When one of the world’s largest banks, UBS, issues a major report declaring the Subscription Economy is on track to be one of the fastest-growing industries by 2025, we definitely take notice. (And so should you.)
UBS’s report takes a deep, dive into everything related to the subscription model, from analyzing sector growth to outlining the key tech disruptions that are creating a rich environment for the model to spread.
Here are the report’s most interesting takeaways:
•As many thought leaders have noted, the pandemic has accelerated changes in almost every aspect of life, from shopping to entertainment to health and fitness. Now more than ever (we know that phrase is overused, but it’s spot-on here!), people now expect both convenience and value from the products and services they use. And subscription businesses are scratching that itch.
•In fact, UBS expects the Subscription Economy to expand into a $1.5 trillion (USD) market by 2025 (up from $650 billion in 2020). That’s an average annual growth rate of 18%. That’s huge.
•This growth is also reflected in the bottom lines of companies with subscription business models. Because subscription companies focus on creating strong lifetime customer value (LTV), they naturally accrue the benefits of that model: limited revenue volatility and stronger cash flow.
•Make fun of them if you want, but millennials are the ones behind the massive shift toward digitization. They—and the Gen Zers right behind them—are true digital natives who prefer “access over ownership”: paying for Uber, not a car note; streaming a new release on Netflix, not buying a DVD. The Subscription Economy model is what makes this shift possible.
•It’s now not just consumers who are leading the Subscription Economy charge. More and more corporations are now embracing a subscription model because they love how it allows for more predictable and sustainable cash flow. Think going from paying for huge data processing centers to subscribing to storage in the cloud.
•While US companies lead the pack in the subscription model, UBS believes that China will be a key player in the years ahead.
•UBS also predicts that 5G will be a driver for subscription businesses, especially in areas that rely heavily on network latency, such as cloud gaming and autonomous vehicles.
•Though emerging markets are naturals for embracing the subscription model, UBS also expects subscriptions to broaden and gain big traction in more traditional areas like financial services and industrial manufacturing.
•When it comes to manufacturing, the emergence of the Internet of Things (IoT) world is creating huge paradigm shifts in how big companies do business. According to Ericsson, the number of Internet of Things (IoT) products is set to more than double over the next six years, from 12.6 billion units in 2020 to 26.9 billion units in 2026. This means that manufacturers are, more and more, going to a hybrid business model: they’re still making hard goods—refrigerators, washing machines, tractors—while also developing a robust subscription business based on the connectivity of these products.
Conclusion
UBS believes that the long-term benefits of subscription companies—steady growth, better margins, less chaotic cash flow, and happy shareholders—are only going to become more apparent in the years ahead. And that makes investing in Subscription Economy companies seem as sure a bet as anyone can make in today’s volatile market. For more information and to download the report, click here.
