From Software to Subscriptions: The New Business Model Taking Over

Subscription companies are taking over the market.

OG Image from Zuora Subscription Economy Index

Let’s understand why:

(Here’s a complete breakdown that can help you understand if you should build a consumer subscription.)

Continuing a great product isn’t the challenge in most public software businesses.

(Like Microsoft Excel or Adobe Photoshop.)

Rather, getting your loyal users to keep paying you for it is the real challenge.

Subscriptions enable that.

Financially, they drive:

1. Increased ARPU & LTV
   ⤷ Customers tend to monetize more and for longer
2. Reduced CAC
   ⤷ You need far less marketing & sales to get your loyal customers to pay again
3. Stable Cash Flow
   ⤷ Recurring revenue means cash flow becomes more predictable

But it’s not just on the business side. Consumer acceptance is also increasing.

Continuous updates from product teams have justified the continuous charges.

Both sides of the equation have come together to drive the continued outperformance of subscription businesses.