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Will subscription services be Tech City’s next unicorns?

Spotify, Netflix and Graze are just a handful of companies referred to as the ‘digital wunderkinds’ of the 2010s, attracting equally large numbers of users and investors across the globe. Quite simply, they have succeeded because they understood how people behave, and how technology can make their experience better.

These are companies built for the digital age with tech at their core, and the same ambition and mind-set is thriving right on our doorstep at Tech City (which has just celebrated its fifth anniversary last week), with successful startups like AlertMe or Huddle.

According to analysis by London & Partners, total VC investment in London’s tech sector is expected to surpass £1bn at the end of the year alone. Together with a wide network of accelerators and a vibrant cultural scene, this makes the Capital a very attractive place for the world’s most talented entrepreneurs to develop their businesses with a fresh-eyed approach to consumer behaviour and demand.

As consumers, we have dramatically changed the way we live our daily lives in the short space of five years.

We don’t buy digital song files any more, exemplified by the likes of iTunes’ sales declining, we subscribe to music streaming services with which we can access millions of songs under one account through multiple devices.

Instead of splashing out to own a car and pay for its maintenance, we sign up to ZipCar and simply use one when we need it. We are moving away from owning to on-demand access, whenever and wherever we want, hassle free.

This shift of consumer behaviour was first recognised by startups and has now even prompted some of the biggest brands in the world to react.

Apple, Amazon and the BBC have all launched subscription services in the past few months. They accepted that simply selling products doesn’t work in our digital world anymore. Instead, they need to wrap a service around the product if they want it to fly off the shelf.

Engaging with customers through services leads to better experiences, and as the relationship develops, to increased loyalty.

Today’s startups rely on loyalty as they struggle to stand out in severely overcrowded markets. By relentlessly studying subscriber data, it’s easy for startups to know exactly what their customers like and thus predict what they might want in the future, allowing them to constantly change offers and add personalised extras.

This entrepreneurial focus on insights and relationships, as opposed to quick sales, means startups are also future-proofing their businesses.

Just look at meditation app Headspace, one of Tech City’s most successful startups, aiming to completely change the way people relax.

The app doesn’t just offer a set of meditation exercises, it offers each user a personalised meditation programme, which they can enjoy anytime and anywhere, built into the individual’s ‘Headspace Journey’. Users can also opt to increase their experience with further reading or music.

The finance model that underlies the likes of Headspace and other subscription services make these startups very attractive to investors too. Their predictable, recurring revenue stream allows subscription businesses to invest aggressively in growth, and gives them a much better visibility into current and future expenses – something investors are looking for in a successful business.

So what do the next five years hold?

London’s Tech City has firmly established itself as one of the leading tech hubs in the world, and as we expect personalisation, on-the-spot access, and service quality continue to increase, there’s no doubt that London’s entrepreneurs could produce the next big subscription ‘wunderkind’; the new Spotify, or Netflix.

The bottom line is that we’re all living in the subscription economy now, but Tech City already knows that.

John Phillips is VP of EMEA at subscription software provider Zuora