Zuora 'Subscription Economy' Report Indicates Huge Greenfield

By Chris Preimesberger  |  Posted 2016-04-13 Print this article Print

The Subscription Economy is about customers signing up for products and services in monthly or yearly retainer-type accounts, and it's a $100 billion IT market.

With cloud services now pretty much a standard way of running IT business in most sectors, we're starting to hear now about how this shift is spawning new digital economies.

Naturally, these are self-serving in some ways for their creators, but there's an element of truth in all of them. The "Service Economy" is one that goes back decades in time; recently, we've added a couple of new ones: "The Membership Economy," as espoused by author Robbie Kellman Baxter in her book of the same name. This is based partially on the Subscription Economy, which was thought up by business process servicer Zuora.

The membership and subscription economies are all about customers signing up for products and services made available in monthly or yearly retainer-type accounts, similar to how Netflix, Pandora, Salesforce, Box, Neat and many others do business.

This also can apply to independent businesses, such as nail salons and car washes, in which customers pay a monthly fee and then can use the service as often as they desire.

Zuora on April 12 in San Francisco at its annual conference, Subscribed 2016, released the first-ever report on the total addressable market of the technology powering the Subscription Economy ($102 billion). It was issued by Zuora and MGI Research, which analyzed a whopping 34,796 companies in 116 countries across 10 geographical regions and 66 industries.

"This is a legitimate report," CEO and founder Tien Tzuo told eWEEK. "These guys (MGI Research) were all at Gartner 20 years ago when they coined the term 'ERP' (enterprise resource planning). They all have a very disciplined approach. You can get the whole data set and play with the numbers yourself."

You can download the report here (registration required).

The report estimates that 20 percent of Fortune 1000 companies will adopt the subscription billing model by 2020, proving that subscriptions aren't just for consumer companies like those noted above, but making headway into publishing, healthcare, airlines and manufacturing.

The $100 Billion Subscription Economy

The past decade has seen half of the Fortune 500 companies either go out of business or get acquired, a few years of inflated valuations and now zero U.S. IPOs in 2016, Tzuo said.

"But with all the talk of gloom and doom, there is a bright spot: the Subscription Economy, and it's a $100 billion opportunity," Tzuo said.

"The 20th century Era of Products is coming to an end. People are realizing they have all the stuff they need, and there's now a chance to subscribe to services that give them the outcome they want without buying the product," Tzuo said. "As a result, companies in publishing, media, healthcare, airlines, security, telecommunications and manufacturing are transforming into software and services businesses and, rather than focusing on shipping more product, they are instead focused on growing and monetizing a loyal customer base."

Forecast on Subscription Economy Tools 2016-2020

The MGI Research Forecast Report on Agile Monetization Platforms projects a $102 billion total addressable market for Subscription Economy software tools through 2020, with 20 percent of Fortune 1000 companies adopting solutions during that time.

To clarify: An AMP is comprised of nine primary functional areas: agile billing, financials, order management, e-commerce, customer support, CPQ (Configure-Price-Quote), contract management, revenue recognition and mediation.

Foster City, Calf.-based Zuora's platform, which has been in the market for a full decade, is an agile billing solution with the second largest individual TAM in the AMP market at $15 billion, which follows customer service at $46 billion.

Zuora counts among its many customers Ford Motor Co., Genera Motors, The Wall Street Journal, Schneider Electric and many others—including a high number of midmarket firms.

Facts and Figures from the MGI Report

Subscription economy tools by the numbers, according to the MGI report:

--$102 billion: Total Addressable Market for Agile Monetization Platforms by 2020.

--20 percent of F1000 companies adopting agile monetization platform.

--Data from 34,796 companies in 116 countries across 10 major geographic regions, 66 industries within 10 economic sectors.

--Collectively these companies have $50 trillion in revenues, accounting for over 63 percent of worldwide GDP and over 70 percent of North American GDP.

--The average company modeled in the AMP TAM Study generates $1.425 billion in annual revenue.

--MGI Research expects AMP spending to rise from $8.5 billion in 2016 to near $36.75 billion in 2020.

TAM of the Subscription Economy by Geography

--North America: $50.441 billion in TAM; U.S., with $46.54 billion in TAM, is the single largest market for AMP solution.

--Germany, the United Kingdom and France: second-largest sub-region for AMP at $13.743 billion in TAM.

--China and Hong Kong: third-largest sub-regional opportunity for AMP with $9.764 billion in 5-year TAM.

TAM  by Industry

Industrials, information technology and consumer discretionary sectors represent the top three opportunities for AMP. Overall, there are six sectors that have an AMP 5-year TAM in excess of $5  billion—in addition to the Top 3 segments listed above, energy, consumer staples, and financials round out the top six sectors.

--Industrials: $26 billion

--Information Technology: $22 billion

--Consumer Discretionary: $14 billion

--Overall, there are six sectors that have an AMP 5-year TAM in excess of $5  billion—in addition to the top three segments, energy, consumer staples, and financials round out the top six sectors.

You can obtain more details here.

Go here to download the MGI report (registration required).

Chris Preimesberger

Chris Preimesberger is Editor of Features and Analysis at eWEEK. Twitter: @editingwhiz


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