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A look at the subscriptions-based economy in the Middle East

Wamda

Digitisation has become the mainstay of the coronavirus pandemic, shifting both consumer and business behaviour. Amid this trend, the subscriptions economy has boomed, offering its users convenience and reliability.

Globally, the subscriptions economy has remained resilient, benefiting from the pandemic and the ongoing lockdowns in various parts of the world.  According to Zuora, 50 per cent of all subscription companies are growing just as fast as they were before the pandemic while 18 per cent are seeing subscriber growth rates accelerate.

Regionally, the boom in e-commerce and improvements in the digital payments infrastructure has helped the subscriptions economy grow in tandem. To get a better understanding of the subscriptions economy in the Middle East and North Africa (Mena), Wamda’s Research Lab, in partnership with Microsoft for Startups and SubsBase, conducted a survey of 193 people including consumers, subscriptions-based businesses in the region, and businesses that are planning to launch a subscription offering soon.  

The findings highlighted the unique challenges of the sector, consumer preferences and the areas of growth.

More than 70 per cent of the companies we surveyed are in the pre-seed and seed stage, highlighting the nascent nature of the subscriptions economy. The majority of subscriptions businesses are based in the UAE, Egypt and Saudi Arabia, countries with strong e-commerce markets and more advanced B2B ecosystems. Most of the new subscriptions businesses set to emerge over the next few months will also be based in these three countries, alongside Jordan which has a robust developer ecosystem.

Main challenges

Traditionally, collecting payments and managing subscribers has been a major challenge. In economies with advanced digital payment infrastructures, these issues have largely been resolved. In the Middle East however, where large segments of the population remain unbanked and cash on delivery continues to dominate, businesses here face bigger hurdles in this regard. This is why the business-to-business (B2B) software as a service (SaaS) segment dominates in Mena, accounting for 55 per cent of all subscriptions-based offerings. The pandemic’s push towards remote and working from home policies have also helped the B2B segment with tools from Microsoft and Zoom attracting greater numbers of subscribers. Going forward, we expect a rise in the number of subscriptions businesses in healthcare, entertainment and e-commerce.

Another major challenge is the lack of education in the market, which affects both the B2B and business-to-consumer (B2C) segment.

Consumers are also reluctant to autopay, there is a lack of trust in paying upfront for a product or service and the lack of digital payments infrastructure in many countries is holding back the B2C segment. But there are signs that this is changing. The strict lockdowns across the region, prompted many to turn to online services and helped to increase consumer trust in online payments. This has helped regional companies like Anghami and Shahid grow and their growth has also helped educate the wider market according to SubsBase’s founder and CEO Mohamed Farag.

Looking ahead

The rise of e-commerce and improvements in local logistics is also pushing the growth of subscription-based boxes planning to launch in the next six months. These offline boxes are also increasing demand for regional payment gateways and subscriber management platforms like Payfort, Fawry and Hyper Pay.

One way to overcome the challenge of digital payments is through direct mobile billing. Anghami’s users can pay for the music streaming service through their mobile phone operator. Another payment option that is gaining steady growth is buy now pay later (BNPL) which can help to alleviate some of the reluctance that consumers have towards autopay.

In Mena, close to 30 per cent of the subscriptions offerings cost $1-10 per month, with more than half of the businesses we surveyed saying they had fewer than 1000 active monthly users.

“In any market it’s more about people understanding what is the ongoing service that they’re getting,” says Farag. “From the business side, the subscriptions model gives businesses a better chance to survive.”

For businesses, a subscriptions model provides a steady, predictable stream of income, benefitting their cashflow. With the ongoing impact of the pandemic, accelerated digitisation, we are likely to see the subscriptions economy continue to grow in Mena.

The full report can be found here

December 16th 2020, 8:01 pm
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