Signing up to
the subscription
economy
The race for recurring revenue
in Asia Pacific
This report was produced for Citi by Longitude, a Financial Times
Company and part of the FT Marketing Services offering
Signing up to the
subscription economy
The race for recurring revenue in Asia Pacific
The subscription revenue
model is no stranger to today’s
businesses. The publishing and
media industries, for example,
have been honing it for a
century, if not longer.
But the digital era and consumer
demand have fuelled its crosssector appeal.
From razors to restaurants, and from
groceries to car rentals, subscriptionbased models are extending to almost
every type of business.
Companies that once sold goods on a
one-time basis are now convincing many
customers to pay recurring fees, rather
than purchase a product outright.
The subscription revenue model is
proving its growth potential around
the world. According to Zuora, a billing
software provider, companies in the
‘subscription economy’ have registered
CAGR of 18% between 2012 and 2019,
a rate five times faster than that of the
S&P 500 1.
Asia Pacific has taken note.
To better understand how companies
are embracing the subscription
economy, Citi surveyed 580 senior
business executives in the region. It
also conducted in-depth interviews
with senior leaders who are leading
subscription revenue initiatives in
their organisations.
The insights reveal a sense of urgency
among finance and digital leaders alike:
Subscribing to a new way of
doing business
Nearly half the surveyed executives
believe the subscription-based model
will be widespread in their industries
within three years, and some even
think it will be the industry standard
by then. They are nevertheless finding
that building the model is slow going.
Three quarters say the shift to
subscription is a board-level priority
Most have made progress in
developing a strategy to guide it.
However, very few have a clearly
defined subscription strategy that is
aligned across the organisation.
Revenue + loyalty = long-term growth
Most expect subscription to have a
significant impact on long-term revenue
growth, but even more expect the
biggest gain to be better customer
retention and stronger customer
relationships. And the vast majority
see an opportunity to become a lead
disruptor in their industry.
Fear of failing… and missing out
The chief barriers are fear of a
short-term decline in revenue, and
low awareness within the business of
subscription’s long-term potential.
Such concerns contribute to a lack of
alignment on subscription objectives
and strategy between key functions,
especially finance and digital, which
impedes progress.
1. www.zuora.com/press-release/subscription-economy-grows-300-last-seven-years
2
Signing up to the subscription economy | The race for recurring revenue in Asia Pacific
About the
research
The survey was
conducted in July and
August 2019. It was
carried out on behalf
of Citi by Longitude, a
Financial Times company.
The respondents were based
in 14 countries, with the largest
contingents hailing from India,
Indonesia, Singapore, China,
Hong Kong and Australia. Five
sectors were represented:
• Industrial
• Technology, media and
telecommunications (TMT)
• Consumer goods and
healthcare
• Energy and power
• Insurance
The respondents work
predominantly in large
organisations: 54% in firms
earning annual revenue of
US$2 billion or more, and the
remainder between $500 million
and $1.99 billion.
All the surveyed executives
work in businesses that are at
various stages of implementing
a subscription-based revenue
model. (Those where there are
no plans for subscription were
not included.)
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Section 1
Asia embraces
the engagement age
Businesses in North
America and EMEA were
early adopters of the
subscription model, but
Asia Pacific organisations
are also now running with
the challenge: Zuora’s index
shows 16% revenue growth
of subscription economy
businesses in the region
in 20182.
According to Anna Choi, Head of
Digitalization, Asia Pacific, at Schindler
Group, a manufacturer of elevators and
escalators, customers were not used to
subscription pricing until fairly recently.
‘In 2019, however, they are starting to
see the value and are willing to pay [on a
recurring basis],’ she says. ‘Demand for
subscription in Asia is growing strong and
becoming more sophisticated.’
Companies in the region building a
subscription model are finding that
success takes time. More than four in ten
respondents (44%) to our survey say
implementation of the model has been
slower than anticipated, and 41% report
little or no progress at all to date.
