While sitting in the audience at Zuora’s Subscribed event for customers and partners in San Francisco this week, I couldn’t help contemplate the meaning and progress of what was once a set of words that didn’t roll off the tongue. I am talking about the "subscription economy" — and it’s really something.
The data coming in from a variety of sources shows how rapidly subscriptions have become a big part of our lives, and why not? As I am fond of saying, subscriptions have become the way to commoditize technology and other things so that they can spread to the largest markets possible.
Eighty percent of consumers were seeking new consumption models in 2014, according to The Economist. Also, half of the people in France were moving away from traditional ownership models, and 80 percent of German companies already had addressed the issue of subscriptions.
We spent US$420 billion globally on subscriptions in 2015. Now that’s not huge in a world where the aggregate GDP is $75.59 trillion, but here we’re looking at direction. Subscriptions were a mere $215 billion in 2000, according to Credit Suisse, so we’re still early on the hockey stick. Let’s just say the puck has been dropped.
We once relied on mass production and mass consumption models to do the commoditization job — and they were somewhat effective, giving us the largest middle class the world has ever seen. Everyone on the planet — except the top 1 percent — wants many of the accoutrements of middle class life, whether that means having an iPhone or a diet rich in protein, or a car, and it’s amazing how many of those elements lead from subscriptions.
However, it’s also worth noting that mass consumerism resulted in products for mass markets that were diluted or a little less capable than the good stuff. Subscriptions aren’t like that; everybody gets the same product via subscription, which means that subscriptions effectively have done an end run around much of the degradation, while increasing quality in ways we wouldn’t have thought of before.
All is far from bliss, though.
More people in the world have access to a mobile phone than have access to a toilet, according to the World Bank — something I discovered while doing research for a forthcoming book.
We’re making progress, but…
While you can’t subscribe to cow or chicken, the money you save subscribing to other stuff makes buying those things easier.
All of this was running through my head when the words "subscription economy" hit me, once again at Zuora. It also made me realize that the "[xxx] economy" is now a meme. Everybody wants to position their offerings as so revolutionary that they constitute a unique thing, which brings tech news japan
us to the "Salesforce economy," a term that’s been around for a couple of years, thanks to the likes of IDC and Gartner.
Like the subscription economy, the Salesforce economy is significant. In the context of world GDP, it can look small — but again, it’s the direction of the graph that’s of interest.
The Salesforce economy will be worth at least $389 billion in revenue between now and 2020 and it will account for 1.9 million new jobs during that span, according to a recent IDC white paper. Considering that Salesforce will be a $10 billion company in its current fiscal year, some accounting is in order — but that’s easy. The lion’s share of this revenue, as well as the job creation, will come from the ecosystem and partner communities.
Total IT spending will be up 1.4 percent in 2017, Gartner has forecast. That’s a small amount, except that it’s on a base that will total $3.5 trillion. So if you make an apples-to-apples comparison, the Salesforce economy, at $389 billion over five years (from when the estimate was made), is rather puny — but again, it’s the direction that counts.
Moreover, it doesn’t make sense to look at Salesforce in isolation, though I know a few people who wish I’d do that. To that estimate let’s add Oracle — its cloud business is growing like Jack’s beanstalk — and Microsoft, which is no slouch. While we’re assembling a good list, we should add SAP, Amazon and Google too. Together, these companies are the backbone of yet another revolution in IT.
From Crazy to Healthy
Still, don’t think the revenue numbers always will go north, even though we’ll see much progress. Subscriptions cost less but collect more revenue over time. To translate, this means we could see global revenues stuck at a little over $3.5 trillion, even while much progress is being made in moving businesses to the cloud and to subscriptions.
Nonetheless, I think we’ll see a healthier IT community — one that’s not wedded to strict hardware hierarchies and tribal software. It’s a mark of success for what, less than 20 years ago, was an idea that at first might have seemed crazy. Today we’re watching hockey sticks and absorbing new memes.