Zuora’s Biannual Subscription Economy Index Defines the Health of a Burgeoning Global Economy
San Mateo, Calif — March 21, 2019 — Zuora, Inc. (NYSE:ZUO) the leading cloud-based subscription management platform provider, today released the newest edition of its biannual Subscription Economy Index™ (SEI) designed to measure the collective health of subscription businesses and track the impact of these businesses on the overall economy. Over the past seven years, the companies featured in this study, across North America, Europe and Asia Pacific, have seen their sales grow by more than 300 percent, representing an 18 percent compound annual growth rate (CAGR). The SEI reveals that over 28 consecutive quarters (January 1, 2012 to December 31, 2018), subscription businesses grew revenues about five times faster than S&P 500 company revenues and U.S. retail sales and 10 times the sales growth of the DAX (Germany) index and ASX (Australia) index.
Leading analyst firms have also dedicated resources to researching this global business trend. Gartner predicts that “by 2023, 75 percent of organizations selling direct to consumers will offer subscription services” and in its Digital Commerce State of the Union survey, Gartner found that 70 percent of organizations have deployed or are considering the deployment of subscription services.
Yet no company, until now, has published hard evidence of the impact of subscriptions on the overall economy. “The Subscription Economy® has been a leading indicator of broader economic trends for the past seven years,” said Tien Tzuo, CEO and Founder of Zuora. “For the first time with the Subscription Economy Index, there is data suggesting that the growth of subscription revenue tracks ahead of the US Gross Domestic Product.”
Caption: The recent peak in Subscription Economy company growth in Q1 2018 was one quarter before the Q2 peak in GDP growth. In 2017, the SEI data also lead the way into a one year period of high growth, one quarter before GDP also accelerated. In the latter part of 2018, the SEI data lead the way again, slowing in Q2; GDP growth began slowing in Q3 and is still slowing now while the SEI level began to rise.
Key findings from the SEI report which details the Subscription Economy’s long-term magnitude and viability of the business model include:
1.) The Subscription Economy is a leading indicator of broader economic trends
- Overall, subscription businesses grew revenues about 5 times faster than S&P 500 company revenues and U.S. retail sales (18.1% versus 3.6% CAGR for both the S&P 500 and US Retail sales) in the seven years from January 1, 2012 to December 31, 2018.
- When compared to GDP growth quarter over quarter, the SEI data tends to lead the ups and downs in growth rates one quarter ahead of the US economy.
2.) Subscription company growth was lead by subscriber acquisition
- The SEI report monitors two growth levers: Average Revenue Per Account (ARPA) and Net Accounts. In 2018, average subscriber growth was 14%, up from 11.7% in 2017. Subscriber acquisition was fueled by moderate price increases: ARPA rose by just 8% in 2018, compared to 11.3% in 2017.
- Over the past seven years, the companies featured in this study have seen their sales grow by 321%.
3.) Consumer-focused subscription companies made a comeback
- As recently as 2016 the average churn rate at a Business to Consumer (B2C) Subscription Economy company was well above 30%. But 2017 and 2018 showed marked improvement leaving the B2C churn rate at 24%, below the churn rate at Business to Business (B2B) subscription companies which currently have an average annual churn rate around 28%. What’s more, B2C growth beat B2B growth by 23% to 20% in 2018.
4.) European growth surpassed that of North America, with APAC close behind
- Over the past 33 months, EMEA subscription companies have bested their North American counterparts’ CAGR of 21.6% with an even faster rate of 25.6%. APAC subscription companies within the SEI report saw a 16% growth rate this year.
- The EMEA index had more than ten times the sales growth of the DAX (Germany) index, seven times the sales growth as the CAC (France) index, and more than three times the sales growth as the FTSE (UK) index.
- The APAC index had almost ten times the sales growth of the ASX (Australia) index, four times the sales growth as the NZX (New Zealand) index, and 2.5 times the sales growth as the Nikkei (Japan) index.
5.) Subscriptions are for more than SaaS companies, IoT and telecom are on the rise
- SaaS was the fastest growing sector in 2015 and 2016. But as of mid-2017, the IoT cohort grew even faster. The only sector unaffected by a slowdown in 2018 was telecommunications. Telco instead accelerated in 2018 and ended up equal to SaaS for growth in this two year period.
“Everywhere we look we see new ways the Subscription Economy is expanding into new spheres and putting down deeper roots as a core part of the global economy,” said Carl Gold, Chief Data Scientist at Zuora. “In the current report we see the Subscription Economy flourishing far beyond its birthplace in new regions like Europe and Asia. And in the US we are finding the Subscription Economy is now the leading edge of the national economy, leading in growth rates and leading the way in and out of economic cycles. All these data points suggest the Subscription Economy is getting bigger and more important than anyone expected.”
Download the full Subscription Economy Index™ (SEI) here for more information on Subscription Revenue Growth by Business Model, Revenue Band, and Industry; Subscription Churn Rates by Business Model, Industry, Company Size, and Region; B2B, B2C, and B2Any Sub-Indices; and Growth by Region: EMEA vs North America.
About Zuora, Inc.
Zuora provides the leading cloud-based subscription management platform that functions as a system of record for subscription businesses across all industries. Powering the Subscription Economy®, the Zuora® platform was architected specifically for dynamic, recurring subscription business models and acts as an intelligent subscription management hub that automates and orchestrates the entire subscription order-to-cash process, including billing and revenue recognition. Zuora serves more than 1,000 companies around the world, including Box, Komatsu, Rogers, Schneider Electric, Xplornet and Zendesk. Headquartered in Silicon Valley, Zuora also operates offices in Atlanta, Boston, Denver, San Francisco, London, Paris, Beijing, Sydney, Chennai and Tokyo. To learn more about the Zuora platform, please visit www.zuora.com.
This press release contains forward-looking statements that involve a number of risks, uncertainties and assumptions, including but not limited to statements regarding the expected benefits of Zuora’s products and relationship with Deloitte Digital in assisting companies achieve success in the Subscription Economy, Zuora’s expectations regarding companies shifting to subscription business models, and the expected growth and trends in the market for subscription businesses. Any statements that are not statements of historical fact may be deemed to be forward-looking statements. Actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in the “Risk Factors” section of Zuora’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (SEC) on December 12, 2018, as well as other documents that Zuora may file from time to time with the SEC. The forward-looking statements in this press release are based on current expectations as of the date of this press release and Zuora undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This press release also includes market data and certain other statistical information and estimates from industry analysts and/or market research firms. Zuora believes these third party reports to be reputable, but has not independently verified the underlying data sources, methodologies or assumptions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information.
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SOURCE: Zuora Financial