Forbes has an interesting post by Tien Tzuo, CEO of Zuora and one of the leaders of the subscription revolution in which he discusses the coming of age of the subscription economy. Coming of age might sound like a contradiction to say the least—where has everyone been for the last couple of decades? Subscriptions are down and in a curious way, this is the point.
You ought to read the post almost as an echo of Mark Twain’s “Innocents Abroad” because it discusses Tzuo’s first encounter with international governmental organizations through his recent participation in the G20 meeting. To be very brief, the G20 is the group of the largest countries by economic output and its finance and political leaders gather annually to discuss where this planet and its economy are going. You might have also heard of the G7 or G8 (depending on whether or not Russia is misbehaving), which is an even more exclusive group.
So Tzuo was invited to participate in some sub-group meetings for business and technology in Antalya, Turkey, site of the recent confab. Now you have context. Tzuo is happy to report that the word “Internet” broke into the collective consciousness in the form of a communiqué from the recent meeting with an assist from him. That’s how long it can take for an idea that we have regarded as foundational for over two decades to become so mainstream that it gets included in the thinking of the G20.
This should surprise no one. When you are dealing with the planet’s economy and the 20 largest players in it, then it’s reasonable that only the biggest ideas bubble up and the Internet (specifically subscriptions) is finally breaking the surface. But the fact of this emergence suggests that the Internet and even subscriptions are no longer the disruptive innovation we’ve nurtured for much of our working lives.
The technology revolution ushered in a world of data driven business processes, information sharing, social media, big data, analytics, tiny computers now called devices, and use of the word “online” as a prefix as in online shopping. It is now so integral to what we do that it is its own paradigm, rapidly replacing older structures and business models like face-to-face commerce, print media, and (gulp!) customer loyalty. Online everything is having enormous impacts on how we live and travel and it is now safe to say that the revolution is over.
To be clear, we will not retreat into some dark age and technology will continue to drive the global economy for quite some time. But when you think of the power that you can hold in your hand in the form of a device today, you can see that it’s getting rather hard to make a technology product at a profit and there is an important lesson. Technology and information are commoditizing the way that everything else from textiles, to cars, to TV did. They are all important parts of the global economy today but none drives it.
We shouldn’t mourn information technology’s passing and as I said, technology is with us now for better or worse. Interestingly another disruption that’s been on the horizon for decades got a major boost over the weekend when the global community ratified an agreement summarizing individual nations’ efforts to stem carbon pollution and save the planet from overheating.
From here on the technologies that will have venture capitalists’ greatest attention will be those that reduce emissions, generate clean electricity, and even take carbon out of the atmosphere. This new paradigm will be the work of a generation and people in the job market today will increasingly feel the gravitational pull of energy and environment in information, finance, product development, sales and marketing, and much, much more.
The new paradigm will be heavily dependent on the information management structures and tools that the current generation—all of us—have wrought. It is a worthy legacy.
It was gratifying for me to see the Salesforce announcement about the latest iteration of its SMB service desk product, Desk.com because it is so in-line with my thinking as well as my book, Solve for the Customer (I know, it’s a shameless plug). While I happily acknowledge that I advise the company from time to time, there is no causal relationship between the book and product, but sometimes, correlation is just fine. This is one of those times when correlation yields validation in both directions.
Of course there’s a press release and you can find it at Salesforce.com because it is not my intention to regurgitate it here. I prefer to focus on one new function that draws my interest and shows the parallels I mentioned, Desk.com Customer Health Monitor. Billed as a category-first among service providers, the monitor does what I’ve been advocating with minor exceptions. It tracks metrics about customers that a vendor thinks are important and reports on them thus providing alerts that help to prevent churn or attrition.
FYI, Zuora, another company I advise recently bought FrontLeaf to do much the same from a different angle. This idea is gaining traction.
