Car Subscription Market Set To Grow 71 Percent By 2022

Luxury automakers are upending their traditional business models with a new take on an old idea – a car subscription. BMW, for example, launched a pilot dubbed Access by BMW in Tennessee.

This type of service is one way automakers can attract younger customers. And BMW is hardly alone: Cadillac launched a car subscription concierge service of cars and SUVs last year called BOOK. The service allows for the company’s vehicles to be delivered and picked up on demand for customers via a smartphone app.

Beyond BMW and Cadillac, the subscription market is growing as consumers and brands take note: Software vendors, too, are turning to subscriptions, according to the PYMNTS Subscription Commerce Tracker. Here is how different industries are innovating with subscriptions.

The global average Subscription Commerce Conversion Index merchant score grew from 62.9 in Q1 2018 to 64.0 in Q2 2018.The change comes as customers are more eager to bring their business to providers that grant them increased control over the terms of their subscriptions, and to those with shorter commitment durations. PYMNTS research indicates that features like plan options and the ability to make changes are most common among the 20 merchants with the highest SCCI scores, and least common among the 20 with the lowest scores. What’s more, other types of features, like plan cancellation and messaging services, are increasingly playing an important role. As more companies started to implement these features, offering customers 11 percent faster subscription sign-up processes, the average SCCI merchant score rose to 64.0 in Q2 2018, a slight increase from 62.9 in Q1 2018.

The projected value of meal kit subscription sales in 2018 is $3 billion. And HelloFresh, the German meal kit delivery company, could start making and selling ready-made meal kits to reach consumers who don’t want to cook. Reuters, citing comments that Co-founder Thomas Griesel made to a German newspaper, reported that the company wants to capitalize on a growing demand for ready-made meals. “We see a very big market niche for ready-made meals,” Griesel was quoted as saying to the Rheinische Post newspaper. “The quality and freshness of what is currently available is questionable. That could be an interesting option for us.” He said HelloFresh would offer the ready-made meals online instead of competing directly with TV dinners that are found in the frozen section of supermarkets.

The share of SaaS software vendors that will shift to subscription-based business models by 2020 is 80 percent. While the Software-as-a-Service (SaaS) boom was grabbing headlines left and right a few years ago and the hype may have waned, SaaS is more popular than ever in the enterprise. As corporates continue along their digital transformation journeys, adopting cloud-based solutions is now the norm for many businesses. The influx of SaaS in the enterprise hasn’t spared small businesses (SMBs) either. Research released from Blissfully for Q3 2017 found that the rate of SaaS adoption among SMBs doubled after 2014 and quadrupled since 2015. The average small business spends more than $15,500 every month on SaaS, the report found, also noting significant growth in SaaS spend since 2014.

The anticipated compound annual growth rate (CAGR) of the global automotive subscription services market through 2022 is 71 percent. In an effort to reach drivers who want the convenience and variety of a subscription, Mercedes-Benz is rolling out a pilot service called the Mercedes-Benz Collection. Drivers will be able to access Mercedes-Benz vehicles in Philadelphia and Nashville with the launch, the company said in an announcement. With the pilot, Mercedes-Benz is launching three tiers: Signature, Reserve and Premier. Drivers can select from any vehicle body style offered within their selected level. Vehicles offered include SUVs, sedans, coupes, cabriolets, wagon models and even roadsters.

The share of software sales that were subscription-based as of Q1 2018 was 76 percent. Earlier this year, for example, Microsoft said its Office 365 service is now used by 30 million people. The company rolled out a monthly subscription service of its Office suite in 2011, with the enterprise software subscription market growing significantly since then. Last year, Microsoft introduced more features for small business users of Office 365, launching Microsoft Connections, Listings and Invoicing as new apps of its Business Premium service. The firm also rolled out its Office 365 Business center. Together, the additions enable small businesses in the U.S., U.K. and Canada with marketing, information management and eInvoicing features.

Will more companies turn to subscription models like BMW, Cadillac and Mercedes-Benz? Time will tell, but if these services are any indication of what’s to come, more car companies could roll out subscriptions in the future.