Subscription yields disruptive changes
Multiple examples make subscription a success story:
- Spotify: 96m people subscribed to have access to music at all times on any device ($5 billion revenues in 2018).
- Amazon Prime: More than 100m subscribers pay for quicker deliveries and access to video on demand ($13 billion revenues in 2018).
- Gillette on Demand: Procter & Gamble’s reaction to the subscription model of „Dollar Shave Club“, a business with 3 million customers and $200 million in revenues, eventually acquired by Unilever for $1 billion in 2016.
- Microsoft Office 365: 120 million business and 30 million private customers pay monthly fees. Microsoft was temporarily the most valuable company in the S&P 500.
Companies profit from the introduction of subscription:
- Following the Zuora Subscription Economy Index 2018, US companies with subscription-based business models had five times higher revenue growth than the S&P 500 from 2012 until mid-2018 (Europe: six times higher compared to FTSE and DAX).
Subscription enters the mechanical engineering sector (machines-as-a-service)
Mutiple examples with different levels of maturity:
- Rolls-Royce classic: „Power by the hour“ – customers pay for the usage of turbines.
- Caterpillar high level of maturity: Subscription data services enable cost reductions and increased productivity, security and sustainability.
- Heidelberger Druckmaschinen pioneer: Customers pay a monthly fee for the printing machine, consumables, workflow, consulting and service. Both parties profit from reaching agreed productivity targets.
- Kaeser Compressors pioneer: Offer includes availablity and optimization. Customer pays fixed price per m³ compressed air.
Subscription is far more than leasing:
- The machine is not sold to the customer, but offered as a service for a recurring fee.
- Subscription fees are usually output related (Number of flight hours, number of printing sheets, m³ compressed air).
- The fee often includes additional deliverables (maintenance, consumables, upgrades).
- Often the supplier also takes responsiblity for the constant optimisation of the machine or enters a participation model for increasing productivity.
Subscription increases customer satisfaction by addressing their specific needs
Subscription models are customer-centric and build longlasting customer relationships. Customers profit in various ways:
- Customers have a lower capital commitment as they transform Capex into Opex.
- They have a higher planning security.
- The output-related fee reduces the risk in times of weak utilization.
- Customers have access to the latest features and machine generations.
- If performance data is shared with the supplier of the machine, customers may receive tailored service, performance optimisation and higher productivity.