Tien Tzuo, the CEO and founder of Zuora
As evident from the success of Netflix and Spotify, consumers today prefer subscribing to services to buying products. Tien Tzuo, the CEO and founder of Zuora -a subscription billing and ecommerce provider - explains why businesses should move towards a subscription-based revenue business model, and provides advice on how to overcome the challenges of transiting to such a model.
What is a Subscription Economy and what are its benefits?
If you stop for a moment, you may observe that more and more of your life is being run on services, not products. For example, you subscribe to streaming music and movies instead of buying CDs or DVDs. You also work through online applications from Salesforce or Google as opposed to working through software products that your company had to install and maintain.
This is what we call the Subscription Economy.
Already estimated at US$500 billion, the Subscription Economy is set to grow exponentially as the global market shifts to services and innovative delivery models. A 2013 Economist Intelligence Unit Survey found that four out of every five (80 percent) businesses are currently seeing changes in the way customers prefer to access services. As a result, over half (51 percent) of them have integrated new pricing and delivery models such as subscriptions, sharing and rental goods and services.
The benefits of the Subscription Economy? Well the great thing is that it's a win for both consumers and businesses. Customers love the convenience, cost and accessibility of subscribing to services rather than buying them. For businesses, instead of guessing their revenue based on an unpredictable forecast of number of units sold, they can look forward to predictable revenue from subscriptions for a whole year. In fact, the Subscription Economy encourages companies to focus on their customer and build relationships that last.
Is Subscription Economy any different from software-as-as-service (SaaS)?
SaaS is a great example of how the Subscription Economy has transformed the software sector. From the founding of Salesforce.com to Adobe's recent declaration that it is going 100 percent subscriptions, the SaaS model has emerged as the preferred way to both deliver and consume software applications.
That same trend is now permeating all industries - from cloud storage to streaming digital media, membership services and electronic health records - for any kind of product or service that can be subscribed to (including toothbrushes and razors). In fact, the Subscription Economy is fuelling massive changes across multiple multi-billion dollar industries, including communications, media, technology, consumer services, and even traditional manufacturing as devices tethered to the Internet are fueling what people call the "Internet of Things."