Subscription Commerce

Report: Subscription Commerce’s Digital 3.0 Boost

subscription

Subscriptions are retaining their strength as “everything-as-a-service” (XaaS) joins the post-COVID chorus of business models that seem tailor-made for these strange days. PYMNTS’ July 2020 Subscription Commerce Conversion Index, done in collaboration with Recurly, shows how well subscription services are performing during the pandemic.

Our July Index, which measures merchants’ ability to convert subscribers, found that firms’ average score rose to 65.1 in the second quarter — the highest level in 15 months. The average score also rose from a 64.0 reading in 2020’s first quarter and 63.8 in 2019’s third quarter.

“This measured improvement in merchants’ ability to convert subscribers underpins their willingness to offer features that improve overall user experience,” our report noted. “More subscription providers are now offering product ratings and reviews, quick add to cart options and password authentication features on their sites than last quarter, for example.”

It’s a COVID-era success story, but subscription dynamics are fickle. Our July study found that while approximately 167.1 million individuals currently hold streaming, education and training, digital media or consumer retail product subscriptions, 27.4 million – 16.4 percent – report being at least “somewhat likely” to cancel.

Big Players Are Joining The Subscription Game

But while churn is a major issue for subscription merchants, it’s not stopping the biggest names in commerce from diving in.

Walmart made headlines this week on anticipation of its new Walmart+ subscription service, a direct assault on rival Amazon Prime. Reportedly priced at $98 per year, Walmart+ subscribers get “perks like same-day delivery of groceries and general merchandise, discounts on fuel at Walmart gas stations, and early access to product deals,” according to Vox recode reporting.

Amazon Prime isn’t sweating it — at least not yet — announcing in January that membership has hit 150 million shoppers, driving subscription revenue to $5.24 billion in 2019’s fourth quarter. That’s a whopping 32 percent above the prior year’s numbers.

At the time, CEO Jeff Bezos proudly proclaimed that “more people joined Prime [in 2019’s fourth quarter] than ever before.” (The endless battle for share between retail goliaths Amazon and Walmart is updated regularly in PYMNTS’ Whole Paycheck series.)

COVID Is Actually A Tailwind

In its June Subscription Impact Report measuring COVID’s effects on subscription businesses from early March to late May, subscription management platform Zuora found the sector bearing up better than most. The report added that about 50 percent of recurring revenue businesses grew steadily through the pandemic, while 17 percent of providers experienced slower growth and 14 percent “experienced a contraction in subscriber growth.”

During recent streaming series Powering the Digital Shift — now available free on demand at PYMNTS TV — Recurly CEO Dan Burkhart noted that “in many ways, COVID-19 has accelerated us to the future. … The notion of convenience and some of these other aspects of subscriptions that have been appealing to subscribers have only been accelerated now that they are reconsidering the true cost of going to the store or the mall, browsing aisles and racks, finding something they like and then bringing it home.”

Showing how much juice executives see in subscription models, consider separate recent announcements of new subscription offerings from Kia and Jaguar Land Rover — two very different auto brands.

“We are constantly looking at new and innovative ways to deliver the best solutions for our customers, and adding [a] subscription service to our portfolio is the latest in a line of new services that put our customers’ needs first,” Rawdon Glover, managing director of Jaguar Land Rover UK,  said in announcing the company’s offering.

There’s even room for social media giants in the subscription game. At least Twitter thinks so, as news leaked this week that the company is putting together an offering codenamed “Gryphon” — purportedly to replace falling ad dollars with recurring subscription revenues.

So, contraction is clearly not an issue for the subscription business at this point. In fact, high-profile mainstays of subscription commerce like box clubs and streaming-entertainment services boomed during lockdowns as tens of millions of consumers sought distractions.

“In its fiscal 2020 Q1, streaming platform Netflix reported adding nearly 16 million new subscribers and blasting net income into orbit at $709 million, more than double its Q1 2019 performance,” PYMNTS recently reported, adding that, “Analysts project 47 million new streaming subscriptions by the end of this year.”

However, top players in the space are cautious, as they await a possible whiplash effect of subscription churn post-pandemic.

“Subscription service providers face a persistent and widespread risk of their customers canceling their subscriptions after only a few months of usage,” according to PYMNTS’ latest Subscription Commerce Conversion Index. “It is therefore crucial that subscription service providers work to mitigate this risk. This is particularly true during the ongoing COVID-19 pandemic as many consumers and businesses are experiencing cash flow crunches and may therefore feel pressure to cancel their subscription plans.”

Smart Players Prove Their Value (And Offer A ‘Pause Button’)

For this reason, subscription “pause” options are proliferating, allowing subscribers to suspend their service — and their monthly bill — rather than cancel outright.

That’s only half the job, however, as subscription services have to meet consumer preferences that change fast.

“The shifting economic realities of the ongoing crisis have also made it important for subscription services to deliver more value to their customers,” per our index. “Consumers will neither keep nor pause subscriptions if they feel they are not getting enough value from them.”

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New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

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