According to the latest Subscription Economy Index™ (SEI), subscription businesses grew revenue 11.6% while revenue of product-based companies declined by 1.6%. In FY21 Q4 alone, subscription companies in the SEI experienced revenue growth at a rate of 21% — seven times faster than S&P 500 companies’ growth rate of 3%. The latest SEI report highlights the ways in which companies with subscription models were able to adapt to changing customer preferences during the pandemic. Many companies across industries are propelling their businesses forward by automating administrative processes, broadening access to services, and placing the power in the hands of the subscriber to choose and self-manage subscriptions.
SaaS and Telecommunications Lead in Revenue Growth Recovery Among SEI Sectors
Even as the impact of COVID-19 has caused many businesses to struggle, overall subscription companies have proved resilient.
SaaS and Telecommunications come out on top
SaaS (identified within the SEI as companies whose software is accessed online via subscriptions, including traditionally perpetual software shifting to SaaS, pure B2SMB SaaS, B2Every SaaS, and Enterprise SaaS) and Telecommunications (which includes videoconferencing, satellite communications, broadband networks, digital infrastructure, and fiber networks) companies in particular fared well in 2020, leading in revenue growth recovery among SEI sectors.
SaaS led SEI revenue growth in the final quarter of 2020, driven by Q4 small business recovery.
The SaaS sector includes digital software solutions that support businesses and consumers. The “SaaS” model was already the predominant and preferred approach for accessing software capabilities, and the trend toward subscription-based software only accelerated as a result of the pandemic. Because these solutions are delivered via the cloud, customers benefit from anytime, anywhere access. This was especially critical this past year, when many people were working, learning, and living in their homes. Companies that offer subscription software solutions are generally resilient due to a number of factors, just one of which is a recurring revenue model. A key strength lies in their ability to constantly respond to customer demand and to improve, update, and innovate via the cloud.
“There’s a reason why successful SaaS companies use subscription models. Any as-a-service business needs to re-think the traditional go-to-market model and focus on building a customer experience that makes services easy to use, renew, and expand.”
To optimize for growth, companies in the SaaS sector must continue to innovate around the customer experience and build go-to-market strategies for retention and expansion, as well as acquisition.
SEI Telecommunications sector led in year-over-year revenue growth.
In response to shelter-in-place mandates, 2020 saw an influx of remote and mobile work environments. Meanwhile, individuals faced travel restrictions and were limited in their ability to meet in-person with friends and families. Telecommunications enabled remote workers to collaborate and helped keep people connected which may be why revenue of subscription telecommunications companies in the SEI grew an average of 10% in 2020. Subscription telecommunications providers in the SEI more than tripled new account growth in 2020’s Q4 compared to 2019’s Q4, while keeping account churn low.
“Telecommunications companies are increasingly adding new subscription services - expanding beyond voice and high speed Internet access - bundling video conferencing, OTT streaming, and IoT with their core offerings. According to The 5G Economy, 5G’s full economic benefit should be realized around the globe in 2035, when a broad range of industries could produce up to $12.3 trillion worth of goods and services enabled by 5G mobile technology.”
Remote workforces are a key factor supporting continued growth for telecommunications providers. A July 2020 survey from Gartner found that 82% of business leaders plan to allow employees to work remotely at least some of the time. In order to maintain growth, subscription telecommunications companies should strive to flex with customers’ needs and adapt to subscribers’ preferences to deliver targeted services.
Subscription business thriving
Throughout 2020, SaaS and Telecommunications companies weren’t the only sectors that were able to maintain growth. The COVID-19 pandemic while having countless dire impacts on individuals, communities, and business, served to accelerate the “End of Ownership” business trend, consumers drive away from ownership and towards easy-to-access services delivering desired outcomes, convenience, value, and variety. Now and in the future, we expect that resilient businesses will design their offerings for ultimate consumer flexibility and freedom — not solely creating products to be sold as one-time transactions, but designing services that customers can tap into anytime, anywhere, to whatever extent that they choose.