The Rise of Recurring Business Models: Four Important Trends to Expect

MarketsandMarkets expects the global subscription and billing management market to grow from USD 4.0 billion in 2020 to USD 7.8 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 14.0%. Seeing the opportunity, competition is heating up and funding from a variety of sources is flowing into the subscription and billing management space.

Here are four trends to expect as the space heats up and becomes even more pivotal to business success.

1. Investment and innovation will accelerate

Funding is flowing into the recurring billing space, and it will continue to. Fattmerchant, backed by Greater Sum Ventures, recently made a strategic investment in Ottawa-based Fusebill, a cloud-based subscription billing and payments company. Last April, Battery Ventures invested more than $150 million in two cloud-software platforms that manage billing and automate related financial functions.

As a result of demand and an influx of capital, innovation is flourishing. This is a software arms race. There will be many winners and also-rans, but the market opportunity is massive for those who continue to innovate.

Customers of recurring billing solutions are demanding a regular cadence of increasing functionality, process sophistication, and flexibility. Recurring billing companies that invest heavily in product development by listening to customers will have an edge. After all, billing and collections are the lifeblood of any business — they touch revenue, collections, and cash flow. No business wants a static solution.

Soon, these hubs of financial activity will incorporate more functionality that can be useful not only for customers, but also marketers. As recurring billing becomes an increasingly important part of almost every company’s business model, companies will and should expect their billing systems to become essential business intelligence and decision-making tools. For instance, the billing system should be able to, at the very least, present dashboards with basic metrics around monthly recurring revenue, number of active subscriptions, sales, payments, refunds, and so on. This will be vital to marketers who are shaping strategies, testing campaigns, and optimizing revenue.

Recurring billing will also support the move to headless commerce, a new type of e-commerce architecture, as well as a competitive imperative. Headless commerce involves separating the customer-facing front-end from the back-end commerce functionality, allowing companies to manage their e-commerce stores and deliver personalized content to customers without requiring changes to the existing commerce engine.

This will create tremendous advantages for marketers. With headless commerce, they can more easily express their companies’ brand vision and have greater flexibility in personalizing customer experiences, regardless of the back-end financial system or the recipient’s device or channel.

2. Subscription billing solutions will become “platforms”

Widely adopted subscription billing solutions will naturally become “platforms” by enabling an ecosystem of 3rd-party applications that can be deployed on the billing solution, much like a B2B “app store.” This allows companies to do anything from expanding product offerings, deploying marketing automation tools, or adding analytics and visualization tools. The question is no longer, “What systems do we need to integrate and what’s involved?” but “What does this platform make possible with a few simple steps?”

This will empower marketers and others to experiment and implement campaigns, without having to wait for time-consuming, expensive integrations that are difficult to update and scale. A great example of the B2B app store in the CRM space is the AppExchange enterprise cloud marketplace from Salesforce, with more than 3,000 apps for different use cases. Winners in the subscription billing space will undoubtedly include some element of a subscription billing app store to their offerings.

3. Recurring billing systems will become pivotal

As more businesses move toward subscription revenue models, billing solutions have become critical infrastructure to the enterprise. They will be the linkage between CRM and other systems, as well as the linchpin for analytics that drive sales, marketing, and other processes.

Subscription billing solutions are more than the source for creating and managing plans, handling trial subscriptions, or helping customers serve themselves. They are quickly becoming the real-time data source for analytics and market intelligence for the key decision-makers across the enterprise. Therefore, these solutions need to adhere to the same operational principles of other enterprise-critical infrastructure components. That means that they must become operationally robust solutions that are auditable, highly secure, precise, and always available.

4. Subscriptions will span both B2C and B2B worlds

Recurring billing has become the norm, not the exception in both B2C and B2B worlds. Today, there’s a subscription for almost everything, from imperfect produce delivered to consumers’ doors to enterprise software updates. It’s not a huge surprise. In its report on distribution McKinsey wrote: “People shop on Amazon at home. What we hear most often from business customers is, “Can we have an Amazon shopping experience at work?’”

B2B subscription marketplace outlets for buyers and sellers of business-related products are exploding in popularity, spurred on by one-stop shopping, broader product selection and comparison, and, in many cases, lower prices.

A final thought

Recurring billing models are here to stay, and their adoption will continue to accelerate. Investment in the space will continue, and continuous innovation will be essential for companies that want to succeed. Recurring billing systems will be hubs of business intelligence very soon and we’ll see the rise of SaaS marketplaces with recurring billing systems offering “app-store-like” marketplaces and integration experiences that provide end-to-end functionality with ease and low costs. All these trends will be a boon for marketers, who will have unprecedented visibility into business metrics, greater functionality, and the ability to create programs and experiment with campaigns — quickly and with little friction.