Zuora sees societal subscription shift

Profile picture for user slauchlan By Stuart Lauchlan October 1, 2013
Summary:
Zuora is seeing a societal shift in consumption preferences which in turn is causing an evolution in the way that businesses price and deliver goods and services.

tien-tzuo
Tien Tzuo

It's been a few years now since Zuora began talking up its concept of the Subscription Economy and how to work within it.

Since then the idea has taken hold in significant market sectors, such as the media and professional services markets.

Now the firm argues that there is what it's calling a societal shift in consumption preferences which in turn is causing an evolution in the way that businesses price and deliver goods and services.

To back up its claim, Zuora's published some new research - carried out for it by the Economist Intelligence Unit among 293 business execs in the US, UK and Australia - in which some 80% of respondents reckon to be seeing changes in the way customers want to access services.

This is causing more than half of them to look at how to integrate new pricing and delivery models - such as subscriptions - rather than traditional selling products and services outright.

Key findings in the study:

  • 12% of respondents say new business models based around subscriptions, sharing and rental already represent more than half of their revenue.
  • 84% anticipate that this share of revenue will increase somewhat or significantly over the next two years.
  • 37% say that their business units increasingly prefer to rent goods rather than purchase them.
  • 35% say that they prefer to access goods via subscription, and 16% prefer to share ownership.

 

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From the sell side perspective, the benefits of the new models are:

  • Creation of new revenue opportunities (37%).
  • Competitive differentiation (27%).
  • Increased customer loyalty (25%).

 

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From the buy side, the key benefits are perceived to be:

  • Reduced transaction costs (36%).
  • More convenient use of goods and services (35%).
  • Ease with which consumers can upgrade or downgrade services (33%).

Ten minutes with Tien

I caught up with Zuora CEO TIen Tzuo in London this week where he was chairing the second leg of the firm's Subscribed global tour. (This kicked off in San Francisco two weeks ago and will conclude in Sydney in two weeks time.)

9KeysNoCircle
During his keynote address, Tzuo explained it's new Nine Keys message to customers. These are:
  • Price: pricing flexibility is your new strategic weapon.
  • Acquire: customer acquisition should be fast, simple and streamlined across any channel.
  • Bill: bills need to be efficiently generated, accurate and easy to understand.
  • Collect: payments need to be collected fast and settlements performed easily to eliminate lost cash.
  • Nurture: it’s critical to give customers the control they need or risk dissatisfaction.
  • Account: account for revenue and close books faster with a strategy that handles complexity.
  • Measure: visibility into customer, subscription and financial metrics means better, faster decision-making.
  • Iterate: get comfortable with pricing iteration because it’s never right the first time.
  • Scale: services should be built on an enterprise-grade infrastructure that is mission-critical, reliable and scalable.

Tzuo explained to me the reasoning behind introducing these nine principles:

"The genesis was sitting around in a room and saying 'We need a complete map of what customers want from us'.

"We kept hitting gaps with customers. We would be successful with a company and then two or three weeks later we'd hear that the comptrollers hate us or that their engineers had screwed the system.

"We didn't have a map of everything that the customers need. We needed to have a unified view of everything that needed to be done for customer success."

With the whiteboard at the ready, customer views were sourced and synthesised, firstly into 7 principles, then latterly into the final 9 which have, Tzuo insists, global applicability. There won't be 8 for some countries, 10 for others:

"We are wrapping the whole company around this, basing our product road map against those 9 principles.

"It gives us and the customers a good foundation for the categorisation of things.

"Customers are saying they have a map now and can see things they didn't realise before."

The original schematic for the Nine Principles was in fact a map at first but this became a circular diagram for specific reasons:

"The analogy is back in the 1990s with the big ERP systems from SAP and Oracle. They helped customers to understand their own processes which were very linear. We looked at ours.

"Something like quote-to-cash is now use when you're dealing with renewal models. It was obvious that the processes for customers were not linear processes, but iterative, which is why the principles are shown as a circle."

Some 250 people turned up at the London Subscribed, an always to be expected lower headcount than the San Francisco kick-off. But Tzuo emphasises the increased diversity of the types of organisations in attendance.

Where five years ago, Zuora mostly catered to other SaaS firms, now the roll call includes the likes of healthcare and education organisations.

People are getting the message, concludes Tzuo:

"We are the alternative to ERP that's going to happen over the next ten years. We've seen all the early signs of it. It's all ahead of us. We're about to go somewhere really interesting."