Subscription Economy drives the next evolution of the customer

Profile picture for user slauchlan By Stuart Lauchlan November 13, 2014
Summary:
We are at the intersection where all companies need to turn brand into subscribers, says Zuora founder Tien Tzuo on the evolution of the Subscription Economy.

This is the next evolution of the customer. It’s about a different kind of customer experience. Companies that have successfully put in place a CRM strategy are the ones that are most likely to see this as meaningful.

That’s an appropriate enough message from Zuora CEO Tien Tzuo given that we’re meeting up on the outskirts of the annual Dreamforce conference in San Francisco where the evolution of customer experience management is an inherent theme running across the entire event.

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Tien Tzuo

Zuora is another of those ‘children of Salesforce.com’ companies that we see an increasing number of these days. Tzuo himself was an early Salesforce.com staffer and spun off Zuora on the back of recognition of a particular problem encountered by SaaS firms - that of accounting and billing for subscription, rather than license, based products and services.

From this basic premise came the firm’s Subscription Economy meme, a concept that was embraced by the likes of media organizations and professional services firms, but which Tzuo now argues is an idea understood across a host of industry sectors:

Four or five years ago people talked about Zuora as a SaaS start-up. Now we’re talking to General Motor and Schneider, industrial scale companies. This trend permeates across all companies and industries.

We are at an intersection where companies need to turn brand into subscribers.

The overarching theme is about the move from product-centric to customer-centric. Companies will have different products and systems all geared to those products. Big companies are all about product-centric systems, but they want to have customer-centric systems. They want to have access to all their assets. They need a relationship business management system.

Companies spent the last decade putting in CRM systems and trying to become customer-centric companies. That got the senior executives thinking about customer, customer, customer. Now the leap they need to take is to get them thinking about those customer as subscribers. They need to have that direct relationship with them. You have to reinvent your business model. How many subscribers do you have? What is the average revenue per subscriber?

He cites a close-to-home example to illustrate his point:

In the software sector they all want to be SaaS companies. How do I get to be like Salesforce.com? But they all have a traditional product-focused view of the world. To be like Salesforce.com it’s not enough to have a multi-tenant offering in the cloud. It’s about having a customer-centric system.

What’s the difference between a customer and a subscriber? A customer is some who purchased something in the past and might do again in the future perhaps. A subscriber is someone with whom you have an ongoing relationship. They have their ID with you. You can track their usage and have a view of how you can monetize that relationship.

If you look at the Top 50 brands out there, the three fastest growing are Apple, Amazon and Google. That’s because they have a platform. They have a relationship with the customer that is a platform to sell all sorts of other stuff. They all have IDs. Once you have that ID, then the company can know everything about you.

Google’s started doing express grocery delivery services in San Francisco. Now that may work or it may not, but they are able to experiment because they have the platform and the relationship with the audience. You don’t walk around with a Coca Cola ID or a Nike ID or a L’Oreal ID.


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Outside of the cloud generation, it was the media industry perhaps that was first to cotton on to this, such as the Financial Times:

The FT has a great story. That was one of the first companies to get behind the paywall, back in 06/07. It’s been a huge success. The fact that they were the first to digital means that they know how to think about the customer first. The beauty of this move to digital is that you start to know more about your subscribers. That’s where the magic is.

Netflix knows who its members are and what movies and shows they are watching. They have all that data about who is watching Kevin Spacey on House of Cards and subscribers still get great quality content. Compare that to HBO who just don’t have that same intimate relationship with their customers.

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A good example of why it’s not just about paywalls can be seen at the Guardian newspaper in the UK which doesn’t want to charge readers for access to its everyday content, but in January will launch a three tiered membership scheme: a free sign up where members get early event booking options, a £15 a month 'partner' tier and a £60 a month 'patron' level.

This shifts the focus from readers who buy a singular product - the print newspaper -to a community that participates with one another and supports the wider brand. Offline this extends to a form of social club at the Guardian’s headquarters in Kings Cross, London, which will offer master classes and live streamed events.

The backend payments is being managed by Zuora, says Tzuo:

We just went live with the Guardian. They don’t believe in paywalls, but they do get the strategy of having a relationship between members and subscribers. So they’ve got their Guardian membership thing. While the news articles remain free, you get a sense of community with membership driven by events and activities.

It’s just another example of the wider range of variants there is under the Subscription Economy umbrella. Alongside that are the opportunities to breathe life into older industries with struggling business models. Tzuo cites the car manufacturing business as a case in point where the emphasis has been very much on the car brands and the relationship between the producers of those brands and their dealer channels:

Soon every car is going to have 4g so there will be a direct relationship with the customers. The customer will have a General Motors ID and provide car diagnostics. You’ll be able to sell Spotify into the car. You want to sell them insurance based on diagnostic data. It just opens up the door to new things.

This is the best chance for car manufacturers to drive revenue going forward other than selling cars. All car firms are concerned that the younger generation isn’t just into driving cars, so they need to build and have relationships with the customers that go beyond the car itself.

And for those ageing, big brands, there is an advantage that new incumbents don’t have, albeit one that is perhaps untapped in many cases:

The advantage is they have customer relationships in place, whereas a start-up has to build those over time. Occasionally you see someone like an Uber who can do that quickly, but for most companies the question is whether they can put new systems in place quickly enough.

My take

It's always good to catch up with Tien Tzuo. I first came across Zuora in its earliest days at a meeting in an overcrowded Starbucks in downtown San Francisco. At the time, it sounded like a great idea, one of those that when you hear it, you think  'of course!'.

Zuora's come a long way in a relatively short time and the Subscription Economy message has matured during that evolution. Still very much on my 'one to keep an eye on' list of companies.