Phil Soar: Should trade shows be subscription businesses?

In his latest column for EN, our guest editor CloserStill chairman Phil Soar asks if we are facing a great divide in the future of trade shows.

For the first time I can recall, there is now a genuine divide about what trade shows are, how they should be run, and what the future holds for them.

This is, by the standards of these dull columns, rather an exceptional statement

This is a consequence of the pandemic, the “pivot to digital”, the arrival at Reed (now RX) of a new CEO, Hugh Jones, and the promotion of “hybrid and digital solutions” by, in particular, Denzil Rankin at AMR – but promoted by a number of cheerleaders in our larger companies.

The divide is – in essence – between those who believe that the future is going to be in large part digital and that we cannot go on “selling concrete”; and, on the other, those who believe that the trade show model is an entity which stands on its own, has its own logic and tradecraft, and is increasingly going to be seen as a subscription business.

The latter point about subscription has rarely been articulated. So here we go.

Private equity rightly reveres subscription models

 If you spend a time talking to private equity, you soon realise what sort of assets they are looking for. In recent years emphasis has been on web-based data companies, and businesses which live off annual or monthly subscriptions rather than one-off sales – in other words guaranteed income.

The heavy trend to a subscription model started in the early 2000s. Companies like Microsoft, Intuit and McAfee at that point were selling their products – Office, McAfee Security, Quicken – as one offs. You bought a CD-Rom and maybe bought an upgraded model a few years later. It required broadband to be more reliable, but it was then possible to switch to a model far more profitable for the suppliers.

Instead of making a single purchase, to get these products you had to take out an annual, or monthly, subscription and they were supplied via the net. Cable companies in the US had been doing this for some time, in their case via cables laid in the previous three decades. The default option is not to notice that you keep paying.

How subscription models took over the world

The gain for the sellers was obvious – customers became dependent on (say) Office and therefore renewed automatically. Sellers benefitted massively from inertia – direct debits were renewed automatically without a great deal of thought (try to get AMEX to cancel one). Barclaycard said this month that on average in the UK their customers pay £620 a year in subscriptions – and probably much more by other means. The staff costs saved by a model which just renews automatically is incalculable.

The success of Netflix and Amazon Prime is based on this simple system – with (until recently) the churn of cancelling subscribers being small. Netflix recently lost some 200,000 subscribers out of a total of 222 million. This was less than 1% of the total, but their share price fell one third, as markets wondered whether the model had ceilinged.

Media companies start to pile in

Newspapers and magazines tried to do the same on line but very late in the game (magazines had always had physical subscriptions). They needed to be very distinctive with a very clear audience to succeed. This gave The Guardian and FT an advantage over larger rivals. The most successful proponent, by far, has been the New York Times.

New York Times sometime CEO Mark Thompson said recently: “(We had to become) far more expert at understanding every stage of the subscriber kind of life cycle, including retention.” The big take off was the beginning of 2017 when Donald Trump became president and helped to turbo-charge news readership. “We are very good now at understanding churn, and even before the coronavirus struck. The focus was to make the fundamental experience of Times journalism so compelling, and so addictive in terms of features which bring you back, day after day, that usage will be high, perceived value will be high, and therefore churn will be low.” In other words, get subscriptions and keep them.

So why is this relevant to trade shows?

A few years ago I would not have thought to ask the question. But we have recently seen the growth of the re-sign as one of the cornerstones of our business (I should stress that this is still not the case with all trade show companies). The re-sign was under the radar until perhaps six or seven years ago, and there are still many companies which don’t do it and some who claim not to believe in it.

The more advanced now focus on pre-sign as well, with (example) some CloserStill shows signing up over 50% of their exhibitor base for next year before this year’s show has even begun. But much information is anecdotal and the industry almost invariably defaults to talking in generalities and not specifics. So I will buck this trend by being specific about two of my companies.

CloserStill has run 20 events since September 2021 and for which we have now gone through the 14 or 28 day cool-off period (excluding two acquired shows which had never run a re-book before). The average rebook was 111% (and the median was also 111%) and the “go live” average number after 14 days was 80%. That number always increases materially after another 28 days with companies which cannot immediately get head office confirmation (etc) coming in soon afterwards.

