In my previous post, I’ve discussed about what does the future hold for companies with recurring revenue strategies. This time around I’ll be talking about the reason why the recurring revenue model is spreading. Probably the most important aspect of the recurring revenue model is that it provides the opportunity for companies to make big changes to their markets, utilizing either existing or new products. More and more companies are taking advantage of this opportunity by introducing models based on subscription or usage. The figures say everything about why the recurring revenue model is such big news. At the end of 2012 it was estimated that the average US consumer spent $857 each month on subscription services.
Given this figure, it’s not surprising that research by The Economist’s Intelligence Unit in 2014 showed that 51% of companies either had changed or were in the process of changing, the way in which they charged for and delivered their product. Further research by Incyte found that 47% of businesses in the US were either using or considering using, a recurring revenue model.
Why has the recurring revenue model become so popular?
One of the major factors in the popularity of the recurring revenue model has been the success of early exponents such as Netflix. Throughout the US, and internationally, those at the top of companies have been eager to taste some of that success. If you want evidence of just how big the recurring model has become, just take a look at major companies such as Microsoft, United Airlines and Toyota who have all introduced some level of recurring revenue offering. This has not necessarily necessitated major change, with some movement simply being in the repackaging of existing products.
The Netflix example
Netflix is probably most outstanding example of the introduction of a completely new distribution model. It has in excess of 44 million subscribers worldwide, which is an incredible level of success. Looking closely at the Netflix story though, you can see there was no new product created. All Netflix did was to package and monetize the product in a different way. This completely new model took over from the old model of video rental chains such as Blockbuster. Since then, Netflix has changed its own model and moved into the provision of online video streaming. This has helped it to keep up with customer preferences and demand.
Looking at the future you can see how valuable it is to change up your model, as Netflix has done. According to predications by Gartner, there will be 26 billion connected devices by 2020. This opens the door to a huge range of services with the potential to generate more than $300 billion in annual revenue. Now you can see why more and more companies are concentrating their efforts on creating a recurring revenue model, in order to best monetize their services.
If you liked this post, stay tuned for the next one. I’ll be talking more about how to start developing a recurring revenue strategy.