Video Game Spending Was Driven By Microtransactions In 2018
Excerpts from an article by Erik Kain in Forbes
2018 was a great year for the US video game industry according to the NPD Group. Overall, industry spending in the US was up 13% over 2017, with total spending reaching $16.67 billion over 2017’s $14.716 billion. This number doesn’t include everything, however. Once you figure in subscriptions and microtransactions, total spending balloons to $43.4 billion over the previous year’s $36.9 billion.
Hardware, Software and Accessories & Game Cards all saw growth in 2018. Hardware was up 8%, driven largely by the Nintendo Switch. Software, not including MTX or subscriptions, was up 7%. But Game Accessories & Game Cards (headsets, gamepads, etc.) was up a whopping 33%.
Still, the total of all three of those categories was just $16.67 billion. That’s not even half of the total $43.4 billion the NPD says US consumers spent on video games in 2018. In fact, that leaves $26.73 billion up for grabs, all of which comes from the NPD’s “Software, including in-game purchases and subscriptions” category.
When you look at it in this light you can really see why Games As Service have taken off in recent years, and why the industry puts so much emphasis on microtransactions.
Read the full article on Forbes
Jeep running pilot programs for car sharing, subscriptions
Excerpts from an article by Andrew Krok on CNet.com
Fiat Chrysler will use one of its most popular brands to trial some additional mobility services with the help of some notable partners.
Fiat Chrysler will establish pilot programs for peer-to-peer car sharing and a separate subscription service, Bloomberg reports, citing an interview with Tim Kuniskis, the head of Jeep’s North American operations, at the 2019 Detroit Auto Show. Both pilot programs will run for three months, and both begin next week.
For its P2P car sharing service, FCA will hook up with Turo, one of the most prominent companies in that field. According to Bloomberg, the automaker is working on recruiting owners to sign up and make some money on the side by renting their vehicles out for others to use.
On the subscription side, FCA chose Avis Budget Group as a partner. This scheme will let Jeep owners swap out their cars for other vehicles, like a Ram 1500 or Dodge Challenger. According to Bloomberg’s report, Avis will be responsible for managing the subscription program’s supply.
Read the full article on CNet.com
Legacy retailers turn to subscription programs to hook loyal customers
Excerpts from an article by Suman Bhattacharyya on Digiday
Legacy retailers are taking a page from Amazon Prime by adding subscription services to lock in loyal customers.
In recent weeks, a number of players in the category, including Lululemon and CVS, have rolled out membership programs to build loyalty. The programs keep a retailer’s most valuable customers coming back regularly, while helping to counteract growing customer acquisition and retention costs as e-commerce platforms broaden product choices.
“It starts with the realization that the only way to survive is to have repeat customers,” said Corey Pierson, co-founder of predictive marketing analytics platform Custora. “For the longest time, [retail business] was very product-focused, as in how many shoes did you sell, but given Amazon’s growth and how easy it is for customers to do price comparisons, retailers are realizing that if [customers] don’t become repeat buyers, the economics of the business won’t work.”
Lululemon’s membership program, currently being tested in Edmonton, Canada, offers subscribers a pair of pants or shorts designed exclusively for the program (it’s unclear if this is a one-time or repeat offering), access to classes and events and free expedited shipping for e-commerce purchases, for a $96 annual fee. Subscription rewards will be rolled out monthly to users. The company’s CEO, Calvin McDonald, told investors last week that it was considering raising the program fee depending on customer interest, which has been strong so far.
Meanwhile, Best Buy, widely known for its staff members’ tech expertise through the “Geek Squad,” in May began offering a yearly tech support subscription-based product called “Total Tech Support,” priced at $199.99 per year.
Similarly, DSW has been experimenting with subscription-based services. Last year, the company launched an “innovation lab store” in Columbus, Ohio, offering services like a shoe concierge and a nail salon. The location is reportedly driving 10 percent higher annual sales compared to other locations. The company is also offering TechStyle Fashion Group-owned online subscription services JustFab and ShoeDazzle space within the store to test how physical retail can help grow their customer base. The company earlier this year revamped its loyalty program, offering its 25 million members personalized rewards based on their purchase behavior.
Read the full article on Digiday
How Subscriptions Are Remaking Corporate America
Excerpts from the article by Alex Eule on Barrons
When Microsoft leapfrogged Apple last month to become the world’s most valuable company, the symbolism was rich, given the pair’s intertwined history.
But the milestone carried a deeper significance about the future: Wall Street has recognized the value of subscriptions over traditional sales.
While Apple investors fret over the latest iPhone sales, the market has rewarded Microsoft for locking in a regular stream of revenue tied to the cloud and its Office 365 franchise. Those old Windows software boxes? They’ve been replaced by shiny mobile apps tied to monthly payments.
Sure enough, Microsoft (ticker: MSFT) shares rose 3.8% in November, even as Apple (AAPL) tumbled. Despite Apple’s user base of one-billion-plus iPhones, the company’s shareholders still worry every year about the next device. It’s an exhausting cycle for consumers, investors, and, surely, Apple itself.
Subscriptions offer a way off the product hamster wheel. Recurring payments have changed the way that Americans consume software, music, movies, television, fitness, clothing, and food. Even tractor maker Deere (DE) is trying to sell subscriptions to farmers. And the trend goes beyond Corporate America. Don Ward, who has shined shoes for 18 years just outside Barron’s offices in midtown Manhattan, began offering a subscription service in 2010. For $100 a year, customers get unlimited shines. For $500—the “platinum” service—customers get shoeshines for life.
“It helps me because I reward my most loyal customers,” Ward says. Plus, “who doesn’t want to get paid in advance?”
Consumers and businesses have found an unlikely alignment through subscriptions. Merchants can see revenue months down the road, while customers get convenience, customization, and the promise of ongoing service upgrades for one, all-you-can-eat price.
“The entire $80 trillion economy is up for grabs,” Tien Tzuo, CEO of subscription-billing platform Zuora (ZUO), writes in his new book, Subscribed. Zuora’s stock is up 30% since it went public in April. Its revenue is expected to grow 39% this fiscal year, to $234 million.
Investors, somewhat belatedly, have discovered the subscription payoff. The market now values Microsoft at $23 for every dollar of profit it generates, while Apple’s price/earnings ratio is mired at a hardware-like 13 times.
The valuation math illustrates how important subscriptions can be. Getting the model right can generate billions of dollars for shareholders. Take the rise of Netflix (NFLX), which trades at a sky-high 67 times projected earnings for next year. Wall Street has become more and more bullish with every passing quarter. And, as long as customers pay their monthly bill, no one is worried about the commercial success of its latest show.
Read the full article on Barrons