This approach amounts to managing by exception. A small company can’t afford the labor or even subscribe to the systems involved in constant customer outreach and this tactic focuses on what evidence shows are customers that need an intervention, perhaps by a customer success manager. All good.
Now for some nits that need to be worked out—not in the product but methodologically. The big, and for many, hidden issue is knowing what you don’t know i.e. how does a business know what things to measure? An obvious example in the press release is what happens when a customer calls support twice in a month. Is this a sign of trouble or frustration and possibly a churn signal? It could be and the point of an alert is to call for further investigation, which leads to interrogating other metrics to triangulate the situation.
For example, new customers getting up to speed will likely call in more than established customers so it’s best to correlate frequency with other factors like seniority and possibly also products in use—did the customer just install the latest upgrade?
There are many iterations of all this and the simple point is that any company will first want to identify all of the situations that need monitoring and develop accurate metrics for them. I call the situations Moments of Truth, things that both vendor and customer care about and that must be addressed, moments of truth. So we must know our moments of truth before the rest of this makes sense.
We can safely assume we know some of our Moments of Truth but that’s no longer enough. We need to know all of them or we’ll be missing things we can help with and that’s bad because successfully negotiated Moments of Truth lead to bonding which leads to customer advocacy. We really can’t have too much bonding so we need processes that find all of the Moments of Truth and instruments them via tools like the health monitor.
Discovering Moments of Truth is likely a task for a future product release and probably other products like community and analytics. Using our brains to find the low hanging fruit will do just fine for now but suffice it to say there’s more to be done.
There is no better company to look at to get a sense of the future of technology in business and society than Zuora. This might surprise many people because companies like Oracle, Microsoft, and Salesforce might come to mind more readily. To one degree or another those companies feature their products and services, which are very important but Zuora talks about business models, and today that’s even more important.
It’s the business model that will determine the products and services companies will be able to provide and its behaviors around them. It is the frame for everything else the company does and what it considers important. Consider the dominant business model of the last century: manufacture millions of identical products and sell them through mass advertising.
We took pride in the standardization and uniformity of so many products able to provide the identical user experience. That was a good thing too because it made interchangeable parts a reality. If you manufacture anything that’s a big deal, but it also leads to thinking that all customers are interchangeable too and that’s not so good.
The old model was simple and direct but utterly without any meaning to the customer. Indeed we came to think of the customer as a mere consumer, one that takes from a huge but not unlimited supply and gives nothing back. A business model with consumers is unsustainable for the simple reason that sustainability demands that my spending is your revenue and vice versa. It is a round trip and it is what keeps economies strong. It is also the basis of Keynesian macro economic theory, which neo-conservatives often pooh-pooh but never seem to refute.
But Zuora’s messaging at Subscribed 2015, its user meeting held in San Francisco last week, is that business models are changing. We knew this but perhaps we had a less clear understanding of its implications. If you take personalization and customer experience, add to it my idea of Customer Science, and think of what the world’s business models might look like if you move from mass production to personalized subscription, you get a sense of the vision Tien Tzuo, Zuora’s CEO, was offering.
Tzuo’s keynote was smooth and well organized but relatively quotidian for its first half winding through nearly a decade’s worth of increasing progress in the subscription market. In the second half he wound up and delivered his big news, a 100 mile an hour fastball down the middle of the plate, a new product, Z-Insights. To simply call Z-Insights a new product though is to miss its importance. It extends the company’s idea of Relationship Business Management (RBM), brings more definition to the subscription economy, and extends the future of ERP squarely into the front office. Let me briefly unpack this.
The idea behind RBM is that to successfully transition from making millions of identical products to personalizing vendor-customer interactions, it helps a lot if you can provide your wares through subscriptions. Subscriptions provide the framework for capturing customer use and uptake data so that you can act authentically when involved in moments of truth with your customer. Prior to Subscribed 2015, I felt that RBM was more aspirational because it depended on vendors understanding (often guessing) what data to collect in order to act on its information content. There was a quality of dealing with known unknowns to borrow a Rumsfeld phrase. With Z-Insights there’s now a framework for all this and the software will do a good deal of the heavy lifting when it debuts later this year.
