Subscription Services Prove Their Resilience
2020-07-08 Terry Gaul
The worldwide spread of coronavirus (COVID-19) has wreaked havoc on the global economy in an incredibly short period of time. What businesses have been most resilient in sidestepping operational disruptions, supply chain interferences, and a general business morass typified during the global recession? According to a COVID-19 Subscription Impact Report published by Zuora, a cloud-based subscription management platform provider, subscription-based business have fared the best in weathering the near-catastrophic economic storm. The Zuora report was designed to measure the economic impact of COVID-19 on subscription businesses from March 1 to May 31, 2020 compared to the previous 12 months.
According to the report, 53.3% of companies did not see a significant impact to their subscriber acquisition rates. 22.5% of companies saw their subscription growth rate accelerate; 12.8% of companies saw slowing growth, but continue to grow; and the remaining 11.4% of companies saw their subscriber churn outpace their subscriber acquisition rates.
For existing subscription businesses, the report indicated that recurring revenue built on the loyalty of their customers helped them to sustain their business operations despite the economical downturn. Companies whose subscriptions were accelerating included video streaming, digital news & media, e-learning, telcos & utilities, and business communication software. As you might expect with a growing at home work force, SaaS providers whose products and services enable remote collaboration and communication between work teams remained strong.
Companies whose subscriptions continued to grow during the above mentioned time period, but at a 25% slower growth rate, included business IoT services, consumer IoT, and software for small business, like restaurants, salons, dentist offices and others who struggled to stay open during the crisis. To adjust to COVID-19, these companies focused on retaining existing customers by quickly sending out customer communications and offering adjustments, such as temporarily pausing a subscription or issuing credits, for subscribers most impacted.
Additionally, the report noted four commonalities in the business resilience of subscription-based companies:
- Subscription companies are able to focus on optimizing for long-term customer lifetime value. Given the COVID-19 economic impact, a number of subscription companies has seen a spike of subscribers who cannot pay on time, which results in the need for large volumes of adjustments, credits, and refunds. Instead of focusing on maximizing cash to keep the business afloat during these uncertain times, subscription businesses can focus on retaining their customers past this pandemic and maximizing customer lifetime value.
- Companies that provide the option to pause subscriptions build trust and reduce overall churn. The research shows that companies that offer customers the flexibility to change their subscriptions see a significantly lower churn rate (<20% churn rate) compared to companies that do not offer that option (>30% churn rate). The research also noted that companies that offer customers the option to suspend and resume their subscription services have a 5% lower annual churn rate compared to peers.
- Subscription companies facing resistance in the current market are able to quickly react by creating new product bundles, introducing new pricing plans, and offering new promotions. Because subscriptions are not tied to any single product, companies have the flexibility to quickly adjust pricing plans to accommodate their customers.
- Accelerating companies offer free trials as goodwill for the current crisis and as a tool to reach broader audiences amidst a crowded market. By offering such trials or creating new pricing bundles during this time, these companies are also able to take advantage of the increase in demand by broadening the funnel and quickly capturing the time and attention of new subscribers.
If you are an ISV and considering moving your application to a subscription-based model, a flexible software licensing platform is critical. However, not all license and maintenance subscription models are the same. Some applications can be used only for as long as the license right is valid and stop running after the expiry date. Others can still be executed, but won’t give access to additional upgrades or updates that are released after the expiry date of the maintenance contract. To see the big picture of subscription software licensing, I invite you to take a look at our on-demand Webinar, A Cash Machine for Your Software. This webinar demonstrates how to set up a subscription model in minutes with CodeMeter and CodeMeter License Central and integrate seamlessly into your back office systems.
Vice President Sales USA
Terry Gaul is a sales and business development professional with extensive experience in the software and technology sectors. He has been involved with software protection and licensing technologies for more than 20 years and currently serves as Vice President of Sales at Wibu-Systems USA. When he is not helping customers with software licensing, Terry typically can be found coaching his daughters' soccer teams or camping with his family on the Maine coast.