Nevertheless, the survey provides a clear
indication of subscription’s appeal. Nearly
half (46%) of respondents see adoption
growing within their industry today. Fast
Figure 1. Prevalence of subscription-based models within your industry
Currently
12%
46%
18%
23%
In three years' time
12%
46%
18%
24%
They are considered industry standard
Adoption is growing
There are a few
Adoption is widespread
There are none
Base: N=580
Q. To what extent do you agree or disagree with the following statements about the future of subscription-based
models?; Q. Please indicate the level of growth of subscription-based models in the industry sector within which your
organisation operates.
forward three years and 46% predict
that subscription will be widespread in
their industry, and 12% even believe it will
be the industry standard.
Respondents in TMT and consumer
and healthcare are the most upbeat
about subscription growth, which
is reflected in recent subscription
initiatives in these sectors. Examples
include China’s Xiaomi, a consumer
electronics firm that in 2017 began
offering a monthly subscription to
its mobile services3. In 2018 Grab,
Singapore’s popular ride-hailing
service, began offering a subscription
plan for customers looking to obtain
discounts on rides and food deliveries4.
Industrial manufacturers are also
now testing the subscription waters.
One example is Geely, a Chinese auto
producer that plans to launch a carsharing service in autumn 20195.
‘Adopting a subscription model is an
evolutionary journey,’ says Saurabh
R Gupta, Director, Asia Pacific
Sales Sector Head for Consumer &
Healthcare, Treasury & Trade Solutions,
Citi. ‘Industries will evolve at different
inflection points. In the consumer
industry, the inflection point has
already come. In an industrial context,
some sectors are capital intensive and
there are bigger barriers to entry.’
2. Zuora introduced an Asia Pacific sub-category of its Subscription Economy Index in January 2018. The sub-category consists of companies in Australia, New Zealand
and Japan. 3. www.gizmochina.com/2017/12/26/xiaomi-starts-%EF%BF%A59-9-super-vip-monthly-subscription-model-no-advertisements-cloud-storage
4. www.thedrum.com/news/2019/01/15/grab-strengthens-offerings-subscription-model-it-looks-entice-users-stay-its 5. www.autonews.com/china/geely-unit-launch-carsharing-service-september
4
Signing up to the subscription economy | The race for recurring revenue in Asia Pacific
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Figure 2. Drivers of subscription adoption
and anticipated areas of impact
Opportunity to become a lead disruptor in
my sector/industry
82%
Pressure to keep pace with industry competitors
49%
Opportunity to capture new market
or customer base
46%
Potential for long-term revenue growth
42%
Growing competition from B2C marketplaces
(e.g. Amazon, eBay)
18%
Customer retention and long-term
customer relationships
76%
Long-term revenue growth
71%
Increased cross-selling to subscriber base
69%
Long-term sustainability of the business
67%
Improved margins
62%
Base: Q5 N=580; Q8A N=252
Q. Which of the following, if any, has influenced your
organisation’s decision to invest in a subscription-based
revenue model?; Q. To what degree do you anticipate
subscription-based models will impact the following areas of
your organisation?
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Signing up to the subscription economy | The race for recurring revenue in Asia Pacific
Why the subscription model sells
What’s driving companies in the region
to develop a subscription model? One
factor is, simply, intense competition.
Almost half of respondents cite pressure
to keep pace with market rivals. But
the vast majority (82%) also see an
opportunity to become a lead disruptor
in their industry.
At another level, most respondents
expect subscription to have a positive
impact on long-term revenue growth,
but even more expect the biggest
gain to be better customer retention
and stronger customer relationships.
Increased cross-selling to the subscriber
base is one way that greater retention
will contribute to overall revenue growth.
One of the most effective ways to
unlock these benefits is by mining the
huge amount of data that recurring
transactions with customers brings
in comparison with one-off product
sales. ‘Once you build a subscription
relationship with a customer, you gather
usage data from them regularly and
you get to know them better,’ says
Michael Mansard, Principal – Business
Transformation & Innovation at Zuora. ‘As
they pay for this relationship, they accept
the mutual sharing of insights. That
creates the ultimate competitive moat.’
Such mining and analysis of data can
clearly work to mutual advantage, further
cementing relationships. According to Ms
Choi, Schindler’s customers use its data
to better understand and serve their
own customers.
