In the past, procuring technology used to be all about getting consumers into retail stores. However, today all that has changed to businesses wanting to keep their already earned consumer base using the latest trends in technology. The software development industry was the first sector to shift from selling their applications to offering the software as a service. The number of companies that have turned consumers into subscribers which generates a base of revenue that is recurring is experiencing growth all around the tech industry.
Apple, which happens to be these second most valuable company in the world and sold devices worth $200 billion in the last financial year has been touting the number of subscriptions that have already been paid to the growing range of services that the company is currently undertaking and the rest of the applications sold through its Apps store. This has increased to almost 250 million devices in just one financial year. Investors like to sell subscriptions instead of selling the entire application to the user because it generates a steady stream of income that is highly dependable and can be used to smooth out the cycles that are usually found in the sale of physical products and businesses that are consumer oriented.
Tech companies who have adjusted and conformed to this critical transition have enjoyed the rewards that are associated with subscriptions with market values that are substantially high and in higher multiples in selected cases. For example, Amazon.com starts out with zero sales in the beginning of every financial quarter which is characteristic of most retail stores. This means that the company is vulnerable to economic externalities and any change in the tastes and preferences of the consumer. However, the business entity gets revenue from the monthly and annual fees that are paid by consumers who have subscribed to the company’s premium services. Such programs offer the consumer a two-day shipping which is free of charge and a variety of other advantages.
Amazon made revenue worth $9.7 billion in the last fiscal year from subscriptions. This represented a 525 increase in subscription revenue as compared to the 2016 financial year. Amazon also has a web services business which rents out services such as computing to other companies and business entities. Amazon Web services popularly known as AWS generated revenue worth about $4.3 billion last financial year in operating profits which also represents a more than 50% increase as compared to the previous year.
Dil Bole Oberoi
