The subscription model is one that is familiar to consumers; people have been subscribing to newspapers for decades. In recent years, the subscription model has expanded to just about every good and service that individuals consume, including streaming entertainment and news, groceries, and even travel.
It is no surprise that the subscription model is infiltrating the model in which businesses sell their goods and services to other businesses (B2B). What is driving this shift? What advantages does the subscription model offer in the B2B world?
Origins of the B2B Subscription Model
Salesforce is credited with launching the B2B subscription model in 2000 with its “the end of software” marketing campaign, according to subscription consulting company Zuora. Salesforce, through its software-as-a-service (SaaS) to companies, provided a standard, distributed solution at a lower cost of entry so its customers wouldn’t need to worry about costly installation and maintenance.
Technology advances quickly. What is cutting-edge today may soon become obsolete. Subscription models provide access to the latest software capabilities and innovations, with customers receiving automatic upgrades when available. Without a hefty, up-front purchase price, it may also allow companies to test new products and services. It also releases companies from the difficulty, expense, and skills required to manage on-premise technology.
Subscription services are also geared toward providing convenience. Software subscriptions usually allow for a nearly instant set-up, simple scalability, and easy cancellation.
Potential Cost Savings
Buying technology usually requires a significant up-front investment which may be beyond the ability of some companies, especially small and medium-sized businesses (SMBs). Subscription services may remove this up-front fee, making it easier to implement the improvement and innovation offered by new technology. Therefore, subscription-based models may help level the playing field for SMBs by lowering the cost of access to digital and automated technologies, allowing them to compete with larger companies.
Potential Benefits for Companies Offering B2B Subscriptions
B2B subscription models may provide companies with a more predictable stream of revenue and cash flow. They may provide an additional source of revenue as companies, that could not afford an outright purchase of a good or service, may opt to subscribe. Additionally, companies offering B2B subscriptions may benefit from increased information and contact with the business customer and the ability to provide more customized products and services.
Not Just for Consumers
Subscriptions are not only for consumers. The subscription-based model may also have the potential to disrupt the way companies buy or sell services to other companies.
The Fount Subscription Economy ETF (SUBS)
The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Fount Subscription Economy Index. The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.
SUBS may invest in companies that offer subscription-based pricing models, including those in the technology hardware industry.
For a list of fund holdings, please click here.
 The Subscription Economy is Transforming B2B Operating Models, Subscribed, Zuora Website, Retrieved 5/1/22
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