This points to another motivation for
subscription adoption: demand. ‘In
our avionics business, we’re selling to
companies that are very advanced in
their own transformation,’ says Stephan
Liozu, who is Chief Value Officer
with the Thales Group, a technology
company. ‘They tell us that they need the
subscription option, so we have to adjust
and be ready to respond.’
Four in ten respondents (41%)—and 64%
of CFOs— say that customer expectations
are driving pressure to improve
experience faster than their organisation
can deliver it. This pressure is most in
evidence in the consumer/healthcare,
insurance, and energy and power sectors.
Juliana Chua, Head of Digital
Transformation at NTUC Income
(Income), a Singapore-based insurer,
says that digital natives are seeking
more pricing flexibility and transparency
in insurance products. ‘So, the challenge
for us is to personalise insurance into
right-sized products that customers can
subscribe to.’
‘Insurance has a long-established
business model,’ adds Ms Chua. ‘We
want to disrupt ourselves before
disruption finds us, deliver an excellent
customer experience, and immerse
ourselves in a digital ecosystem play
with a variety of partners.’ Income has
recently taken a step in that direction
by launching a partnership with
ZhongAn Tech, a Chinese insurance
technology provider. Income’s aim
is, with its partner’s collaboration, to
reach digitally savvy and previously
inaccessible customer segments with
new products6.
Eric Cheung, Group Transformation
Director of Tricor Group, a leading
business expansion specialist, highlights
another big advantage that C-suite
executives see in the model: cash-flow
predictability. ‘In the traditional model,’
he says, ‘one-off revenue can occur
at any time during the year. But, with
subscription, we get regular cash flow
and can predict what the customer
lifetime value will be. Annual budgeting
is a bit complicated at first, but then it
gets easier.’
49%
agree that most
customers lack the
long-term commitment
necessary for
subscription models
to succeed.
64%
of CFOs agree that
customer expectations
are driving pressure to
improve experience
faster than their
organisation can
deliver.
63%
agree that subscription
models only appeal to a
younger demographic
As we will see, by highlighting such
advantages, the internal champions of
subscription pricing can help to gain
vital buy-in to the model from the CFO
and finance function.
6. www.businesstimes.com.sg/banking-finance/ntuc-income-chinas-za-tech-join-hands-to-develop-innovative-digital-insurance
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(e.g.18-35).
Section 2
Converting
ambition to reality
Regardless of their degree of
progress to date, at the vast
majority of surveyed firms
(75%) the shift to subscription
is a board-level priority.
More than 80% of C-level
respondents confirm this, as
do nine in 10 CDOs, who are
often leading the charge for
subscription (see below).
At Schindler, according to Ms Choi,
support for subscription is very
strong from the CEO, Group Executive
Committee, and right down to country
management. ‘With this level of support,
there is no argument that it is a strategic
priority for the company,’ she says.
Developing a strategy comes next.
Although most AP businesses have made
a start, only 4% claim a clearly defined,
enterprise-wide subscription strategy.
Rather, the majority (53%) are testing the
water with a number of pilot strategies
for different business units or regions.
Digital native companies with multiple
business lines may find this easier to
do than rivals born in the pre-internet
era. An example is China’s e-commerce
giant, Alibaba. In 2018 it introduced a
premium subscription plan for members
that offers discounts and other rewards
across its different businesses, including
video and music streaming, food delivery
and its core retail shopping platform7.
It also reflects the possibility that
companies will introduce subscription
pricing only in country markets where
Figure 3. Current and future subscription implementation plans
Current progress
1% 14%
44%
17%
24%
Anticipated
progress in three
years' time
14%
45%
17%
24%
Subscription is an intrinsic revenue stream
Implementation is ongoing, recurring revenues are increasing
Implementation has begun, but progress is slower than anticipated
Little progress, although we have a plan
No progress to date
there is a strong likelihood of customer
acceptance. Ms Choi tells us, for
example, that understanding of the
model is well developed in Australia,
Singapore, and Hong Kong, and growing
in India, while it will take more time to
grow elsewhere in the region.
The vast majority of survey respondents
expect subscription pricing to have a
significant impact on their business at
regional or local level, more so than at
global level.
