Megatrends keep unfolding. Last year’s experience confirmed that the ‘great acceleration’ seen in 2020 for most of the trends on which we build our thematic strategies was not a temporary blip. On the contrary, while we initially foresaw some mean reversion in these trends, after the impressive surges seen during the onset of the pandemic, in areas such as ecommerce or mobile payments, that prediction proved too cautious.
Ongoing socioeconomic shifts may have slowed down as economies gradually reopened, but they largely remain in place as new habits persist beyond the stop-and-go recovery. For 2022, we expect these trends to continue to unfold at rapid pace, even as economies continue to recover from the initial Covid-19-related shock and the situation gradually normalizes. As we enter the new year, we outline two promising areas of focus for investors: the subscription economy and the metaverse.
The subscription economy refers to all the products and services people can think of made available through a subscription scheme, as opposed to traditional casual buying. It therefore often implies a shift from ownership to usership. Good examples are the popular music and video streaming services. But it can be virtually anything, from a box of fresh vegetables delivered weekly, to a car or a pair of blue jeans that may be renewed, and eventually recycled, on a regular basis.
Ultimately, the subscription economy is a way for companies to eventually build stronger and longer-lasting relationships with their clients. This involves putting customers first and tying them to their products and services in various ways, such as providing better value for price, enhanced flexibility and personalization, or improved customer experience relative to classic buy-and-own offerings.
Subscription-based business models are not new, having been around for many decades. However, they have experienced a tremendous boom in recent years
Subscription-based business models are not new, having been around for many decades. However, they have experienced a tremendous boom in recent years. While essentially having been limited to the media industry until only a couple of decades ago, they gradually expanded, first into a few niche areas, such as telecommunications, software and information technology services, and then into the wider economy (see Figure 1).
For investors, subscription businesses typically offer reduced uncertainty regarding revenue and profit generation in the long term, relative to more traditional business models. Moreover, these companies tend to generate a constant stream of data that can be used to improve service, raise customer satisfaction, and identify complementary business opportunities. This generally leads to relatively stable growth over time.
Admittedly, subscription businesses may not be appealing to all investors, as they incur customer acquisition costs – such as sales and marketing, or software development – upfront, while revenues are recognized over time. This combination leads to a misalignment of revenues and expenses, understating the true financial health of the company. However, as long-term investors able to look beyond short-term cashflow generation, we see this as an opportunity rather than a challenge.
Subscription businesses grew nearly six times faster than firms of the S&P 500 Index over the 2012-2020 period
Subscription businesses grew nearly six times faster than firms of the S&P 500 Index over the 2012-2020 period, driven by rising consumer demand for subscription services, according to Zuora, a subscription management platform.1 The Covid-19 pandemic further increased the gap. Many subscription businesses experienced a strong growth acceleration, as consumers moved from fixed towards variable costs, and companies focused on their core operations while outsourcing the rest.
In 2020, revenues of subscription businesses tracked by Zuora grew by 11.6%, while those of the companies in the S&P 500 Index declined by 1.6%. Admittedly, lockdowns and other safety measures taken in the first quarter initially seemed to slow subscription revenue growth. But when lockdowns returned in the last quarter, subscription revenue growth accelerated, suggesting that subscription companies had been able to adapt their offerings quickly.
We expect this trend to continue in the coming decades, essentially driven by the ongoing digitalization of the economy. According to recent estimates by UBS Wealth Management and Bernstein, the digital subscription economy is currently a USD 650 billion market and is set to more than double by 2025 reaching a market size of USD 1.5 trillion.2 This represents an impressive 18% compound average growth rate.
New technology now enables businesses from virtually all economic sectors to offer membership services to their customers. On the corporate side, rapidly falling costs of data storage and rising computing power have enabled businesses to offer consumers access to their services at a very low cost. Meanwhile, the ubiquity of online services has enabled consumers to be in touch with content, services and even other members at all times.
