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FIVE TRENDS AND TIPPING POINTS IN THE RECURRING REVENUE ECONOMY

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Five Trends And Tipping Points In The Recurring Revenue Economy

By Matt Shanahan, VP, Product Strategy, Scout Analytics

Matt Shanahan shares his top 5 trends, which he predicts will hit a tipping point and start to take, hold more broadly in 2014 and beyond:

#1: Pay-per-use will drive market growth

When Salesforce.com launched its per-user per-month subscription model, the pricing wasn’t aimed at big enterprises already implementing Siebel or other on-premises software packages. The new model was aimed at the unserved SMB customer segment—and this created huge growth in the Salesforce automation marketplace. Likewise, Amaon’s rapidly growing AWS offering was aimed at startups that couldn’t afford their own data centres.  Pay-per-use models extend markets. In 2014, we’ll see growth-oriented companies find even more ways to reach new customer segments with new pricing and packaging that allows customers to only pay for what they use.

Five Trends And Tipping Points In The Recurring Revenue Economy

Five Trends And Tipping Points In The Recurring Revenue Economy

#2: The golden revenue KPI evolves from customer count to customer usage

Car2Go and Uber are both emerging recurring revenue businesses, but their revenue models are based on customer usage—so customer count isn’t sufficient for understanding their growth. For example, Car2Go claims over 500,000 customers, but those customers only generate revenue when they’re driving. If you want to understand Car2Go, the most telling metrics involve average minutes per month for those customers and the trend lines for their usage. In 2014, we’ll see traditional, purchase-based e-commerce KPIs give way to usage and engagement indicators as the cornerstone for successful performance.

#3: Recurring revenue and profit growth will come from the “farmers,” not the “hunters”

For the vast majority of recurring revenue businesses, existing customers don’t just fuel growth—they represent all of the businesses’ profits. Take the average customer relationship in the SaaS market: it takes 3.14 years to reach profitability, which for a $12,000/year subscription would mean $37,680 to hit breakeven. That means a full 68 percent of the revenue needed to achieve profitability is collected after the initial contract. The key to profitability is ensuring customer success and then growing the relationship. Consequently, we’ll see a shift this year as growth objectives achieve a better balance between the “hunters” and the “farmers,” who will focus on nourishing current customers and maximising customer lifetime value.

#4: More marketing and sales teams will take a united approach to customer success

Currently, a product is the primary means of customer engagement—but the product usage data is disconnected from the other systems of engagement in a recurring revenue business, such as marketing automation. As a result, marketing, sales, and customer success teams can’t proactively engage customers to create value and grow the relationship. This fragmentation also leads to a siloing of responsibility regarding customer success. In 2014, more companies will begin to link data from their products directly into marketing, support, billing, and sales systems. This will enable an organisational shift that unites all departments in ensuring customer success.

#5: Businesses will understand that not all data is the same, and that usage data needs to be handled separately

Many recurring revenue businesses already know that the biggest growth opportunities lie in understanding and harnessing usage data—the data behind how customers actually use a product or service. And thanks to the rise of cloud computing, big data, and a growing mobile network of increasingly sophisticated sensors, customer usage data is now more readily available than ever. But tapping into this new type of data can be complex because of its sheer volume and velocity. In 2014, recurring revenue businesses will begin treating usage data in a completely different way than traditional CRM data, and they’ll place a higher value on dealing with this data separately.

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Siemens Healthineers gains EU nod for $16.4 billion Varian buy

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Siemens Healthineers gains EU nod for $16.4 billion Varian buy 1

BRUSSELS (Reuters) – EU antitrust regulators on Friday cleared with conditions Siemens Healthineers’ $16.4 billion acquisition of U.S. peer Varian, paving the way for the German health group to become a world leader in cancer care therapy.

The European Commission said Siemens Healthineers pledged to ensure that its medical imaging and radiotherapy equipment will work with rivals in return for its approval, confirming a Reuters story. The pledge is valid for 10 years.

“High quality medical imaging and radiotherapy solutions are crucial to diagnose and treat cancer. The efficiency and safety of treatment relies on the ability of these products to work together,” European Competition Commissioner Margrethe Vestager said in a statement.

Varian is the leader in radiation therapy with a market share of more than 50%. The deal received the U.S. antitrust green light in October last year.

 

(Reporting by Foo Yun Chee)

 

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Battling Covid collateral damage, Renault says 2021 will be volatile

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Battling Covid collateral damage, Renault says 2021 will be volatile 2

By Gilles Guillaume

PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.

Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.

“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”

De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.

The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.

Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.

Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.

The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.

The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.

Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.

“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”

Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.

SHARP HIT

The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.

Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.

The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.

In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.

Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.

Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.

Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.

It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.

De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.

($1 = 0.8269 euros)

(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)

 

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UK delays review of business rates tax until autumn

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UK delays review of business rates tax until autumn 3

LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.

Many companies are demanding reductions in their business rates to help them compete with online retailers.

“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.

Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.

($1 = 0.7152 pounds)

(Writing by William Schomberg, editing by David Milliken)

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