How the subscription model is enabling businesses to succeed
The subscription economy in Europe, in particular within German-speaking countries, is changing rapidly and for the better. This isn’t just limited to the consumer sector: The rise in subscription businesses selling to other business clients is on the up as well, and it is an area of huge potential.
To analyze the sector, we invited some of the leading brands using subscription-based models to the latest Samsung NEXT event in Berlin, entitled “Subscription Economy: From Transaction to Relationship.” Joining us to discuss the changing trends were representatives from subscription and billing management provider billwerk, consumer electronics provider Grover, and the e-mobility firm GetHenry.
“It is our core belief that we are in the middle of a huge paradigm shift,” billwerk CEO Dr. Ricco Deutscher said on the panel. “It is a big disruptive wave that destroys our daily business model and creates a new business, one that uses at its core the subscription economy. It’s not a question of whether industries will be affected or not – all business will be affected, it’s just a question of time, and when the wave will hit.”
The subscription economy in Germany is growing at an annual rate of 130 percent. Compare that to the US, which is still leading in terms of volume and turnover, but is only seeing subscription-based commerce growing at about 20 percent per year. The main success stories have been within the software and media sectors, with businesses like Netflix leading the way. But other sectors are starting to emerge that show a great deal of potential for growth, particularly in the B2B sector.
Helping businesses start up
Grover, which has successfully supplied consumer tech products using a subscription model for several years now, recently launched a new division. Grover Business, launched in October 2018, offers businesses a subscription model to get the products they need to operate efficiently.
Stephen Drier, VP of business development at Grover, discussed the rationale behind the decision to launch the division. “What you see in general is the trend from access to ownership, which is what you have that within the media industry right now.”
Grover Business operates in a similar fashion to its consumer-facing operation in that it allows clients to acquire the technology they need for any amount of time in which they need it for. “For a lot of physical products you don’t have the same flexible access as you do with media. Customers need new solutions right now,” Drier said.
Grover Business provides smaller companies with access to the technology they need by stripping away some of the processes they have to go through, like acquiring credit and dealing with excessive levels of bureaucracy. This in turn has many benefits.
“In German firms, the average notebook in a company is seven years old. That means most companies are using old-school tech,” he explained. By using out-of-date technology, an average employee loses 40 minutes per day of productivity, which in turn reduces the company’s employee retention rates. Using a subscription model to fund your tech infrastructure also gives you more flexibility with budgeting and operational expenditures.
In addition to all of this, Grover says it’s part of the “circular economy,” by trying to make more efficient use of products and reducing e-waste. Once customers are done using certain products, they are sent back to Grover and passed on to the next client or customer.
Moving on up
One potential growth area in the subscription economy lies within the mobility sector. One of the driving factors here is improving utilisation and efficiency. By subscribing to an automobile rental, you will get more efficient use of a car, as opposed to buying one that lays dormant while you’re not using it. Aside from cars, another growth area is the micro-mobility sector, currently highlighted by the popularity of e-scooters.
GetHenry is a firm working on a B2B approach to micro-mobility. GetHenry’s head of operations Lukas Schuchter was on hand to provide more information about their business practises. “Did you know transportation counts for 27 percent of emissions, and 50 percent of these are business-related. What is the solution? Micro mobility could replace 60 percent of all car trips below 10 km.”
The e-scooter sector is already very crowded and is facing more and more regulation across Europe, along with the threats from vandalism and theft. “Then there’s high operational costs,” Schuchter said. “60 percent of revenues from micro-mobility firms are spent on repairs.”
Pivoting away from the general model that many e-scooter firms have applied, GetHenry opted to supply its products directly to the hotel and hospitality industry. By using a subscription model to supply e-scooters to various hostels and hotels in particular territories throughout Europe, GetHenry is reaping the benefits, including lower loss rates and fewer thefts, as well as longer-term contracts with its partners. By changing its approach to a subscription model, the company is looking forward to expanding the model into new territories and new business sectors beyond tourism.
Financial efficiency gains, environmental benefits, increased flexibility, and greater accessibility. These were the core takeaways from the evening’s discussions. But what about the future, what can we expect next?
billwerk’s Dr. Ricco Deutscher provided us with an outlook of what to expect. “We see that traditional processing industries, in mechanical and plant engineering, companies now add subscription services on-top to create more productivity.”
In addition the this, he also predicts the rise in aggregation firms that can provide a single point of contact for multiple points of payment. that would allow you to subscribe to multiple services with just a single place to manage them all. That would create more efficiency and help move from a transactional approach to one that is further built on relationship marketing.
billwerk’s recently published white paper that details the development of the subscription economy in the German-speaking territories is available for you to download here.