Real re-book numbers from real shows

Experience tells us that this 80% will quickly rise to at least 90% as these late approvers come in. That means that the team has 11 months to find another 11% to take next year’s revenue beyond this year’s. Nineteen Group has run two very large shows so far this year – the re-signs after the 14 day cool off period are 86% and 76%

It is central to my subscription hypothesis that I can argue with real numbers. And what these real numbers show is that trade show businesses potentially have (or could have) a real annual subscription renewal rate of at least 90%. There are variations – medical shows have higher renewal rates than IT shows for instance – so the nature of each company’s portfolio will give different averages. I cannot directly quote other companies – but those I am close to can come up with numbers in similar ball parks.

This is, and should be, cat-nip to investors. What we can now do is explain our offering in a way we have rarely done before. If we can consistently re-sign 90% of our customers annually, then we are basically a very valuable B2B subscription business.

I believe that the trade show model is very particular, that it has cornerstones which are central to its tradecraft. If those cornerstones are removed, then what one has is a different business. I am not arguing that this would be a worse business – I cannot possibly know. But it is a different business.

The other side of the argument – call it “digital” or “not selling concrete”

Informa Markets now have a policy that their trade show assets should have 25% of their revenue in some sort digital form by 2025. RX seem to have been even more aggressive. These are the two biggest trade show companies in the world. I wonder if we would have seen these trends if the pandemic had never occurred.

Hugh Jones of RX has explained to me personally his view that we should be selling our exhibitors a wide range of solutions for their needs. That we need to talk through with our customers what they hope to gain from their interaction with us, and tailor our offerings to meet their individual needs.

I always welcome new ideas for improving our industry

No one could possibly disagree with this (though doing it with 2,000 separate companies at a large show may require rather higher staffing levels). I have been accused of being antidiluvian in my views, but this is not the case. I warmly welcome any new or different or experimental approaches to our business of selling stands at trade shows – it can only add to our knowledge and understanding. I watch with great interest and hope to learn from doing so (one of the assets of our business is that it is easy to steal good ideas which work well).

But the counter-view is, if you like, the subscription view. Which is that the great majority of our exhibitors want to attend trade shows, understand why they attend trade shows, and don’t need trade show organisers trying to sell them other routes to market. That trade shows are a rare, stand-alone entity with very particular (and often ill-understood) core components.

The re-book might be the great battle line of the industry

Hugh Jones has (in effect) suggested that re-book methodologies may no longer be the right way to approach our business, and that we should not be presenting ourselves as sellers of square metres of concrete (no one would disagree with that last statement). RX certainly seems to have scaled back the significance of re-books – I would love to be able to quote specifics but I don’t have the information.

I am going to quote Hugh from a recent EN interview outlining an alternative view on the future of our business. “People come to events not just to do business and broaden their network, they also come to learn and for inspiration. If they can’t get there for some reason, they do want to be present digitally.”

“The exhibitions world will never again look like it did in 2019. It will never go back”

“It is part of seizing a digital solution,” says  Jones. He does not see the industry ever returning to pre-pandemic normal, but says that is progress. “I don’t think the exhibitions world will ever look like it did in 2019,” he says. “It will look different because we’re engaging with exhibitors in new ways. It will never go back. Our exhibitors rightly demand more than just a stand. They want an exchange of information, connected marketplaces, 365-day a year branding, they want a multifaceted platform to reach buyers. That will never go back to 2019.”

“The number of people walking the hall? I don’t know whether it will go back to the same levels. It’s no longer a metric that has much value. It’s not about filling your show with a whole bunch of people.”

Here I part company with Hugh. I have written here that for Covid-19 and recessionary reasons, 2024 will see square visitors and visitors perhaps 15% lower than 2019 (though certainly not for all events). But by 2026 I believe we will see trade shows back to rude health. The rebound in the last 9 months since we have been able to open up has surprised many – if not most – of us. The pent-up demand for face-to-face has been startling.

