A significant number of consumers are part of the Subscription Economy: an Amazon Prime account, streaming on Hulu or music on Spotify… And this market is growing exponentially both locally and globally.
Subscription services are so common that it's easy to forget that the business model as we know it today is relatively new. Netflix, long considered an industry pioneer, launched its first monthly subscription product in 1999.
In the two decades since then, we have seen the "old" world of one-off products and transactions become a new world of subscription trading with predictable and recurring income, from software to heating and air conditioning maintenance, through healthcare and home or office cleaning, to real estate and growing in all sectors.
The 2020s will most likely become the era of B2B subscription commerce, with companies looking to subscription models for anything they can. be monetized based on value rather than ownership.
Investors are rewarding the shift towards this recurring revenue model with significantly higher company valuations than those with transaction-based business models.
However, selling simple subscriptions to consumers for products like razors or streaming media is quite different from selling software, services, data, hardware, and more to businesses and their employees.
IMARC Group predicts that the "anything as a service" (AaaS) subscription model will grow by 2024 to $ 344.3B
Subscription Model Considerations
The subscription model has been around since the XNUMXth century, when publishers relied on subscriptions for regular income from book sales. However, these early ancestors of Amazon.com did not have the advantages of always active and connected digital technology that has made the model globally what it is today.
Scope of Trade by Subscription
Any product or service you subscribe to and pay for can be considered part of subscription commerce, but there are a few key differences between offerings on the market.
Today, subscription commerce is most often associated with two categories of business-to-consumer (B2C) products:
 | Consumer Products, where customers contract for regular delivery of a wide range of items, from beauty products to pet supplies, clothing, and more. |
 | Subscriptions to streaming media services, including Movistar, Disney+, Netflix, Hulu, Spotify, Audible and others. |
A third relevant option included in subscription commerce is products “as a service” (as a Service) in the public cloud. These are infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS). While some "as a service" offerings may fall into the category of consumer products, most are business-oriented B2B solutions.
The new B2B subscription models
While Software as a Service, SaaS, pioneered the economics of B2B subscription commerce, companies are now focusing on how to monetize other products, such as data and data sharing, business services, energy, and more. These types of offerings are often referred to as XaaS. As B2B subscription commerce continues to evolve, the offering will likely incorporate:
| - Software | - Energy |
| - Hardware | - Financial services |
| – Data (for example, from sensors and other equipment) | – Heavy or complex equipment in pay-per-use mode |
One important difference is that subscription commerce is not the same as e-commerce. Subscription commerce, whether B2B or B2C, focuses on managing an ongoing customer relationship, while e-commerce is about a one-time transaction.
Hardware as a service will be the next evolution in the Internet of Things (IoT). The rise of XaaS shows that companies are thinking creatively about the types of products and services that can be offered in subscription mode. This significantly affects the IoT sector, where companies not only offer software, data and other digital services, but also subscriptions to the hardware itself.
A model in which everyone wins
Subscription trading is beneficial for both sellers and buyers.
With subscription commerce, the seller obtains a constant and recurring income stream, which simplifies aspects relevant to the company:
- Forecast future cash flows and budgets
- Lower administrative cost associated with time tracking and billing
- Higher valuations drive: capital markets value subscription income more than other types
The buyer, on the other hand, ensures a constant, recurring, and predictable cost that facilitates:
- Better planning and budgeting on the necessary solutions
- Cost reduction (time, internal resources and CapEx) of the solutions
- Reduction of risks in the activation processes of new tools
By adopting B2B subscription commerce models, you can also extend revenue beyond recurring.
- They produce for brand differentiation
- Improve customer loyalty
- They gain flexibility and reduce their cost of sale.
- Investors reward recurring revenue models at much higher valuations than companies with only traditional one-time transaction models
Differences between B2B subscription and consumer subscription
The main feature that separates B2B subscription commerce from other subscription types is complexity.
Selling, implementing, and managing recurring B2B digital products is completely different than selling simple subscriptions to consumers.
In B2B subscription commerce, providers of such services need to consider things like:
- Sales channels for software subscriptions (marketplaces, assisted sales, reseller channels, etc.)
- Manage taxes, vendor and reseller reconciliation, and other advanced financial management considerations.
- Ensuring the security of highly sensitive business data
- Subscription pricing (per seat, per volume, per month, etc.)
- Manage specific prices and discounts for clients or contracts
- Manage identity and access management (single sign-on, rights, statistics, access, etc.)
- Bundle different subscriptions with multiple services, on a single bill, with interconnected discounts
- Provision, deploy, and migrate software
Taking all these factors into account, subscription trading is not the same as subscription billing.
| subscription billing | subscription trading |
|---|---|
| Also known as recurring billing, it's one of the engines that drives subscription commerce, but it's only part of it. Subscription billing is the ongoing periodic payment for a product or service until the customer cancels or the subscription expires. | It covers all the technology and processes that drive the sale of digital products on a recurring basis, from sales operations, marketing, product delivery and implementation, supplier management, customer support, life cycle management , etc |
A great subscription billing solution, but without a strategy and platform, your subscription commerce efforts will fall short.
The Challenges of B2B Subscription Commerce
Selling to businesses is always more complex than selling to a retail customer, and B2B subscription commerce is no exception.
| B2B subscription trading… | Which makes it complex because… |
|---|---|
| It's multidimensional | The relationship involves multiple people across multiple channels and devices. For example, you can bill subscription service, but you can bill multiple providers, across multiple channels (ie, resellers), manage reconciliation and payments for resellers for those same sales, etc. |
| Increased sales support | Customers need support with the decision and purchase process as they consider all of their business needs |
| It usually involves the channel | Many B2B SaaS products are purchased indirectly, through resellers, referral partners, distributors, etc., which adds a layer of complexity |
| Includes complex products and services | Meeting the needs of businesses typically requires robust, multi-tenant products and services |
| Requires seamless integration | B2B customers need a seamless experience throughout the process, which means ensuring internal systems including CRM, ERP, customer support and more are connected. Multi-tier distribution and indirect sales channels add new layers of difficulty |
| Must accommodate a variety of payment options | Companies pay in various ways, including credit cards, transfers, invoices, etc. This implies adapting to a variety of payment types and flexible terms: installments, volume discounts,… |
| Involves various decision makers and interests | Unlike an individual, an underwriting contract often requires pricing, negotiation, and approval from many departments and individuals within the client organization. |