Much as I believe we’re in a subscription economy, I also know that the economy has successfully spawned a culture. Customers behave in the market and act towards vendors like subscribers—not because all vendors offer subscriptions but because nearly all customers have been exposed to subscriptions, to the ways that are superior to traditional relationships and they prefer the new culture for its greater intimacy and empowerment.
Z-Insights aims to provide vendors with the information they need to understand customers better so that the two can meet in moments of truth. By collecting and managing customer use and uptake data vendors will have solid understandings of what drives demand. Understanding demand is the first step to providing adequate supply in a world that now requires greater personalization. It’s not enough to know that a customer might have a need for a solution unless one also knows how that solution will affect the user.
Much has been written (by me and many others) about the demise of ERP but the context is important. I don’t see how to get away from ERP since it supports so many vital back office functions. But the ERP we inherited from the last century is evaporating in the sense that pieces that were once thought to be foundational are being supported in best of breed situations and connecting with front office systems. Take, for example, Xactly, which also had a user meeting this week at the other end of Market Street. Xactly focuses on incentive compensation, which was once thought to be a part of ERP through HR or HCM, but all of these functions are breaking off and aligning with the front office.
In a similar way, Zuora as a part of ERP that handles subscription billing, payments, and finance, is connecting more directly with front office CRM when it begins offering insights into customer behavior from essentially ERP data, which can drive alignment of the sales, marketing, and even support groups in the front office.
So, who owns the customer?
Many good questions on the minds at Subscribe could be reduced to who owns the customer in such a situation? We seem to default to existing answers like sales or marketing or possibly customer service in these circumstances. But really, it’s a jump ball, if we’re changing the vendor-customer paradigm is it necessarily true that the old structures will support the new framework? I suggest they won’t.
I believe Z-Insights is possibly the opening salvo in a process that may evolve a new department at least in larger enterprises. I am calling it the customer science department because it will be the place where all customer data consolidates and vendors identify customer needs. In essence it will be the place where the business practices sociology on its customers, understanding the structures that keep them engaged with the group (and the business or brand) and looking out for the indicators of disenchantment that lead to attrition as well as opportunities for cross-sells and up-sells. This will drive specific directions for sales, marketing and service groups.
This framework will enable everyone to take responsibility for coordinating aspects of the customer journey while a specific and neutral group has responsibility for customer knowledge. Note that ownership devolves into responsibility; its synonyms include bond, duty, accountability. As it should be.
Zuora, the subscription billing and payments company and the Financial Times of London announced a deal today in which the Times will use Zuora to help manage its subscription business. Two interesting paragraphs from an article in Computerworld UK stand out:
“The organisation has invested heavily in its digital strategy in recent years amidst a declining print market, helping increase total circulation 13 percent year on year to 677,000 during 2014, two thirds of which are online subscribers. It has also seen growth in mobile, accounting for 50 percent of overall traffic.
According to FT chief technology officer, John O’Donovan, the software as a service (Saas) system has helped provide flexibility in terms of pricing and bundling of subscription products, enabling the company to concentrate on where its 126-year old business can add value – the creation of content.
I am impressed by everything about this deal — the preponderance of digital subscribers; the use of Zuora not simply for billing but also for managing the business in a more fundamental way; and the company itself. The Times is a 126 year-old company coming into the digital and subscription age. Good on them, I say, and good on Zuora for making this happen. It’s got to be worth at least one touchdown in the race for supremacy in the subscription billing race.
This helps to validate (though Zuora is a long way from needing validation) the subscription management idea, which started with billing and payments but is more complex than this today. The data given off by digital customers through their subscriptions is significant and can tell a vendor quite a bit about tastes, needs, preferences, and much more — all of the things that a vendor needs to make a better mousetrap — or as the CTO in the article says to make content that customers want.
