Voice of the Industry

Subscription economy landscape: mergers and acquisitions, investments, developments

Thursday 6 June 2019 08:31 CET | Voice of the industry

The Paypers presents the most important mergers, acquisitions, investments, and developments in the subscription economy landscape

Subscription commerce continues to be a promising sector, with 100% growth over each of the past five years. It is undeniable that growth, combined with ever-changing customer expectations and new regulations aiming to protect their rights, lead to a lot of innovation and consolidation through mergers, acquisitions, and investments. The boom of the subscription economy has also led to an increase in the recurring revenue models; currently, around 18% of global payments are recurring.

More and more companies are looking to implement subscription services, either for digital goods or for physical goods. From top Fortune 500 to medium-sized, businesses are searching for new business models and perceive subscriptions as the next big thing in reaching the customers directly, acquiring new ones, retaining them, and increasing their revenue. For physical goods, easy replenishing, combined with doorstep delivery and customisation, have turned the subscription model into a success story for many businesses.

A lot of innovation and development is currently going on in this space. Earlier in February 2019, Disney ended its streaming deal with Netflix and launched its own service, Disney+, as the exclusive streaming home for Disney movies and TV shows. Google seems poised to offer a paid subscription gaming service. According to Forbes, the company will reveal at Game Developer’s Conference details about its game streaming service.

In October 2018, Loot Crate, a US-based subscription commerce platform for passionate fans of games, anime, sports, and pop culture, announced the launch of a new digital subscription, the first of its kind on the platform, focused on independently developed PC games. Launching today, Loot Play will offer subscribers five high-quality, highly curated indie games starting at USD 10 a month. In April 2018, the worldwide leader in fan subscription boxes has implemented NetSuite to manage the rapid growth it’s undergone in just five years. With NetSuite, Loot Crate has a unified and flexible platform to scale with its growth and to handle the complex requirements of its business model.

Automotive companies are also interested in subscription services. In November 2018, Toyota announced the launch of its car subscription service called KINTO. Three months later, the company established KINTO, a new company that will manage and operate its car subscription service.

When it comes to consumer goods, we also notice many developments. In June 2018, Nestle launched a subscription program for nutritional drinks in Japan and expanded ReadyRefresh, an online bottled water service, in the US. It also wants to expand the Tails. com subscription pet food from UK to continental Europe, and it is testing the service in France for a possible launch later in 2019. Unilever launched its Skinsei brand in the US after a testing phase, offering personalised skincare by subscription. In 2017, the company expanded its Dollar Shave Club subscription razor service to include more products. Procter & Gamble expanded its Gillette on Demand razor subscription service to Canada; its subscribers are offered the possibility to text when they are ready for their next shipment.

Even though some subscription models are relatively new, they show signs of shifting into the fast lane. For example, recent projections indicate that the global automotive subscription market will grow at a CAGR of 71% between 2018 and 2022. On the opposite, while some automakers are opening their doors to subscriptions, others are closing them. General Motors’ Cadillac subscription service BOOK closed in December 2018.

Mergers and acquisitions

Unilever’s USD 1 billion acquisition of Dollar Shave Club in 2016 is probably the highest deal in the subscription space, followed by Albertsons’ USD 200 million acquisition of Plated in September 2017 and Walgreens’s minority stake in beauty subscription box company Birchbox in October 2018 for an undisclosed amount. Also for an unspecified amount, earlier in February 2019, Unilever acquired UK-based snack brand Graze from investment company The Carlyle Group.

In the solution providers’ space, we have also witnessed certain important acquisitions. In February 2019, asknet, a provider of e-business technologies and solutions for the global distribution and management of digital and physical goods, has announced the acquisition of Nexway, an ecommerce services provider of solutions for monetising digital business models and connecting companies to the global ecommerce market. The company’s plan is to be more involved in the payment facilitation process, by building a team focused on the activities of its core business: merchant of record.

In May 2017, Zuora, a US-based provider of subscription commerce, billing, and finance solutions, signed a definitive agreement to acquire Leeyo Software, to add more capabilities in reporting and revenue recognition automation.

In April 2017, Avangate, a global ecommerce and subscription billing platform for software, SaaS, and digital solutions, acquired 2Checkout, a global payment processor. From a strategical point of view, as part of the agreement, Avangate added payment capabilities to its subscription billing/merchant of record business model.

Investments and partnerships

Subscription-based businesses and solution providers have been subject to important investments in the past period.

Subscription-based companies:

in February 2019, Ritual, the direct-to-consumer women’s vitamin subscription company, announced USD 25 million in series B funding; in the same month, Billie, a US-based shave and body brand, announced a USD 25 million in series A investment;

in December 2018, Blue Apron, a US-based meal kit company, inked a deal with Weight Watchers International, with the aim to make healthy meal kits for dieters;

in August 2018, Loot Crate secured an investment of USD 23 million led by Atalaya Capital to refinance its debt facilities and provide capital for the business;

in May 2018, Viking Global acquired a majority stake in Birchbox, a US-based online monthly subscription service that sends its subscribers a box of four to five selected samples of makeup, or other beauty related products, after agreeing to invest around USD 15 million of new cash into the business. Until now, Birchbox raised around USD 90 million in financing from investors since its inception in 2010.

Solution providers:

in January 2019, content monetisation and audience intelligence tech company Piano.io raised USD 22 million in a Series B funding round led by private-equity firm Updata Partners; in the same month, the US-based accounting electronic payments system BizPayO has integrated with QuickBooks to set up recurring payments and synchronise with QuickBooks from one platform. Also, Paysafe announced a partnership with Vindicia, an Amdocs company and a business-to-consumer digital services monetisation provider. The integration will enable Paysafe’s merchant customers to bill recurring payment transactions by automatically resolving previously declined card payments;

in January 2018, LogiSense, a Canada-based global subscription and usage-based billing solutions provider, and Vertex signed an agreement to service clients in need of global billing and to provide them with the ability to keep up-to-date with complex and constantly changing communications taxation;

in March 2018, Chargebee, a US-based SaaS subscription management and recurring billing solution, secured USD 18 million in growth capital led by Insight Venture Partners. The capital was said to be used for increased investment in product research and development;

in November 2018, NEC Corporation chose Zuora’s platform as the core component of its platform for enterprise subscription business implementation;

in June 2017, allpago’s payment gateway was integrated into Zuora’s subscription management platform;

in February 2017, Recurly, a US-based enterprise-grade subscription management platform, integrated with QuickBooks Online to allow customers to manage subscription billing and accounting data;

in July 2017, Recurly integrated with Xero to automatically synchronise billing and invoice data and provide customers with a complete view of recurring revenue and transactions;

in December 2017, Recurly partnered with Adyen to fuel international expansion for subscription businesses.

This editorial was first published in the Monetisation of Digital Business Models 2019 – Insights into Billing and Recurring Payments Report. The Report presents the key trends and developments in monetisation of business models, subscription economy, and billing and recurring payments.

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Keywords: Google, Netflix, subscription economy, M&A, investment, ecommerce, Chargebee, Paysafe, card payments, subscription commerce, merchant, billing, Zuora, Nexway, Birchbox, Unilever, Dollar Shave Club, Avangate, Loot Crate, car subscription, digital goods
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