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New Subscription Economy Index Shows Subscription Businesses Growing 9X Faster Than S&P 500 Ones
Over the past few years, there’s been a lot of talk about subscription companies. Today, Zuora, a company that powers subscription-based businesses, which we wrote about in the magazine last year, launched an index to track what its CEO Tien Tzuo calls ‘the subscription economy.’The 2015 piece is pretty interesting:
The Subscription Economy Index looks at revenue growth of subscription businesses, and compares that growth to two key benchmarks, sales for companies in the S&P 500 and U.S. retail sales. The result: Since the start of 2012, the sales of subscription economy businesses are growing nine times faster than sales of companies in the S&P 500 and more than four times the rate of U.S. retail sales. From January 1, 2012, through September 30, 2016, the subscription businesses have increased sales 15.1% versus 1.7% for revenues of companies in the S&P 500 and 3.6% for retail sales, including e-commerce.
The index is based on data from 353 businesses that have been live on Foster City, Calif.-based Zuora’s platform for at least two years. While subscription companies use annual recurring revenue as their metric, Zuora’s index has calculated that number based on a backward-looking total of invoices to make it comparable with the revenue figures in the other benchmarks. Zuora intends to do quarterly updates on its new index, and ultimately to use it as a benchmark for providing detailed analysis to its customers.
“We’ve been evangelizing this shift to the subscription economy for almost 10 years,” Tzuo says.
“We could feel that there seemed to be this tipping point in the subscription economy, but we never had any data to prove it. Now we can show that the economy is shifting. People are not buying more CDs and DVDs; the growth is in streaming music. People are not buying more software; the growth is in software as a service. And pretty soon you will start seeing car sales down because they will move to subscription.”
Zuora has a lot of data on subscription businesses, and a lot of incentive to show that these businesses are growing quickly. After all, Zuora’s clients include Dell, Fairfax Media, Informatica, Docusign and more than 800 other subscription-based businesses. Six months ago, Tzuo and Zuora’s chief data scientist, Carl Gold, started thinking about what they could do with the data and came up with the idea for the index. At first, when Gold compared the subscription businesses to the S&P 500, he thought the former were growing 2.5 times faster, Tzuo recalls. “Then he called me back and said he made a little mistake, and didn’t look at the other field to see if the growth numbers were positive or native,” he says. The result, was a much more dramatic comparison. “When we saw nine times, we had this immediate reaction, ‘Is the data wrong?’” Double-checking the numbers, he says, it turn out the dramatic comparison held.
Not surprisingly, the tech sector still represents the fastest growth for subscription businesses, with the hottest segments being software-as-a-service (think Salesforce and Zendesk), media and telecommunications....MORE
Zuora's Tien Tzuo Had A Big Idea For Software To Drive The Subscription Economy -- He Almost Blew It