The history of recurring revenue

Recurring revenue has emerged as one of the most popular business models for companies and retailers to implement in today’s industries. As a source of constant income – as opposed to one-off licenses or traditional transactional models – recurring revenue could be a tremendous boon to companies in their bids to grow their operations and disrupt entire archaic industries. According to Inc. Magazine, recurring revenue demonstrates that a business can thrive over a long period of time. Additionally, gaining this source of income can be done through long-term contracts, subscription services, membership clubs or even adding a line of consumables to what a company is selling. Many people tend to associate recurring revenue models with modern companies and business models who are able to take advantage of improved technology and a constantly-shrinking world. The truth is, recurring revenue has been a disruptive force in
business in the United States for nearly a millennium.

One of the most well-known subscription-based models in business today is within the newspaper and periodicals industry. It is no surprise then that the recurring revenue business model first began back in 1440 with the advent of the printing press. Individuals and small publishing companies could produce written materials on a widespread scale at an efficient rate. Increasing the volume of production without having to greatly raise the costs of doing business led to the ability to sell the product on a more regular basis, thus leading to a regular subscriber base. Just as readers are able to enjoy newspapers and magazines on a daily, weekly or monthly basis today, so could readers back in the 15th century with the invention of the printing press.

Technology has always played a pivotal role in the growth of the recurring revenue business model, highlighted in 1876 with the invention of the telephone by Alexander Graham Bell. Once telecom giant AT&T was formed in 1885 to connect local Bell companies, a monopoly was established on the communications market. The company could charge individuals monthly subscription fees to access the highly sought after service.

Once the technological ball got rolling, recurring revenue streams started picking up momentum. One big addition was the widespread proliferation of home security systems that were replacing traditional lock and key models. These new digital security systems, led by companies like Ingersoll Rand, offered consumers a more reliable sense of security and comfort. In return, customers provided the company with a new regular revenue source in the form of a monthly fee charged to maintain these systems.

The dawn of the 21st century saw technology evolve simultaneously with the advent and increase in demand for media services. Netflix began offering mail-based video subscriptions at a flat monthly rate, rendering traditional one-off transactional models like Blockbuster and mom and pop video shops obsolete. Customers could opt for ease of mind and convenience by paying the monthly fees and getting all the movies they and television shows they wanted. Adding streaming web-based videos down the road provided yet another source of recurring revenue, a source that would prove to be particularly popular in the music industry as well. Companies such as Spotify and Pandora offered monthly subscriptions that would allow users to stream the songs they wanted indiscriminately, largely disrupting traditional business models of purchasing CDs or buying and downloading individual songs.

Finally, the continuous rise of e-commerce has led to creative new outlets by traditional industries, such as groceries and clothing. Consumers demanded the flexibility of having regularly-used items delivered to them and retailers enjoyed the new sources of recurring revenue that have been tweaked and enhanced throughout history.

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The Forrester Wave: Subscription Billing Platforms, Q4 2015

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