Sharing the weight of implementation
Whatever the strategy, the initiative
must be owned and managed within
the executive suite. Jim Woods, CDO
of PwC China and Hong Kong, sees
the introduction of subscription
pricing as an integral part of the digital
transformation agenda. Therefore, he
believes, the entire C-suite should be
held accountable for the success of
subscription. On a day-to-day basis,
however, he observes that the project’s
champion is typically the CDO.
7. www.businessinsider.com/alibaba-introduces-88vip-subscription-service-2018-8?r=US&IR=T
8. www.theinvestor.co.kr/view.php?ud=20170829000849
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At Thales, its champion is Chief Value
Officer, Stephan Liozu, who describes
himself as ‘an agent of disruption’: ‘I’m
giving tough love, telling [everyone
else] to wake up. I’m constantly raising
the sense of urgency with other
functions about what they need to do
to be ready for new business models.’
Primary among those functions is
finance and its leader, the CFO. ‘A
CDO may be driving the initiative, but
the CFO has to become the business
architect,’ say Mr Liozu. ‘He has to be
the one standing next to the CEO and
providing the insights about how to
steer the subscription business and
how to integrate it in the overall P&L.’
However, bringing the CFO and
finance on board is not always a
straightforward matter.
Signing up to the subscription economy | The race for recurring revenue in Asia Pacific
The hybrid
approach
Established companies, especially
providers of physical goods,
are likely to employ a hybrid
model, combining traditional
and subscription pricing, for an
extended period of time.
‘It’s a long journey to subscription,’
says Michael Mansard of Zuora, ‘so
there may be a need, especially
for manufacturers, to sustain
both models at the same time.
Companies that are best-in-class
tend to try, learn and iterate from
day one.’
One reason that large companies
take this approach is that few have
the capabilities and technology in
place to make a rapid, wholesale
shift to subscription. Stephan
Liozu of Thales points out that
established businesses often go
the route of acquiring digital startups to get their subscription model
off the ground quickly.
A regional example of this is
LG Household and Healthcare,
a division of the large Korean
conglomerate, which launched a
subscription-based male grooming
service in 2017 after acquiring a
local subscription-based apparel
service provider8.
9
Section 3
Subscription
culture shock
Whichever member of
the leadership team is the
champion of the subscription
revenue model, their biggest
challenge is convincing the
rest of the business to focus
on it long-term.
The greatest barrier to implementing
the model, respondents report, is fear
of a short-term decline in revenue. A
closely related hurdle, and cited nearly
as often, is a low level of awareness
within the company of the long-term
potential of a recurring revenue model.
Figure 4. Top barriers to implementing
subscription-based models
Potential short-term decline in revenues
61%
Low awareness of long-term potential
for recurring revenue models
58%
Outdated accounting systems
and/or valuation models
31%
Cultural factors (e.g. lack of growth mindset, silo
mentality, outdated company values)
31%
No strategy to support business model change
31%
Base: N=580
Q. In your view, which of the following are, or have been,
the biggest barriers to implementing a subscriptionbased revenue model in your organisation? Q. Does your
organisation have a clearly defined strategy to support
the growth and innovation of subscription model revenue
streams over the coming three years?
More consumer and healthcare firms,
and also manufacturers, struggle with
these factors than others.
Such concerns are naturally everpresent within finance. In established
businesses with entrenched revenue
models, the challenges posed by a shift
towards subscription can be daunting.
According to PwC’s Jim Woods,
CFOs in traditional organisations
follow tried and tested methods of
monitoring investment and setting up
accountability structures, and usually
expect a quick ROI on both the top and
bottom lines. ‘In subscription-based
models,’ he says, ‘revenue flow is much
more protracted and back-end-loaded,
and profit generation even more so.
That requires a very different mindset.’
‘Subscription is a whole different
business,’ says Stephan Liozu of
Thales. ‘We have to disrupt our legacy
processes in finance, in cost modelling
and controlling. Imagine a traditional
legacy business that’s been around for a
hundred years, with finance people that
go through the same long-established
training, and now we’re telling them to do
something different.’
