- Tien Tzuo, employee number 11 at Salesforce and co-founder of Zuora, discusses the rise of the “Subscription Economy” and its benefits.
- The goal of business should be to start with the wants and needs of a particular customer base, then create a service that delivers ongoing value to those customers. The idea was to turn customers into subscribers in order to develop recurring revenue. I called the context for this change the Subscription Economy.
- Simply put, the world is moving from products to services. Subscriptions are exploding because billions of digital consumers are increasingly favoring access over ownership, but most companies are still built to sell products.
- We’ve found, for instance, that companies running on subscription models grow their revenue more than nine times faster than the S&P 500 (check the Subscription Economy Index at the end of this book for the latest data on that topic).
- Your organization is fluid but cohesive, recurring and responsive, and above all, relentlessly centered around your customer.
- We have new expectations as consumers. We prefer outcomes over ownership. We prefer customization, not standardization. And we want constant improvement, not planned obsolescence. We want a new way to engage with business. We want services, not products. The one-size-fits-all approach isn’t going to cut it anymore. And to succeed in this new digital world, companies have to transform.
- This shift, from a product-centric to a customer-centric organizational mindset, is a defining characteristic of the Subscription Economy. Today the whole world runs “as a service”: transportation, education, media, health care, connected devices, retail, industry.
- It’s about starting with the customer instead of the product. It’s about establishing ongoing relationships. It’s about flipping the script—starting with the digital experience, and then building the store.
- “Make it easy for customers to leave if they want to. You can certainly ask them why they’re leaving, or try to win them back, but don’t get in their way—the digital equivalent of blocking the exit with a hulking security guard.”
- “Number one, you must be focused on experiential retail that creates an experience in your store that becomes a destination for the customer. And number two, you have to extend that experience from brick-and-mortar to a digital-mobile relationship.”
- We eventually wound up supporting subscriptions for all of these things, but early on, they were just fun theoretical discussions. Here’s the secret we used to answer all of them in the affirmative—tease out the service-level agreement that sits behind the product. It works for everything. So instead of a refrigerator, it’s the guarantee of fresh, cold food. Instead of a roof, maybe it’s a guaranteed source of solar energy. Instead of excavators, it’s the expeditious removal of a certain amount of dirt. Service-level agreements are replacing bills of sale.
- Ownership is dead. Access is the new imperative.
- All these new services aren’t just about adding convenience, they’re about accelerating outcomes.
- I think everyone would agree that brands are still very important, but today you communicate your brand through experiences, not ads. The best sales pitch for Netflix is binge-watching a great Netflix show. The same principle applies to buying glasses from Warby Parker. Or conducting a Google search. Or looking up a prospect on Salesforce. At the same time, we’re also hearing a lot more about how all these companies have in-house teams of “growth hackers,” which on a surface level sounds a lot like, well, marketing. They’re trying to come up with smarter ways to drive sales. But these folks tend to reject that label. Stitch Fix has more than ninety data scientists on its payroll. These people aren’t thinking of snappier punch lines for billboards; they’re looking for ways to optimize growth within the service itself. It’s almost as if the engineers have taken over the marketing shop: building freemium models, creating upgrade incentives, offering in-app purchases.
- In the old world, you could grow by doing three things: sell more units, increase the price of those units, or decrease the cost required to make those units. In today’s world, you have three new imperatives: acquire more customers, increase the value of those customers, and hold on to those customers longer. If you’re doing it right, expansion—that is, gaining more revenue from dedicated subscribers over time—should happen naturally. When you expand your value, then the commercial benefits will follow. The ability to develop customer relationships over time is where the really amazing subscription companies distinguish themselves from everyone else. If you have a business model that grows as your customers grow, then renewals and upsells will take care of themselves. Hustling add-ons and locking people into onerous terms is a drag and serves only to get people upset.
- In working with hundreds of companies, we’ve learned that the solution to sustaining a high growth rate is to diversify your approach to growth and embrace multiple growth strategies:
- Acquire your initial set of customers
- Reduce your churn rate
- Expand your sales team
- Increase value through upsells and cross-sells
- Launch into a new segment
- Go International
- Maximize the growth opportunities of your acquisitions
- Optimize your pricing and packaging
- We call this the world of happy business: happy customers, with happy companies, reinforcing one another, iterating forever, with no beginning and no end.
- The following figure demonstrates the two primary levers of growth in the Subscription Economy—average revenue per account (ARPA) and net account growth. If the total billings number of a company goes up, that means at least one of two things must have happened—either the number of accounts being billed went up or the amount each account was billed went up.
What I got out of it
- Really helpful read to better understand the subscription space, how to enter it, how to transform into one if you’re not already, and the many benefits for both the organization and the consumers.