Zuora’s Biannual Subscription Economy Index Defines the Health of a Burgeoning Global Economy
Zuora, Inc. (NYSE:ZUO) the leading cloud-based subscription management platform provider has released its biennial Subscription Economy Index™, revealing that Australian subscription companies grew revenues ten times the rate of the ASX sales-per-share index.
The global benchmarking study, measuring the collective health of subscription businesses, found that over a seven-year period (January 1, 2012 to December 31, 2018) the companies featured in the 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).
Zuora is one of the first companies to publish 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.”
Zuora’s Vice-President and General Manager of the Asia-Pacific Region, Iman Ghodosi, said he has witnessed first-hand how the Subscription Economy is expanding into new spheres and putting down deep roots in the global economy.
“We’ve been doing a lot of evangelising for the last seven years in Australia, and it’s paying off. More and more Australian businesses are seeing subscriptions as a strategic part of their business growth. They realise that it generates more dependable revenue, and many of them are calling on Zuora to power their shift into the Subscription Economy.”
“The billing system is vital to subscription management success, but we’re talking about a change that goes so far beyond that. This is a revolution in the way people in Australia and New Zealand – and around the world – are thinking about the way they buy and use the things they need for everyday life. It’s a shift from a product- and company-focused economy to a service and customer-focused economy,” said Ghodosi.
Ghodosi wasn’t surprised to see the APAC SEI level rise around 16% over the year in 2018, demonstrating that APAC subscription companies achieved ten times the growth of the ASX index.
“Subscription companies adopt a flexible IT architecture from day one, allowing them to quickly penetrate international markets, accept global payments, measure financial growth and to iterate over time.”
“In other words, they’re born free of the limitations of the product economy and the customer is at the centre of everything they do,” said Ghodosi.
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 led 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 fuelled 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
- SaaS was the fastest growing sector in 2015 and 2016. But as of mid-2017, the IoT cohort grew even faster. The only sector unaffected by a slowdown in 2018 was telecommunications. Telco instead accelerated in 2018 and ended up equal to SaaS for growth in this two-year period.
Leading analyst firms have also dedicated resources to researching this global business trend. Gartner predicts that “by 2023, 75 percent of organisations selling direct to consumers will offer subscription services” and in its Digital Commerce State of the Union survey, Gartner found that 70 percent of organisations have deployed or are considering the deployment of subscription services.
Download the full Subscription Economy Index™ (SEI) here for more information on Subscription Revenue Growth by Business Model, Revenue Band, and Industry; Subscription Churn Rates by Business Model, Industry, Company Size, and Region; B2B, B2C, and B2Any Sub-Indices; and Growth by Region: EMEA vs North America.