According to Zuora, there were $5.5 billion in subscription transactions in 2014. In 2019, there were an estimated $35 billion. The company’s Subscription Economy Index reveals that subscription businesses grew revenues about 5x faster than S&P 500 company revenues and U.S. retail sales from January 1, 2012, to June 30, 2019.
As Nutanix evolved from an IT hardware and software company to focus on software in 2018, company leaders also moved the company from traditional software licensing to a subscription business model. Shifting from hardware to software then subscriptions has been challenging but necessary to meet the changing needs of customers, according to Dheeraj Pandy, CEO of Nutanix.
Pandey sees subscription business models becoming the norm across the enterprise software industry, especially as more companies rely on a mix of owning and renting computing technologies. Subscription business offer customers convenience and agility required to meet changing needs.
“Beyond the IT industry, we expect zero companies with anything other than a subscription business model will go public in 2020 and beyond,” Pandey told VMBlog.
Acquire Experiences, Not Things
Zuora points to two things driving the end of the ownership era: Breakneck tech innovation, spanning the Internet of Things to computer downsizing, and intense competition from a leveling playing field that allows new businesses to disrupt established ones.
At the roundtable discussion, IBM’s Carlson said that now isn’t about pushing a good, but considering, monitoring and adjusting the ecosystem surrounding the good.
“It is the age of experience,” Carlson said. “It has to be frictionless and easy. If not, they’re ready to jump to something else.”
For some big companies, that means big changes. Big data is today’s buzz, but legacy systems are often not equipped to give unbiased information. Toyota recognized the issue from the top down, beginning with the leadership.
“[President] Aikio Toyota said that we are now not an automotive company but a mobility company,” Vernardi said.
That starts with the car-buying process. For a century, Toyota and other manufacturers have been dependent on the dealer not only to take care of the customer, but to relay customer needs back to them.
“We need to know our customers better,” Vernardi said. “That used to be left to the dealers. Now, we have a lot more information coming in.”
Vernardi’s offshoot Kinto has gotten creative like bundling insurance and maintenance with the car lease, since dealerships make steady money on car maintenance. Or letting dealers offer car rentals for a few hours to customers, which opens up more revenue opportunities for cars that are sitting on the lot.
“In these cases, the dealers are getting traffic to their dealership and getting paid for doing regular vehicle maintenance,” Vernardi said. “Could be a win-win.”
But these are just dreams without an agile technological backbone.
[Related story: Letting Go of the Information Technology Iceberg]
“The challenge is our legacy systems,” Vernardi said. “They are not flexible, from billing on up.”
Agility, Carlson said, is the key for organizations growing into the experience economy.
“It’s like the early days of the web,” she said. “You build it and see what works. It may not be what you think."