The 2020 Subscription Economy in Five
The new Subscription Economy Index covering fiscal 2020 is out, and needless to say, this latest edition is truly fascinating. What a year we’ve been through.
For those of you new to the study (which you can download here), the SEI report is based on anonymized, aggregated, system-generated activity on the Zuora Billing service, and provides a snapshot of the Subscription Economy as a whole. We track hundreds of anonymized companies across nine key verticals: saas, telecommunications, manufacturing, business services, IoT, media, publishing, healthcare and education.
So what does this year’s report tell us?
Well, the broader growth trend remains the same -- the overall index has grown nearly 6X (more than 435%) over the last 9 years, and subscription businesses have consistently grown five to eight times faster than traditional businesses.
But the pandemic had a short-term effect. Last year SEI growth slowed in the first quarter, before returning to pretty much normal by the end of the year. And even during this slowdown, subscription businesses continued to outperform traditional companies by a wide margin.
In short, growth slowed, but we didn’t see any actual contraction, which is remarkable.
Overall in 2020, subscription businesses grew at a rate of 11.6%, while revenues of their product-based peers contracted to -1.6%. And in Q4, subscription companies in the SEI experienced revenue growth at a rate of 21%, seven times faster than S&P 500 companies’ growth rate of 3%.
Let’s take a look at five key charts from the study.
As you can see, growth dipped in the first quarter by 12%, before gradually returning to pre-pandemic levels by the end of the year. But compare that decline to the S&P 500, which dropped off a cliff into negative territory, and only bounced back to less than half of its pre-pandemic growth rate.
This second chart is pretty amazing. While the growth rate of the average revenue per account dipped to 5% in Q2, it bounced back by the end of the year to even higher than where it started! The contraction might have been due to B2B customers trimming their service features in the face of the recession. As for that Q4 bounce, perhaps many of those same companies decided to double down on digital services in the new remote work environment.
This is also a surprising chart. I expected to see a lot more overall accounts being discounted last spring (the bottom line in the chart), but the number remained relatively flat. The companies that did receive discounts, however, saw a noticeable spike. This may have been due to companies lending an extra hand to existing high-risk clients. Regardless, the numbers eventually returned to the norm.
Unsurprisingly, SaaS and telecommunications managed to weather the storm better than the rest of the verticals in our study. During the lockdown, organizational budgets prioritized helping people to communicate and work effectively.
Finally, in addition to massively outperforming the S&P 500 here in the United States, subscription companies in Asia and Europe continue to dominate their corresponding market indices. As far as they’re concerned, 2020 was just a blip!
There’s lots more in the study, including growth rates by industry and region, as well information about churn rates, net account growth rates and usage-based billing.
If you’re running or managing a subscription business, how did you do last year? Do these charts line up with what you saw? Feel free to leave me a note in the comments.
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.