Are Subscriptions The Light in This Dark Tunnel?
October 01, 2008
by Tien Tzuo
It’s hard not to feel great concern over what’s happening on Wall Street. Entire banks are going under, thousands of people are losing their jobs, and millions more are losing their retirement. This is a very sad situation indeed. But not every business is doomed, and some are actually thriving despite hard economic times. According to many reports, the companies that are going to remain stable, even grow, during this turbulent market are subscription businesses. Why?
For one, the cost to subscribe is much more affordable than it is to buy. Look at Zipcar for instance. It’s far less expensive to subscribe to an entire fleet of cars vs. purchasing your own. Not to mention, many can’t get the credit they need to buy a car or other goods right now, making subscriptions the only option. Likewise, it’s more cost effective for businesses to use SaaS applications. Companies operating under this model have an advantage to win more business for that reason alone. Salesforce.com, as an example, thrived during the recession from 2001-2002.
Also on the subject of cost savings, it’s less expensive for companies to offer their apps as a subscription. Building a web app can be very inexpensive compared to a desktop app or one that you buy off the shelf. Paying for server space vs. manufacturing and shipping is also a consideration that many businesses are taking into account as they build out their products.
Almost as costly as purchasing new applications is paying for the IT support to integrate the new systems into the entire infrastructure. Small companies and startups, which are still relatively healthy, find it easier to integrate a web app that they subscribe to vs. a desktop app that they buy at the store and have little to no immediate support with.
Finally, convenience and less commitment are going to be huge driving factors. Not knowing where your business will be in six months of a year makes it scary to commit to a big system purchase. Companies are much more likely to agree to monthly or annual subscriptions simply because it’s easier to swallow right now.
It’s no wonder subscription model businesses are on the rise, over 30 percent this year. It’s possible that these businesses will be the ones to help create some semblance of economic security. They’ll do this the same way we did at Salesforce.com -- by creating new jobs, and creating applications that help other businesses continue to build, mange and grow.