Let’s look at the specifics. It was only six months ago that the UK was effectively in Omicron lockdown. Less than 75% of the adult population has been fully vaccinated, and while the other 25% is probably not prime trade show material, there must be some overlap and reluctance to travel. That effect will fade and I refuse to believe that clear verticals (like vets, pharmacists, dentists, clothing retailers) will not return to trade shows just as they have in the past. I believe we are seeing that now.

Hugh told EN that RX Global launched their Digital Centre of Excellence in 2021 and created a new role for a chief digital product officer, to implement a broader approach to unifying the technology available to 400 shows in 22 countries. Describing their digital shift, Jones says: “We were able to impose more disciplined and repeatable approach to digital product development. So not every little show doing many things, but an oversight globally on how we are going to do this. “We now work across multiple events all the time for every one of our digital products.”

I am intrigued to see how this works out. I am not party to the detail of course, but from my own and other company experiences there is a strong argument that the unique conditions of 2021 were just that – unique. That what worked well digitally when there were no physical alternatives cannot be as attractive in the world we now inherit. I look forward to further insights

Brexit – the gift that keeps on giving

One area which counts as an exception is – and will be – non-UK visitors. Short term Covid-19 and transport problems (something at which post-Brexit UK excels it seems, despite our “taking back control”) have had a major effect so far. But the real problem is the gift which keeps on giving – Brexit. We are still 17% below 2016 trading volumes with the EU (this is not true of the rest of the world). But the problem is that the EU is the largest trading block in the world and is right next door.

If you travel to Germany or the Netherlands or northern Europe, you will find that there is no resentment or anger over Brexit – but sheer bemusement at what the British can possibly be thinking about.

Basically the world has no confidence in the UK. There is a drought in capital and personal investment, and this will not change any time soon. For UK trade shows, a reasonable estimate is that non-UK visitors will run at 30-50% below previous levels for some considerable time, and indeed may never recover.

“the number of people walking the hall – it’s no longer a metric that has much value”

Talking with Simon Kimble of Clarion about this whole debate, he argues that you can do at least some of both. It’s hard to disagree – but only up to a point. If a company does not believe in the subscription model, and doesn’t regard the re-book as central to its business, then it really is playing a different game.

None of us have unlimited staff – we can only focus on certain things. The man hours devoted to digital interaction are man hours not spent on selling space. And asking every exhibitor what else they want from the company, no matter how interesting, requires far more staff (and arguably skills) than most trade show companies have at the moment (I don’t argue with the proposition that we might usefully develop some of those skills).

RX is, like all our companies, a particular company. The majority of its revenues comes from a number of very, very large shows. These have a different dynamic from, say, the medium sized events of a Clarion or a CloserStill. The relationships with the major players – the bellwethers – can be different and it may well be that it will become harder to fill halls which are hosting 40,000 square metre events. The effect of bellwethers pulling out might have a rather different effect on the mass of small/medium sized customers in a very large event. Not all trade show companies are the same.

Maybe companies will declare victory in 2024 and head home

I think our readers want firm opinion from EN. I am inclined to think that in two or three years time we will see moments of: “Declaring victory and clearing off home” (to use the war time analogy of what the US might have done in Vietnam). We are likely to find some of our larger companies in 2024 with lower EBITDAs than they had in 2019, but arguing that their shareholders shouldn’t worry about it as the industry is now x% digital and selling concrete is so yesterday. “Our results would have been much worse if we had carried on as before, so we should be grateful.” It is very difficult to compare individual companies with the others in our business – but by 2024 it will be interesting trying.

It becomes a self-fulfilling prophecy

Indeed, if a company devotes a smaller percentage of its resources to selling companies into the physical trade show, as well as not rebooking them on site, then it is inevitable that visitor numbers will fall – a self-fulfilling prophecy. If staff are believe that visitor numbers are likely to fall, then there is surely a ready made excuse available.

I really think we are seeing a divergence here. Personally, I believe that trade shows are an unusual stand-alone model with some very, very particular characteristics which have made them so valuable in recent years.

But there are now clearly different views about what a trade show is. Different views about why exhibitors attend them. Different views about how they interact, and wish to interact, with trade show organisers. Different views about whether and how the exhibition business has been changed by the web, the smartphone and Covid-19.

This looks like a debate which will play out over three or four years. Place your bets…

 

 

 

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