The rapid development of Internet and cloud services has led to the creation or transfer of many types of business from perpetual licenses to a subscription. Netflix, Spotify, Dropbox, Salesforce, and recently undergone procedure of direct listing Slack on the stock market many companies with valuations in the billions of dollars to build their monetize subscription.
Private technology company with estimates of over $1 billion (so-called Unicorn Club) are increasing, now they number in the hundreds — they do not tend to hold the IPO, because no difficulties of attracting capital.
CB Insights noted growth of investments in private technology companies for 1 year 2.5 times while reducing the number of transactions, indicating that growth of investments in companies with high capitalization. Venture capital and institutional investors rushed to the company, primarily generating subscription income in its revenue structure.
Such a pronounced trend does not mean that the subscription is the best option of selling your product, but he convincingly proves in many situations, subscription monetization has its indisputable advantages.
The subscription model of monetization — a source of income
Large companies, for which the transactional model is the main source of income, quarter after quarter show in reports the increase in subscription income. So, Apple is in reports for investors demonstrate plans to shift the focus towards subscription services starting Apple TV+ Apple Arcade and similar projects. Similarly, Microsoft is increasing its revenues through cloud services subscription.
The reality is that companies can increase their revenues by collecting revenue through subscriptions instead of selling licenses. Adobe promptly saw a need, rebuilding the monetization of its products. For 2018, the share of subscription income in all income of the company amounted to 86%, with annual growth of almost 30%.
Even in companies for which a subscription is quite obvious model, it shows good results. For example, membership in the Playstation. The leader of the game industry still makes a major bet on sale, but still pays attention to the subscription, offering subscription service Playstation Plus. In Russia, Yandex is developing a “plus” and Ozone premium for such businesses, the subscription was not typical. Car manufacturers such as Porsche, offer their cars on a subscription. Obviously, the number of such examples will only increase.
Moreover, using the subscription model has changed the balance of power in entire industries. For example, brokers: the Company Robinhood in the US do not charge for transactions, but offers part of its functionality by subscription. The business attracted a huge audience, and at the moment the estimated value of the company exceeds $6 billion In Russia, such a model may consider, for example, Tinkoff Investment.
The income generated by subscription — not a panacea
While we considered the significance of this phenomenon as a subscription and the advantages that it creates. If a perpetual license is a high threshold of entry, relatively low LTV (Lifetime Value — the revenue throughout the customer lifecycle), and demand a constant influx of new customers, the subscription monetization is the ease of engaging, growing, and predictable income. Significant pros, but the cons are also present.
First of all: a subscription model would be difficult to switch companies with complex products that have distribution lined up through the dealer network. In this case, of course, the perpetual license is preferred. The same applies to industries where the customer pays for units of services consumed — for example, the ad impressions in Google AdWords or travel in “Yandex. Taxi”.
The introduction of the subscription model makes sense to evaluate separately for each business. But even in complex cases, it is possible to build a mixed model, receiving income transactional way and complementing its subscription services.
5 ways to make subscription work better
Make benefits transparent
To the user need to convey the generated signature product value. A significant part of the success of services such as Trello, Monday, Realtimeboard, based on the fact that they involve the user into the product, focusing on the benefits and explaining in detail the functionality.
The simpler the user to start using the subscription, the better. Netflix, Grammarly and hundreds of other services offer a free trial period: people who have already tried the product, likely will purchase it.
Work with outflow
If you disable a subscription, it does not mean that he will cease to be your customer. Create a mechanism by which the system says you have to disable the subscription of the person the reason for the decision, and let the system immediately generates an offer based on the response. Let’s see how it is implemented, for example, in ClickFunnels.
Correctly fill rates
The plans page is an important sales tool subscription: it must be structured and formalized so that the user would like to buy the best plan for you. Accents, positioning blocks, visualization, everything should persuade a person to the “right” purchase. View, as is done in Dropbox or Calm, this is a great example of a working design.
Play on growth parameters
To maximize the revenue from each subscription, tie pricing to the parameter increasing along with the amount of usage of your service by the user. Data storage, the number of subscribers, the number of actions per day — so make Tunnelbear, Kissmetrics, Chargebee and hundreds of other companies, which helps to increase LTV.
Subscription monetization in the practice of many companies shows good results and, therefore, it makes sense to consider its application. It is possible that this decision will expand the potential growth of your business.
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