A recent book that brought to light the power of the subscriptions business was “Subscribed” by Tien Tzuo, founder and CEO of Zuora, which offers products for subscriptions management. Tzuo, who also coined the term, “Subscription Economy”, wrote in his 2018 book:
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 [is] to turn customers into subscribers in order to develop recurring revenue.
… 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.
…When you finally discover your customers, it changes everything about your company. It affects every role. With a subscription model, suddenly your development team is spinning up new services based on usage data, as opposed in response to the loudest voices in the room. Your finance team is getting ahead of churn and test-driving new ideas. Your customer service team is proactively advising, as opposed to reacting to, tickets with scripts. Your marketing team can tie pricing to value, so they can come up with creative new packages and services. You’re no longer hamstrung by back-end processes that can’t adapt and scale. There are no more strictly linear, bucket brigade–style operations. Your organization is fluid but cohesive, recurring and responsive, and above all, relentlessly centered around your customer.
… [The] 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 … So why is this shift happening right now? Because of the way those subscriptions are being delivered—digitally—and the huge amount of data those digital subscriptions are generating.
Tzuo has this graphical representation which captures the transformation:
From Zuora’s website: “At the heart of the Subscription Economy® is the idea that customers are happier subscribing to the outcomes they want, when they want them, rather than purchasing a product with the burden of ownership … In the old world (let’s call it the Product Economy) it was all about things. Acquiring new customers, shipping commodities, billing for one-time transactions. But in this new era, it’s all about relationships. More and more customers are becoming subscribers because subscription experiences built around services meet consumers’ needs better than the static offerings or a single product … Focusing on relationships requires a new way of thinking. Rather than placing your focus on the “product” or the “transaction,” Subscription Economy companies live and die by their ability to focus on the customer. The formula for growth lies in delivering multi-channel experiences and services (that get better over time) … So as a business in the Subscription Economy, your focus is on retaining existing subscribers, monitoring usage, accounting for recurring revenue, finding new ways to deliver ongoing value to your customers that will build long-term loyalty.”
Subscriptions, relationships, retention, renewals, and recurring revenue – these are the same ideas that are also at the heart of the coming martech era.