Getting the business up-to-speed
The finance challenge is not just about
changing trusted methods of revenue
recognition and cash flow. Once on
board with the introduction of a
subscription-based model, the CFO and
finance team are the ones responsible
for communicating its impact to the
rest of the business. But, at many
companies, a lack of alignment and
dialogue between finance and other
business functions means that the
latter can remain unconvinced of the
need for change.
10
More than two-thirds (67%) of
respondents say stronger alignment
between business and finance is needed
to make subscription models successful.
Within the C-suite, 78% of CTOs support
this view, compared with 66% of
CFOs, suggesting that weak financetechnology interaction is a particular
risk to the model’s success.
Figure 5. The role of finance and treasury
It is the remit of finance and treasury to
communicate the impact of a subscription-based
revenue model to the rest of the business
73%
7%
20%
The finance function has a high-degree of
autonomy to manage external relationships
(e.g. with investors and banks)
70%
4%
26%
The finance function is empowered to
communicate business model change to
investors and customers
68%
Agree
5%
Neither agree nor disagree
26%
Disagree
Base: N=580
Q. To what extent would you agree or disagree with
the following statements regarding the remit of your
organisation’s finance/treasury department?; Q. To what
extent do you agree or disagree with the following statements
about accountability for delivering a subscription-based model.
The CFO and finance function are
also responsible for communicating
the virtue of adopting the model
to customers, investors and other
external stakeholders.
Nearly 70% of survey respondents
confirm that the finance function
is empowered to communicate
business model change to investors
and customers. But Anna Gong, CEO
and Founder of Singapore-based Perx
Technologies, a software provider,
Signing up to the subscription economy | The race for recurring revenue in Asia Pacific
believes not all CFOs find this easy.
‘I have seldom seen large enterprise
CFOs in meetings where revenue and
growth are discussed. CFOs should
be involved in digital transformation
discussions with solution providers and
understand the complexity around the
overall journey. As CIOs are evolving,
CFOs should equally be accountable
for growth and transformation
journeys, not just maintaining
governance, risks, and cost control.’
‘Once the model grows beyond a small
pilot, there is a need to communicate
consistently to the markets,’ says
Michael Mansard of Zuora. ‘It requires,
among other things, defining the metrics
you want to be judged on.’ The CFO must
also demonstrate that the company
has a plan to counter the short-term
cannibalisation of revenue that may
result from subscription: ‘The CFO needs
to demonstrate the company’s ability
to take that initial hit, for the long-term
gain that the subscription-model can
provide,’ he says.
‘Someone who is thinking about the
overarching strategy and direction of
the business accepts that a short-term
failure to meet margin projections
could lead to consistency and stability
of the top line in the medium term.’
says Saurabh R Gupta of Citi. ‘They
might even embrace it and promote it.’
At Schindler, according to Anna
Choi, finance has been behind the
subscription model from early on. ‘The
key issue is: “How do we change the
existing IT infrastructure or accounting
platform to ensure that the billing and
tracking will be much easier to do?”’.
This is where open dialogue with
finance and IT is critically needed.
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Section 4
Skilling up for the
subscription age
Better customer retention
and cross-selling are the
ultimate prizes for many
subscription converts, but
they will be hard won.
Figure 6. Top five tools to maximise subscription success
60%
50%
44%
41%
40%
New financial capabilities are integral
to building an infrastructure that
can support a subscription revenue
model. These include technologies that
enable instant payment and collection
methods from banks, as well as open
banking services provided by financial
services providers.
Interestingly, many more Asia Pacific
CDOs than CFOs in the survey
emphasise the importance of such
capabilities – further evidence of
potential misalignment on the
subscription model between these two
executives and their functions.
‘The subscription model is about
moving from a direct economy to an
engagement economy,’ says Saurabh
R Gupta of Citi. ‘And that places greater
emphasis on the flexibility of banking and
technology infrastructure. It needs to be
digital, from back to front.’
40%
34%
The majority (55%) of survey
respondents state that gaining a better
understanding of customer expectations
and experience will do more to ensure
the success of their subscription model
than any other improvement.
