS model gives SMBs access to regularly updated software at a monthly subscription that spreads out the cost. And which cash flow is king for any business, it is particularly true for small ones.
One of the biggest challenges is the pain of switching to a subscription model. The book cites the case of Adobe, which experienced a painful revenue drop when it transitioned to subscription software. The book argues that this pain is temporary and the end result is stronger revenue growth. The “fish model” below illustrates this model.
Our view is that anyone building products for SMBs (software in particular) must think cloud and subscription first. it will be very difficult to compete otherwise. So this is a relevant book for those thinking about shifting their offer to the SMB market from an annual contact to a monthly recurring revenue SaaS model.