Another important tailwind for the coming years is the unavoidable generational transition, as millennials and generation-Zs3 tend to be keener on subscription and usership schemes than older cohorts.4 Consumer surveys suggest that, for younger generations, the promise of always getting the latest product, the lack of associated maintenance, as well environmental concerns often tend to player a larger role in the purchase decision making than traditional ownership considerations.
The metaverse became a popular buzzword in 2021, as key players in the technology arena announced important steps in this area. In particular, the public listing of gaming platform Roblox and the renaming of Facebook into Meta Platforms were key milestones. But beyond the current hype around this concept, we think it reflects a number of structural trends unfolding at the intersection of the internet-of-things, social media and mobile computing.
Indeed, the metaverse is much more than a fancy pair of virtual-reality goggles, or a new way to play online games. Broadly speaking, the metaverse refers to the many aspects of our digital lives and their interactions.5 It includes obvious elements, such as digital gaming worlds, or social media, for example. But it also has less obvious ones, such as digital financial services, remote working tools and applications, as well as all the daily digital services accessible online.
In many ways, the metaverse can be seen as the next step of the internet, where increased connectivity will further integrate digital and physical lives
In many ways, the metaverse can be seen as the next step of the internet, where increased connectivity will further integrate digital and physical lives. It is therefore not something predefined, but a constantly changing concept. This means that while it is difficult to envision precisely what the metaverse will look like ten years from now, developments in this area are ineluctable. A growing number of companies have been communicating around the metaverse.
Admittedly, the metaverse is still in its early stages and therefore requires a cautious approach from investors. However, we expect investments in this area to rise significantly over the coming years, as companies will position for increased computing needs – including hardware and software – and develop testing and learning capabilities on potential use cases for both corporate and retail customers.
Global consumers show appetite for services featuring metaverse-related characteristics. Social media platforms already boast billions of users across the world, that could eventually be drawn to the metaverse. Popular platforms such as Facebook, YouTube and WhatsApp, for example, boast billions of users across the globe. Moreover, many of these users already spend a very significant share of their time every day on digital media, mainly through their mobile devices (see Figure 2).
Bernstein analysts recently estimated that, although the timing and scope of metaverse-related developments remain uncertain, the combined annual run-rate of the most relevant markets is already USD 2 trillion and growing.6 Among the most obvious areas bound to benefit from the development of the metaverse over the coming years are digital ads, semiconductors, mobile phones and infrastructure software, for example.
But the impact will likely be much more broad-based, with many other, perhaps less obvious segments of the economy also set to benefit from the advent of the metaverse over the coming years. These include ecommerce, media, digital payments and even education, to name just a few. In a recent note to clients,7 Goldman Sachs analysts estimated the metaverse market opportunity could reach somewhere between USD 2.6 trillion and USD 12.5 trillion.
We therefore advocate a so-called ‘picks and shovels’ approach, investing selectively in companies that enable these developments
For investors, we think that while it is still early days and some caution is warranted, the metaverse’s promising prospects should not be overlooked. Admittedly, the number of investable companies directly involved in the advent of the metaverse remains relatively small. We therefore advocate a so-called ‘picks and shovels’ approach, investing selectively in companies that enable these developments. These include a wide array of companies, from social media platforms to chip makers.
1 Zuora, 3 March 2021, “Subscription business revenue grows-437% over nearly a decade as consumer buying preferences shift from ownership to usership”, press release.
2 Bernstein, 11 August 2021, “Sign me up! Why consumers are increasingly subscribing rather than buying”, client note.
3 While there is no official definition of what ‘boomer’, ‘millennial’ or ‘generation Z’ consumers are, the Pew Research Center describes them as follows: boomer = people born between 1946 and 1964; generation X = people born between 1965 and 1980, millennial = people born between 1981 and 1996; generation Z = people born between 1997 and 2012
4 See for example: Scuncio, J., 7 May 2019, “Millennial spending drives the growth of the subscription economy”, Zuora blog article.
5 The term metaverse was initially coined by Neal Stephenson in his 1992 novel Snow Crash, defining it essentially as a computer-generated universe.
