Over the last few decades, industries everywhere have begun to adopt subscription business models. Spotify, the music streaming service, has taken the place of CDs and iPods, Netflix has replaced DVD collections with on-demand films and TV series, and companies like Gousto and Les Mills offer everything from dinner to gym classes either straight to customers’ doors or to their homes via a screen.
This is the subscription economy — and it’s fast growing. Revenue among subscription businesses grew roughly 5x faster than the S&P 500 from January 2012 through June 2019, according to research from Zuora.
There are several factors driving this growth. The advances in technology infrastructure that is needed to support it is one. Salesforce is considered one of the pioneers of cloud computing along with the likes of Google, Amazon and Dropbox given it was one of the first companies to offer a product via the internet.
Secondly, a subscription model benefits the customer by offering a predictable, monthly cost agreement – largely more affordable and convenient than before. This is all whilst subscription models have grown to include companies where the “product” being offered isn’t a product at all — it’s a service, and the value being provided isn’t ownership, but access.
But why else is this appealing to businesses from startup to enterprise?
Fluctuating travel costs and the subscription economy
Take business travel as an example. The global pandemic of COVID-19 halted all travel across the world. As a result, many companies took this as an opportunity to look at spend across their entire organisation in order to cut costs and future proof their business. There’s no denying that building trust via in-person meetings is easier than it is on a teleconference, it’s a long ingrained practice – and one that will return.
Irrespective of how advanced communication technologies have become, tech simply cannot yet replace the need for face-to-face human interaction and 60% of senior finance leaders agree, considering it to be crucial to company growth. So company leaders are preparing now. There are already reports of getting business travel back on its feet with Air New Zealand opening up business flights to eight regions and Air Canada focusing their efforts on attracting business travellers as borders start to reopen in June.
So once again, business will start to accumulate costs from employee expenses such as those incurred throughout the course of travel. By their very nature and driven by economic conditions, they are unpredictable and wildly fluctuate. As a result, transaction-based pricing is coming under increased pressure in particular causing unease on the buyer side and a wider market shift to other economic models, such as the subscription-based pricing models like Spotify et al.
The demand for greater control of spend
Fluctuating prices will also impact budget forecasting for any finance team. When you consider that commercial teams (sales, marketing and customer success) incur 80% of an organisations travel expenses, having a system in place that enables you to analyse data on how much it costs employees to bring in revenue will enable businesses to accurately forecast travel budgets and maintain profits despite rising costs.
This is yet more evidence of an industry shift away from transaction-based pricing to the more consumer driven subscription economy. Adopting more predictable commercial models that offer fixed pricing and remove the need to charge travel booking transaction fees.
What does this mean for Travel Management Companies (TMCs)?
Travel management companies (TMCs) already under strain due to their transaction based charging models, will unfortunately feel the effects even more. When analysing travel and expense spend, the TMCs are only involved at the transaction phase. As they’re not involved in spend decisions before the transaction, or reconciliation of that spend after it’s been incurred, company leaders will therefore be scrutinising the value of the relationship and whether it’s financially beneficial.
Ultimately, those travel providers that can start to offer products and services with favourable subscription pricing or more predictable commercial models as opposed to volume based pricing, will be sought by companies who are looking to drive predictable growth.
This is exactly what SalesTrip helps its customers to achieve through its expense management and travel system. As we are a licensed travel agency, there are no transaction fees for our customers. There are no hidden costs and so finance leaders not only gain a real-time view of expense and travel spend at any one time but they do so through a simple subscription fee. You can check out what some of our customers have to say here.