Five on Friday: SaaS, Sales Channels and Signups
Featuring TechRepublic, Spotify, The Economist, WWD and PYMNTS
As you ponder “springing forward” this weekend to enjoy a little more daylight, check out this week’s Five on Friday. In this edition, TechRepublic offers five reasons for subscription companies to consider moving to SaaS, we examine Spotify’s business model, The Economist looks for subscription growth, WWD explores why retailers should keep using subscription boxes as a sales channel, and PYMNTS shares ways for subscription merchants to simplify and streamline signup processes.
5 Reasons to Move to SaaS
Is your company thinking about moving to SaaS for some of its critical functions? If so, you’ll want to read ‘5 Changes Companies Will See After Moving to SaaS’ by Andy Wolber for TechRepublic. Here are five reasons to consider how your company can benefit from SaaS:
- Better, more reliable networks
- Less need to invest in hardware
- More plug-and-play systems for easier upgrades
- Longer lifecycles for devices
- More time to integrate peripheral equipment like printers, copiers and scanners
Can Spotify Still Make Its Business Model Work?
Spotify calls itself the largest global music streaming subscription service, but is being the biggest company enough if you’re still losing money? In ‘Is Spotify Too Big to Fail or Is Subscription-Based Music Streaming Doomed,’ Rich Haridy explores the viability of the streaming music company’s IPO filing. Let’s look at some of the statistics Spotify provided in its SEC filing:
- As of December 31, 2017, Spotify had 159 million monthly active users, a 29 percent increase over the prior year.
- OF those, 71 million were paying premium subscribers, a 46 percent increase over the prior year.
- The company made $5 billion in 2017, $3.6 billion in 2016 and $2.4 million in 2015.
- That revenue was offset by net losses of $1.5 billion in 2017, $663 million and $283 million in 2015.
- Spotify users, free and paid, can access more than 35 million songs on Spotify through the Spotify app.
In its filing, Spotify reports that global music revenue is finally growing again due, in part, to streaming music. In 2016, for example, the industry hit $15.7 billion in global recorded music revenues, a 6 percent increase over the previous year. At the same time, costs have gone up for the industry, as streaming music services were ordered by the Copyright Royalty Board to increase royalties by 43.8 percent for the next years.
Given the company’s losses and increased expenses, is Spotify sustainable long-term? Haridy says, ‘With cheap, subscription-based music streaming Spotify has opened Pandora’s box, revealing a fundamentally flawed business model…but there is no turning back now.’
Three Ways to Simplify the Signup Process for Subscribers
Subscription merchants have a variety of different methods for signing up new customers. While there are no hard and fast rules, it makes sense that the easier the process is, the better the odds of completion will be. In a recent article, ‘Passwords, E-mail Verifications Can Add Friction to Subscription Signup Process,’ PYMTS suggested five ways to reduce the friction during the sign-up process. Here are three to consider:
- Use social media log-ins as a signup method. The most common is perhaps Facebook. Allowing prospective customers the option to signup using their Facebook account – which they are probably already logged into – streamlines the process for subscribers. It is one less password they have to remember, and the merchant has the added benefit that most accounts are created by real people.
- Have customers verify their email address. It is easy to mistype a letter or two in an email address. If your prospect transposes a couple of letters, they may never be able to access their account. PYMNTS suggests email verification either at the initial signup or, to reduce friction, verifying a customer’s email address the second time they sign in.
- Ask customers to verify their identity through cell phone verification. While this method is not commonly used, it is easy to do and can increase security for the user and the merchant. Users enter their phone number, click a button and get verified instantly.
How The Economist Quadrupled Subscription Profits in Four Years
According to Which-50, The Economist has quadrupled its subscription profits in the last four years, and that growth was driven by targeted marketing efforts, using data and technology to further its strategies. While the publisher previously relied heavily on ad revenue, about 70 percent of The Economist’s revenue now comes from subscriptions.
One strategy that has been successful is targeting millennials on Snapchat and Instagram as part of a multi-channel campaign. Using data as its guide, The Economist focused on university students who had ‘a high propensity to buy.’ The publisher found that 35 percent of those readers actually converted into subscribers.
‘What was really key was that we only pushed the campaigns out to people that we would model out who had a high propensity to actually buy something,’ said Steve Lok, head of marketing tech and ops at The Economist in an interview with Which-50.
Reviewing the company’s 2017 annual report, chairman Rupert Pennant-Rea explains a bit of the strategy.
‘The first and most obvious change is in our circulation strategy for The Economist itself. For several years, we have been reducing the number of cut-price sales of the newspaper, and last year we also raised subscription prices by no less than 20 percent,’ Pennant-Rea wrote. ‘The net effect was a sharp increase in the gross profit earned from circulation. More remarkably, the number of subscribers actually rose a little; and 73 percent of them now buy the digital offer, either on its own or in addition to the printed version, compared with 63 percent in the previous year.’
As a result of these successes, The Economist has increased the newspaper’s marketing budget for the next few years and the company hopes to reach out to earn a piece of the American audience. For more on The Economist’s search for subscription growth, read Tess Bennett’s ‘A Seismic Shift in Revenue: The Economist Eyes Further Subscription Growth’ on Which-50.com and the publisher’s 2017 annual report on EconomistGroup.com.
Why Retailers Are Flocking to the Subscription Model
As subscription boxes like Birch Box and meal kits like Blue Apron have grown in popularity, retailers have jumped on the subscription model bandwagon, including well-known retailers like Nordstrom, The Gap, Sephora, JCPenney and Target. Why? Because ecommerce behemoth Amazon has changed how people shop. To keep up, retailers need to explore new sales channels, says Georg Richter for WWD.
Through the subscription sales channel, retailers have the opportunity to reach broader audiences they couldn’t otherwise reach, to gather data about customer preferences that can be leveraged later, all while earning valuable recurring revenue in the process. As Richter explains, the regular retail model focuses on single transactions and average price per transaction. Subscription models, however, are focused on long-term relationships and lifetime value. Subscription companies may have a higher acquisition cost up front, but that is offset by recurring revenue received from satisfied customers.
As retail models evolve along with our shopping habits, Richter believes that subscription boxes will become a solid channel in an omnichannel strategy. For more on this topic, read Richter’s ‘Think Tank: Why Established Retailers Will Continue Adopting Subscription Models’ on WWD.com.