6 Bernstein, 7 December 2021, “Bernstein enters the metaverse: A primer on what it is, the size of the prize, and why you should care”, client note.
7 Goldman Sachs, 10 December 2021, “Framing the Future of Web 3.0 - Metaverse Edition”, client note.
This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation.
The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license.
An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.
Warning/Important note: This website contains information which is only available to qualified investors as defined below. If you are not a qualified investor, please click “I Disagree” to leave the website.
By clicking on "I agree", I declare that:
1 - This website may only be accessed directly or indirectly by the following persons in Singapore:
1) “institutional investor” under section 304 of the Securities and Futures Act (Cap.289)(“SFA”), which means:
(i) the Government; (ii) a statutory board as may be prescribed by regulations made under section 341 of the SFA; (iii) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is (A) to manage its own funds; (B) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or (C) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country; (iv) any entity (A) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and (B) whose funds are managed by an entity mentioned in sub-paragraph (iii); (v) a central bank in a jurisdiction other than Singapore; (vi) a central government in a country other than Singapore; (vii) an agency (of a central government in a country other than Singapore) that is incorporated or established in a country other than Singapore; (viii) a multilateral agency, international organisation or supranational agency as may be prescribed by regulations made under section 341 of the SFA; (ix) a bank that is licensed under the Banking Act (Cap.19); (x) a merchant bank that is approved as a financial institution under section 28 of the Monetary Authority of Singapore Act (Cap.186); (xi) a finance company that is licensed under the Finance Companies Act (Cap.108); (xii) a company or co-operative society that is licensed under the Insurance Act (Cap.142) to carry on insurance business in Singapore; (xiii) a company licensed under the Trust Companies Act (Cap.336); (xiv) a holder of a capital markets services licence; (xv) an approved exchange; (xvi) a recognised market operator; (xvii) an approved clearing house; (xviii) a recognised clearing house; (xix) a licensed trade repository; (xx) a licensed foreign trade repository; (xxi) an approved holding company; (xxii) a Depository as defined in section 81SF of the SFA; (xxiii) an entity or a trust formed or incorporated in a jurisdiction other than Singapore, which is regulated for the carrying on of any financial activity in that jurisdiction by a public authority of that jurisdiction that exercises a function that corresponds to a regulatory function of the Authority under this Act, the Banking Act (Cap.19), the Finance Companies Act (Cap.108), the Monetary Authority of Singapore Act (Cap.186), the Insurance Act (Cap.142), the Trust Companies Act (Cap.336) or such other Act as may be prescribed by regulations made under section 341 of the SFA; (xxiv) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere; (xxv) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors; (xxvi) the trustee of such trust as the Authority may prescribe, when acting in that capacity; or; (xxvii) such other person as the Authority may prescribe.
2) “relevant person” under section 305(1) of the SFA, which means:
(i) An accredited investor; (ii) a corporation the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; (iii) a trustee of a trust the sole purpose of which is to hold investments and each beneficiary of which is an individual who is an accredited investor; (iv) an officer or equivalent person of the person making the offer (such person being an entity) or a spouse, parent, brother, sister, son or daughter of that officer or equivalent person; or (v) a spouse, parent, brother, sister, son or daughter of the person making the offer (such person being an individual).
3) any person who acquires the units [in a collective investment scheme] as principal if the offer is on terms that the units may only be required at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of units in a collective investment scheme, securities, securities-based derivatives contracts or other assets, and if the following condition is satisfied: (i) the offer is not accompanied by an advertisement making an offer or calling attention to the offer or intended offer; (ii) no selling or promotional expenses are paid or incurred in connection with the offer other than those incurred for administrative or professional services, or by way of commission or fee for services rendered by any of the persons specified in section 302B(1)(d)(i) to (vi) of the SFA; and (iii) no prospectus in respect of the offer has been registered by the Authority or, where a prospectus has been registered (A) the prospectus has eAccxpired pursuant to section 299 of the SFA; or (B) the person making the offer has before making the offer 1. informed the Authority by notice in writing of its intent to make the offer in reliance on the exemption under this subsection; and 2. taken reasonable steps to inform in writing the person to whom the offer is made that the offer is made in reliance on the exemption under this subsection.
