subscription culture

  • March 11, 2015
  • Zuora-Logo-Navy-largeZoura announced a funding round worth $115 million today including investors Wellington Management Co., BlackRock, Premji, and Passport Capital as well as some investors from earlier rounds. Calling it a mini-IPO, CEO Tien Tzuo said the company will behave more like a public company from now on as we await the inevitable reality of an IPO.

    Zuora invented the subscription billing, payments, and finance market about 8 years ago and has been riding a wave it calls the subscription economy. Briefly that means an economy that is rapidly adopting subscriptions as a business model which makes all the sense in the world.

    Subscriptions as we know them started with companies like which began delivering software as a service and at the time, this was considered an advantage because so many larger software firms were getting hung up on software implementation. You could easily spend two to three times the million-dollar software price tag on getting the software to work which is why Salesforce’s original and still to be topped tagline is “no software.” Tien Tzuo learned a lot at Salesforce as its 11th employee gradually rising to be CMO and chief strategy officer before leaving.

    All that’s well and good, but I firmly believe we’ve already overshot the subscription economy. That’s not to say everyone is on board, there are lots of conventional companies just getting up to speed in subscriptions and Zoura will undoubtedly use its new cash to market and sell to them. But as Sheik Ahmed Zaki Yamani of Saudi Arabia once said about the impending end of the petroleum age, “The Stone Age didn’t end because we ran out of stones.”

    Things have a habit of morphing. The Old Stone Age morphed into the New Stone Age and here we are. Likewise, the subscription economy has morphed into the subscription culture, which is part of the reason Zoura could raise that $115 million (on top of the roughly $100 million it already raised) to begin with.

    The subscription economy delivered a fact to the market; the subscription culture is what happened when customers figured out how to leverage that fact. Sure, they learned that they could pay monthly for things that normally cost millions of dollars all at once enabling small businesses to afford the same things their larger competitors had and this leveled many playing fields. But it also meant that no customer had to feel stuck in a bad fitting relationship any more—it’s too easy to leave one subscription and get another.

    Customers were empowered by this new knowledge and it has led us to a new model for business—not the same as a business model. Relationship Business Management or RBM is what Zoura is calling it and the idea has legs because it encompasses the reality that subscriptions are now central to the relationship and that CRM as we knew it has to account for this.

    RBM starts by assuming subscriptions and leverages data about customers—their use habits, payments history, lifetime value, and many other factors to drive outreach and interaction well beyond simple purchase and sales issues. That’s where I believe the culture part comes in. Even vendors that do not offer subscriptions are beginning to behave like subscription providers for the simple reason that the model is more customer friendly and in a competitive world no vendor can afford not to cater better to customers.

    Zappos is a vendor of shoes and not a subscription company but you’d never know it from the way the company behaves. Their body language suggests a company focused on customer lifetime value and working to get customers to come back for the nth time. They’ve internalized subscription culture from their customers and exude it back. Customers love them for it.

    Lots of companies are looking more like subscription companies today, which is why the future looks bright for Zoura as it begins leveraging its new cash to spread the word about subscriptions and RBM to a larger audience.


    Published: 8 years ago

    I have been writing about the subscription economy for five years and I have enjoyed my ringside seat following this latest and most important disruption of our time.  The subscription business model, and not CRM per se, is the disruption that got Salesforce going and changed the front office software industry entirely.

    Today we’re well beyond software as a service (SaaS) because just about everything you can think about can be delivered as a service, though some things may be best left out.  Commodities like sheet steel might be one of those things to leave alone except that if you look at the supply chain and the just in time inventory approach that commodities producers all subscribe (no pun) to today, you realize that manufacturers subscribed to sheet metal services long before the term was coined.

    Give some credit here to the Japanese who pioneered just in time, which I think is the grand dad of subscriptions.

    The subscription economy and the transformations it is causing in our society have important down stream effects.  As subscriptions have reached critical mass they are changing the ways customers think about their relationships with vendors.

    Consider critical mass for a moment.  It’s an apt term borrowed from atomic energy and it refers to a mass of fissile material of sufficient purity that chain reactions, in which one atom splits and activates another, can become self-sustaining.  Critical mass doesn’t mean that all the atoms are radioactive at once, just that there are enough to make the reaction go on without added input.  It’s like riding without training wheels.

    I think that’s where we are in the subscription economy.  We’ve been successful enough at promoting the benefits that adoption is no longer in doubt.  No, everyone is not a subscriber today and every company is not a subscription vendor either, but there’s critical mass — subscriptions are here to stay — and that’s why I think it’s time to introduce the idea of the subscription culture.

    All of the subscription culture’s impacts are not known yet but let me focus on one that is or can be.  It’s the effect on customer attitudes and behaviors.  At critical mass, customers, i.e. you and I, are more or less trained to expect certain things like the ability to change or adjust an order with ease, a vendor with a call center and website tuned to taking care of our needs without a great deal of hassle.  Good or even great customer service.  We have also become accustomed to sharing our ideas and experiences with other subscribers — good and bad.  Most important, we really like the ability to pay as we go and to go, as in leave, when we please.

    You can do a quick mental comparison of the subscription culture’s values with a traditional transactional business model and while traditional relationships still have advantages and their loyal supporters, there is no arguing about the impact that subscriptions are having on business.

    That’s why I think we’re at critical mass for subscriptions and why the next step in the evolution of the subscription economy is the subscription culture.  Even if a company has no interest in offering subscriptions and even if a customer prefers to make purchases as he or she has always made them, the culture is changing, some might say liberalizing (in the best sense of the term).  Cultural norms are shifting in favor of the customer and subscriptions and customers are acting more and more like subscribers regardless of the model.  Subscriptions may be the most important thing to affect CRM since, well, subscriptions.  All this suggests that if you are a vendor, the subscription model is something you can’t ignore.

    Next week, in San Francisco, I’ll be attending Subscribed, the annual Zuora user group meeting.  I am on two panels, moderating one of them and I expect to learn a lot.  Zuora is riding high in the wake of a successful series E funding round that raised another $50 million for the company.  If you are out there, please find me, I’d love to understand your perspective on subscriptions.


    Published: 9 years ago