Rundles: The latest trend?
Updated: Sep 29, 2020
There is a trend that has been rather prominent lately–recurring revenue subscription model and bundling multiple services to form a “rundle”. The term has been coined by one of my favorite professors, Scott Galloway, and made a lot of companies change their business model.
As you can tell “r” in rundles comes from the growing recurring revenue trend. Recurring revenue is the portion of a company's revenue that is expected to continue in the future. Unlike one-off sales, these revenues are predictable, stable, and can be counted on to occur at regular intervals, with relatively high certainty. Back in 2005, Amazon rolled out Amazon Prime. The program was beautiful: It offered “free” shipping that customers paid for annually. That proved alluring enough, but when Amazon began tacking on additional services like movies and music a few years later, the scope of Prime’s brilliance became even more apparent. Amazon Prime locks people into the Amazon ecosystem with the golden handcuffs that they pay for. Plus, the customers don’t just give Amazon recurring revenue. They also spend longer on the platform and its services. The customers get free shipping, so why shouldn't they take advantage of it? They’re watching movies on Amazon Prime Video, so Amazon is always at the front of their brain when thinking about where to buy a new product. Subscription as a service (SaaS) is based on a similar model. A company doing a great job at it is Salesforce. This makes me think, why do so many companies switch to this model and why is so prominent?
Benefits for Companies:
A rundle can work even better compared to just a recurring model. The company benefits by receiving a steady inflow of revenue by acquiring the customer just once. The model also helps in great average cart value, better predictability, and improved customer lifetime value. Rundles also makes it easier for understanding deeper customer insights. When an interaction is restricted to a one-off purchase, it’s difficult to develop a detailed understanding of consumer behavior and preferences. When a customer repeatedly interacts with the brand, it helps maintain the contact and gain deeper insights which help to make better business choices, from product alterations and new products to marketing decisions. I can't stress the relationship aspect enough and often brands do not focus on it. If someone is automatically paying you each month, consistently logging in to your product, or frequently interacting with your brand, then there shouldn't be an excuse for not winning and keeping this customer for a significant amount of time.
Benefits for customers:
For consumers, the model provides convenient and added simplicity. A service-based rundle gives customers the feeling of owning many products without the cost, responsibility, and clutter of buying them. Sometimes customer thinks software, for example, is better off as a onetime purchase. The problem is that the software requires constant updates and bug fixes. The subscription fee helps with that and keeps the software relevant. If you were to buy software and own it, it would mean owning the bugs and future incompatibility that comes with it. Who would want that, right? We’ve seen countless examples of technology that did not update with the times, and we know how that turned out. An example of a rundle does exceptionally well is Microsoft's Office 365. Back in 2011, they launched Office 365, which offered the same tools the regular version did, but through the cloud instead. One reason for Microsoft making the switch can be google who released Google Apps for business (now G Suite). Larger companies chose Office 365 over G Suite because the office experience became a part of the lifestyle and learning the new G Suite wasn’t that easy. We can see the results today as 365 is only growing its rundle stronger.
The reality is that a company can make a lot more money charging businesses monthly for your offering rather than demanding one lump sum upfront. Leaders like Adobe learned this the hard way as it made the shift from selling software to subscription-based services. Adobe’s Digital Media business which consists primarily from the revenue from subscription is expected to contribute $9.1 billion to Adobe’s 2020 revenues, making up 68.1% of Adobe’s $13.4 billion in expected revenues for 2020
A brand I am truly excited about is Apple, who can build incredible high margin recurring revenue streams, club them together, and further monetizing their immense fan base. Apple One is the result of that. At its best, it saves you money. At its worst, it looks like it does. In terms of the services offered. Apple Music and iCloud have been proven winners, Apple Arcade and Apple TV+ is still in its early stages. Apple creates a compelling value proposition which is - you guessed it - a rundle. Apple Services generated $13.16 Billion in Revenue in Q2 2020, which is a +14.85% YoY change. This seems like a smaller number compared to other devices offered by Apple as part of the “Wearables, Home and Accessories” group of products, but the focus has been shifting. The sales for Apple iPhone have plateaued whereas the services business has been increasing consistently. Apple will push services harder and introduce new services to which people can subscribe to. Apple has struck the right balance between accessibility and appeal with consumers on one hand and portability on the other.
I believe smaller brands will build and even partner with other brands to build these lucrative bundles by combining services and charging a recurring subscription. Amazon could do with Amazon Prime. Walmart is launching it with Walmart+ but a lot of D2C will try to enter the space soon. The rundle economy is growing, and the opportunities it presents aren’t just limited to SaaS products and subscription boxes. As it continues to expand into new industries, it’s likely we’ll see even more unexpected verticals combining and adopting service subscription models.