4) Or otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
If you are not any of the types of persons described above, you are not authorized to enter this website and you should leave this website immediately.
2 Terms and Conditions
You acknowledge that you have read these Terms and Conditions (“Terms”) prior to accessing the website located at www.robeco.com/sg (“Website”) and you agree to be bound by the Terms. If you do not agree to all of the Terms, you are not an authorised user and you should not use the Website. The Website is owned by Robeco Singapore Private Limited (company registration number: UEN. 201541306Z), which is licensed by the Monetary Authority of Singapore (“MAS”) pursuant to the Securities and Futures Act (Cap.289) (“SFA”) of Singapore, and is managed by Robeco Singapore Private Limited and/or its affiliates (collectively, as “Robeco”). The Website is intended for and should be accessed by institutional investors or accredited investors (as defined under Section 4A of the SFA) of Singapore. The Website is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the Robeco to any registration or licensing requirement within such jurisdiction. It is your responsibility to observe all applicable laws, rules and regulations of any relevant jurisdiction. The content contained in the Website is owned by Robeco and/or its information providers and is protected by applicable copyrights, trademarks, service marks, and/or other intellectual property rights. You may not copy, distribute, modify, post, frame or link the Website, including any text, graphics, video, audio, software code, user interface, design or logos. You may not distribute, modify, transmit, reuse, repost, or use the content of the Website for public or commercial use, including all text, images, audio and/or video. Robeco may terminate your access to the Website for any reason, without prior notice. Neither Robeco, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from the access of the Website. You agree to indemnity and hold Robeco, its associates, directors, officers or employees harmless against any and all claims, losses, liability, costs and expenses arising from your use of the Website due to violation of the Terms. Robeco reserves the right to change, modify, add or remove any parts of the Terms at any time and for any reason. The Terms shall deemed to be effective immediately upon posting. The Terms shall be governed by, and shall be construed in accordance with, the law of Singapore.
The Website has not been reviewed by the MAS. Accordingly, the Website may not be accessed directly or indirectly to persons in Singapore other than (i) to an institutional investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to Section 305(2), and in accordance with the conditions specified in Section 305, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Nothing in the Website constitutes tax, accounting, regulatory, legal or investment advice. The Website is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation or for the purpose of soliciting any action in relation to Robeco’s businesses, or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer and solicitation. Any reproduction or distribution of information from the Website, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accessing to the Website, you agree to the foregoing.
The funds referred to in the Website are for information only. It is not a recommendation or investment advice, nor does it mean the funds is suitable for all investors. The contents of the website is not reviewed by the MAS. Any decision to participate in the funds should be made only after reviewing the sections regarding investment considerations, conflicts of interest, risk factors and the relevant Singapore selling restrictions. You should consult your professional adviser if you are in doubt about the stringent restrictions applicable to the use of the Website, regulatory status of the funds, applicable regulatory protection, associated risks and suitability of the funds to your objectives.
Any decisions made based on the information contained in the Website are the sole responsibility of yours. Any investments made or to be made shall be with your independent analyses based on your financial situation and objectives. The investments and strategies contained in the Website may not be suitable for all investors and are not guaranteed by Robeco.
Investment involves risks and may lose value. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance. The Website may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies and such projection or forecast is not indicative of the future. The information contained in the Website, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available on an “as is” basis and without warranties of any kind, whether express or implied, and reflects prevailing conditions and Robeco’s views as of the date published or indicated, and maybe superseded by subsequent events or for other reasons. The information contained in the Website are accordingly subject to change at any time without notice and Robeco are under no obligation to notify you of any of these changes. Robeco expressly disclaims all liability for errors and omissions in the information presented in the Website and for the use or interpretation by others of information contained in the Website.
Robeco Singapore Private Limited holds a capital markets services licence for fund management issued by the MAS and is subject to certain clientele restrictions under such licence. An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.