Amy Konary, VP of Customer Business Innovation and Chair of the Subscribed Institute, brings over 20 years of experience advising companies on subscription business strategies.
JJ Xia is Zuora’s Director of Customer Strategy and oversees messaging, positioning, and strategic initiatives around the Zuora customer experience.
We talk to Amy and JJ about how COVID-19 has impacted the growth of subscription businesses and what companies are doing to respond to the changing market.
[JJ] Once COVID really hit the economy back in March, we wanted to determine how COVID has impacted the growth of subscription businesses. We evaluated a cohort of roughly 700 companies and we compared how their businesses fared between March through May of this year, in comparison to their previous year. So, February 2019, through February 2020. The report reflects our findings as well as verbal feedback from individual customers. What’s neat is that because our customers span several different industries and geographies, we’re able to identify patterns, and the report spells them out. In terms of subscription growth rates, overall, four out of five companies are still growing. If you double click into that number, roughly 50% of companies actually saw no impact at all from COVID. 18% of companies are actually accelerating and gaining more and more subscribers over the past three months while roughly 17% are slowing down, but still growing. And the remaining less than one in five companies are contracting.
[JJ] In the software and high tech industries, there has been no huge impact. Three months of remote work and school gave a nice lift to e-learning software as well as communication software vendors, like Zoom. We’ve also seen comebacks from the software companies serving businesses that were closed for three months. While growth has not been severely impacted, there is this shift in focus to renewals. You can see a spotlight on both customer success, and companies that are trying to offer more commercial flexibility. A lot of media companies–both OTT and digital news–leaned towards free trials over the past three months. With so many people at home yearning for entertainment, media companies saw a huge surge in subscription signups, but they’re still facing a lot of headwinds regarding their revenue model, especially with traditional ad revenue. Unlike media and software, IoT subscription growth actually slowed down post-COVID while their revenue per subscriber accelerated. You can imagine with offices closed, work getting done at home, connected devices just weren’t top of mind. However, existing customers were, in fact, adopting, using, and investing more in these devices. If you look at what COVID has really exposed over the past few months, it’s a lot of gaps in supply chains, city infrastructure, so there’s an expectation that adoption for robotics, automation, and connected technology will surge after COVID-19. IoT is expected to ride that wave and accelerate its subscription adoption over the next few years.
[Amy] The financial model of the subscription approach offers the advantage of starting a new quarter or new month with an existing book of business: customers with contracts. Even in an economic downturn, contracts are still valid. Thus, the subscription model stands resilient to today’s crisis. And with so many subscriptions offered digitally, customers can continue accessing those services from home, and companies can stay in or grow their business. An important piece to subscription resiliency is customer relations. Customers are staying loyal to the subscription companies that were so valuable to them before COVID, trusting that when normalcy returns, so will that service and its value. So, it’s that notion of ongoing value of personalized services that makes you decide, “They already know me, I’m not going to cancel.” While some businesses approach customer relations one-on-one, we’re seeing others do this to scale using data and analytics, and it’s really powerful. Over the last quarter, we saw that companies that were farther along in their transition to subscription and SaaS did much better during COVID-19 than those that still had a heavy dependency on a perpetual license business. So in the software space, particularly with B2B, there’s definitely an advantage in having a subscription offering in the market.
[Amy] We saw the use of the suspend and resume feature increase four times in our customer base over the last month or so. This pausing of subscriptions typically extends the overall length of an existing contract – an excellent churn save tactic, saving an average of one in six churns, according to Subscribed Institute research with that tactic.
[JJ] A lot of companies actually delayed payments for customers, when their customers weren’t allowed to pay, or able to pay. We also saw them change pricing quickly in efforts to capture new subscribers or give discounts to existing subscribers. So, they were able to adjust things very fast, and all of that lessened the impact.
[JJ] I can say that from the data, it looks like growth rates are coming back to normal. If you look at how subscription companies are faring compared to non-subscription companies in the economy right now, they are doing much better, and are returning to normalcy much faster. If a second wave does hit, and businesses are impacted, we think that subscription companies will again be able to react quickly, and fare better than other types of business models.
[Amy] The other thing that we’re seeing is that a lot of companies were actually using this time to double down on innovation that will pay off for them, such as subscription models. There’s a lot of activity going right now in IoT, in segments that have been hard hit by COVID, to increase the rate at which they’re going to shift their businesses to recurring models like subscriptions. So I would expect that, when we reach the end of this point, whenever that is, we’ll see a lot more subscription models, not only from companies that have those approaches today in the market but for those that are building those right now.