8 Subscription Economy Predictions for 2017

By Tien Tzuo December 28, 2016

This article first appeared on Medium

If 2017 promises to be politically tumultuous, I’m predicting at least as much churn in the business world next year. For nearly a decade, we’ve watched as customer preferences have shifted from owning things to subscribing to services: media, software, transportation, retail. We now know that companies adopting subscription business models are growing their revenue nine times faster than with traditional business models. I think the Subscription Economy is going to start seeing some real winners and losers in 2017, and these are my predictions for the coming year:
1. We’ll see the beginning of the end of car ownership.
When Hyundai’s new electric car the Ioniq arrives at dealerships next year, you won’t buy it — you’ll subscribe to it. It’ll be just like picking a cell phone plan: pick your model online, choose between a 24 or 36-month plan, select your upgrades, then walk into a dealership to pick up your vehicle. No price haggling, no loans, no back office pitches. Hyundai says that they’re aiming at millennials who prefer access over ownership, but make no mistake, the subscription model is about to take over the entire automobile industry.
2. AI will stop being such a BFD.
Pretty soon announcing that you’re working on a big AI initiative will seem as strange as telling everyone that your building just got air-conditioning. As Kevin Kelly notes in his great new book “The Inevitable,” AI will become a ubiquitous utility, like water or electricity. The bigger story here is that products are turning into services, and the value of those services is going to be defined by the collective intelligence generated by their user base. Uber Pool is only as good as its routing analysis. Spotify is only as good as its recommendation engine. Nest is only as good as its energy benchmarking.
3. Amazon will blow up retail. Again.
Amazon keeps raising the table stakes when it comes to how we buy stuff. Its latest test pilot, Amazon Go, lets people walk into a store, pick up their items, and leave. Is there any question that this is the future of brick and mortar retail? That being said, I also think next year Amazon is finally going to start seeing some legitimate competition from legacy retail. Take a look at Best Buy, whose sales are on a rebound. Why? Because they understand that today’s consumer puts online browsing ahead of retail shopping, not the other way around, so they’ve invested heavily in their website and mobile app, and de-cluttered their stores to bring back the fun of shopping and discovery. They also understand that if Amazon has dozens of distribution centers, they have potentially thousands — every one of their stores does double duty as an e-commerce warehouse. Retail is finally starting to flip the script.
4. The Great Cable Unbundling will drown us in new content apps, and that’s a good thing.
As if it’s not screamingly obvious already, every video content provider on the planet, from the biggest national network to the tiniest niche cable channel, is working on an IP-based OTT (“over the top”) solution. The standard complaint against all this unbundling is that it’s filling up our phones with dozens of new TV apps, so we need a new aggregation layer to handle it all. I think that argument is silly. So what if my phone is gets some new apps with shows that I really like? This is an opportunity for all these content providers to finally build direct relationships with their viewers. According to Digital TV Research, OTT revenues in Canada and the U.S. will reach $24 billion in 2021, up from $2.6 billion just five years ago.
5. Oracle gets more desperate as legacy ERP systems continue their descent into irrelevancy.
The old cumbersome “one size fits all” ERP model increasingly means that everything gets billed to SAP or Oracle, and nothing gets done particularly well. From customer service to expenses to forecasting to billing, more and more companies are taking advantage of “plug and play” SaaS providers that are maniacally focused on performing one core function really, really well. Concur does nothing but think about travel expenses all day. Salesforce.com is synonymous with CRM. My company, Zuora, lives and breathes subscription billing, commerce and finance. These SaaS solutions are way more nimble and effective than a massive Oracle installation. Oracle is trying to buy its way into cloud growth with the NetSuite acquisition, but the market has already moved on. The Rebel Alliance is taking down the Death Star.

6. CRM is not enough. Companies will start to understand that shifting to subscriptions is about a return to customer relationships.
Over the last 20 years, companies have invested in CRM systems in an effort to become more customer centric. (That’s why Salesforce and Microsoft fought over LinkedIn — they understand the value of having a living, breathing view of your customers.) And it’s worked, sort of. But being a truly customer centric company means taking the last step and being a Subscription Economy company, in which all your priorities change — your CMO markets to your customers as much as your prospects, your CFO goes from being a cost accountant to a business-model architect, your CIO goes from keeping the lights on to unlocking all sorts of potential new services and revenue streams. In short, your entire company moves from pushing products off the shelf to managing ongoing relationships.

7. Acquisitions will be the new IPOs.
While Snapchat and Airbnb will grab all the headlines next year, I’ll be paying just as much attention to big “boring” equity and investment firms like Vista and Silver Lake who are snapping up promising start-ups, as well as CPG stalwarts like Clorox, Walmart and Procter and Gamble. These are the businesses dealing with what Robert Siegel and Aaron Levie call “The Industrialists’ Dilemma” — the systems, management and assets that led to their success in the industrial era are holding them back today, in some cases fatally. Part of addressing that issue will be acquiring startups with great talent, smart software and no brand reputation to jeopardize. And it’s already starting to happen — Unilever didn’t just buy a new revenue stream with Dollar Shave Club, they bought an entirely new digital competency. Acquisitions will be the overlooked dynamic next year.

8. We’re going to start confronting some hard truths about technology and the labor force.
Clearly, Trump didn’t get elected for his debating skills. Putting aside all the reprehensible rhetoric (which is admittedly a big ask), he tapped into some legitimate concerns. People have seen their union manufacturing jobs get replaced with minimum wage service sector jobs, and they’re justifiably concerned. It’s easy to blame trade and immigration, but studies have shown that immigration doesn’t detract from net job creation, and global trade has actually declined over the last five years. We’re going to have to figure out how create jobs for people in this new economy, and if there literally are going to be fewer jobs, then we’ll need to establish some sort of living standard or basic income for people.

Want to learn how the Subscription Economy fared in 2016? Download Zuora’s Subscription Economy Index!