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The emergence and growth of the subscription economy is in full swing. From media, to fitness, to lifestyle products, there is seemingly no category that a business with a subscription based revenue model can’t succeed in. Whether it’s media giants such as Netflix ($125 billion market cap), Spotify ($25B market cap), fitness equipment & content startup Peloton (valued at $4B), razor subscription company Dollar Shave Club (acquired for $1B by Unilever), the list of companies succeeding with subscription based revenue models goes on and on.
Why are these companies booming though? A big reason: Millenials - the generation that is in their mid 20’s and 30’s, and are overtaking the baby boomers as the largest generation of consumers in history. According to Accenture, 77% of both the millenial and Gen Z generations say they are interested in subscriptions to curated products or services. As millennials mature and reach their prime earning years over the next decade, spending on subscription based companies across a variety of industries is expected to increase even more. Although we are still in the early stages of this trend, subscription-based revenue models are already growing at 5 times the pace of the average S&P 500 index company.
It’s evident that subscription based companies are succeeding with retail consumers, but they’re also largely impacting the B2B space as well. Businesses have entered a phase where, through subscriptions, cost-effective access at a month-by-month commitment level to numerous resources is a new reality. Service Titan ($1.6B), Monday.com ($1.9B), Flexport ($3.2B), are prime examples of subscription companies that are succeeding in B2B across many different industries. The new reality is a world where anything that can be procured as a service, is going to eventually be procured that way. This concept of “Anything as a Service” (XaaS), where if you can provide value with a subscription model in a specific category, you will reap the rewards this revenue model entails:
Sign up customers → increase spending per customer → collect massive recurring revenue!
So, what XaaS companies have the potential to succeed over the next decade? What if there was a company that capitalized on the convergence of two booming economies that millennials are driving the growth of? An example of this would be: subscription services, and coffee. That’s right, we’re talking about Coffee as a Service, targeted at corporate offices. It’s widely known that most coffee options provided in the office are of far less quality to what you can get at the local cafe, and even at Starbucks or coffee franchises like Dunkin'. Imagine a coffee service that could provide cafe quality coffee right in the office! We’re talking freshly roasted beans, fresh steamed milk, and any of your favorite espresso based drinks, all at the push of a button. Combine this offering with the convenience of a competitively priced, pay-per-cup model to clients. A business like this would meet the demand for both the cost-effective month by month access of a subscription service, and high quality coffee. If you’re interested in building a coffee franchise business with first mover advantage in this market, check out opportunities with Xpresso Delight, the largest and fastest growing coffee service franchise in the world.
5 Stocks to Ride the Coming Wave of Millenial Spending. Barron’s. May 6th, 2019.
Not Just for Consumers: The Subscription Economy Changes B2B. Forbes. Aug 31st, 2018.