Developing such understanding will
require considerable data mining and
advanced analytics capabilities. Customer
relationship management (CRM) tools
are also high on the list of technologies
that respondents (particularly in the
consumer and healthcare sectors)
believe their firms will need to invest in to
ensure the success of the model.
48%
38% 37%
34% 34%
29%
Access to new and
instant payment/
collection methods
from banks
CDO
CFO
Open banking
services from
financial services
providers
CRM tools
Partnerships
with FinTech
platforms
31%
33%
Marketing
automation
tools
Overall
Base: Q14 N=580
Q. Which, if any, of the following technologies/tools does your organisation need to invest in, in order to maximize the success of
its subscription-based model?
Do companies in the region have the
skills, including data analytics and
customer experience specialists, needed
to support the subscription model?
According to Stephan Liozu of Thales,
gathering such people in the right
place is a more difficult challenge than
many executives realise. ‘You can’t take
people from the core business with no
marketing background and put them in
digital, thinking that they’re going to be
able to design beautiful, subscriptionbased models out of the blue.…
Companies often underestimate the
amount of re-skilling and up-skilling
of existing teams that is needed, as
well as the need to hire people from
outside with totally different skills and
a service mindset.’
12
‘Once you go down this journey you are
changing a hundred-year-old tradition of
distribution in most of these companies,’
says Saurabh R Gupta. ‘With subscriptionbased models, you are selling a repeat
engagement. The mindset of the
traditional salesperson in most of these
companies, however disruptive they are,
has to change.’
Signing up to the subscription economy | The race for recurring revenue in Asia Pacific
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Are finance and digital
sufficiently aligned?
Survey respondents broadly
agree that all members of the
management team need a
strong, shared understanding of
the subscription strategy.
‘In healthy subscription-based businesses,
the finance and tech teams tend to be
very aligned,’ says Michael Sherman, Chief
Strategy and Transformation Officer at BT.
‘Traditional businesses think in terms of
quarterly revenue whereas subscription
businesses focus on intrinsic trends around
their subscriber base. In the future, both
teams need to prioritise the subscription
base first to understand how pricing and
revenue move long-term profits.’
Full alignment is particularly vital between
the CFO and CDO and their respective
teams, as they will carry most of the
burden of establishing the infrastructure,
systems and capabilities. It may be a
cause for concern, then, that the survey
indicates a degree of misalignment
between the two functions.
For example, although the vast majority
of all executives affirm that moving to
a subscription model is a board-level
priority, many more CDOs (as well as CIOs
and CTOs) are certain of this than CFOs
(93% versus 80%). And many more CDOs
than CFOs are confident that they have
the right tools in place to measure the
success of the model.
Are CFOs in Asia Pacific, cautious and
risk-aware by nature, more reluctant than
their senior technology colleagues to take
the plunge?
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Signing up to the subscription economy | The race for recurring revenue in Asia Pacific
Measuring subscription success
One of the first challenges that finance
will face in a shift to subscription is
devising metrics to track the new
revenue streams. ‘The CFO cannot
monitor the subscription business
in the same way as they have the
classic business,’ says Zuora’s Michael
Mansard. ‘They will need to set up a
new operating model with an entirely
new set of KPIs.’
Figure 7. Measuring subscription
model success
87%
68%
We have the right tools in place
to measure the success of
subscription-based revenues
Some of the metrics to be set up
are annual recurring revenue,
customer lifetime value and customer
acquisition cost.
A number of Asia Pacific CFOs in the
survey understand the degree of
difficulty this presents. More than 40%
say they lack a clearly defined set of
metrics to accurately assess the success
of its subscription-based model.
64%
35%
43%
27%
My organization lacks a clearly defined
set of metrics to accurately assess the
success of its subscription model
Overall
CFO
CDO
Base: N=328 (Those that have begun implementing a /have
an established subscription-based revenue model)
Q. To what extent do you agree or disagree with the
following statements about measuring the success of your
organisation’s subscription-based model?
“
While most businesses
are trying to embrace
disruption and
collaboration, the
interaction between
finance and the business
remains reactive.”
Saurabh R Gupta • Director, Asia
Pacific Sales Sector Head for
Consumer & Healthcare, Treasury &
Trade Solutions, Citi
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