So when I see an article like this, I am happy for both parties because it means the vendor is also adopting the ways of digital marketing that make it possible to understand customers even if its people aren’t in direct communication daily. Does this mean that the billing and payments system should be part of CRM these days? Perhaps, but more fundamentally it can also mean that the traditional CRM silos of Sales, Marketing, and Service are crumbling and being replaced by data, analytics, and specific process-oriented apps that address customer moments of truth. There is nothing more fundamental to the relationship than getting the billing right and offering the right product mix. Doing those two things enable subscription companies to win the battle today and earn the right to do it all over again tomorrow.
Last week I attended Salesforce’s Marketing Cloud customer event put on by ExactTarget. The theme of the conference was “The journey is its own reward” and I think that offers proof for what I am arguing because the journey involves collecting and analyzing customer data so that the vendor can stay relevant to the customer. So, not to get too far afield, this is an important announcement and I am glad I found it.
Tzuo’s company Zuora, started the subscription billing market back when billing was a big and the only deal that SaaS and other subscription companies had to think about. But over the last few years Zuora has built out a product line that supports a vision of a changed marketplace dedicated to the values of what futurist Jeremy Rifkin calls the “collaborative commons.” In the commons it is more blessed to borrow, share, rent, and, yes, subscribe, than it is to buy, own, and hold.
Tzuo has been the leading proponent of an economy based on subscriptions and today’s speech will be seen as a turning point that took the subscription economy to the mainstream. If anything it was a victory speech, a time when Tzuo and his band of brothers and sisters could say, “See it worked.” But it was also a time that rededicated Zuora and its people to a greater vision of a subscription culture. Tzuo acknowledged as much even if he hasn’t used the words yet when he announced three new directions and offerings that will enable subscriptions’ glide into the mainstream.
The three major initiatives which will be detailed in tomorrow’s keynote include a Subscription Academy to teach the basics of subscription business to anyone who wants to engage including huge enterprises and startups as well as their people; subscription business blueprints which will help conventional businesses the clear the sizeable hump that all existing companies face in getting their conventional models into subscriptions; and finally, a community of subscription ninjas who will help to do what communities do best — share ideas, how to information, and paths to success.
Tzuo also introduced a new term for our business, RBM or Relationship Business Management that unites back office subscriptions with front office customer centricity, which has been a long time in coming. We saw a glimpse of this in Zach Nelson’s keynote at SuiteWorld a few weeks ago. NetSuite, Nelson’s cloud ERP company, is now making moves to inject back office data into the customer centricity, customer engagement mix but for my money, NetSuite is still a bit more tethered to conventional ERP, and Zuora is all about new era accounting and finance. Both get to roughly the same place given enough time but in my view Zuora might have an edge that synchronizes with ERP, even NetSuite but is not ERP.
Regardless, juxtapose this with Microsoft and an article from yesterday’s online Wall Street Journal in which Christopher Mims offers five advice points to the Microsoft CEO under a headline of “Advice to Microsoft’s Satya Nadella: Be More Brave.” I can hear Sara Bareilles warming up right now.
Microsoft is a company squarely in the zone Tzuo spoke of in his keynote, old by contemporary standards and more important, old by business model. Dealing with products sun setting and customers migrating away to other vendors; a company with a diverse product line that has lost its theme.
For me the most dramatic part of Tzuo’s keynote came when he invited David Wadhwani, SVP and GM of Adobe on stage to talk about his company’s gut wrenching switch moving its wildly popular Adobe Creative Suite to a subscription model from a conventional software licensing model. Talk about being brave, Adobe isn’t even a Zuora customer that I know of, Tzuo was swinging for the fences looking for the best ideas he could find and it was a good move.
The drama came when it was disclosed that Wall Street had an instant allergic reaction to that particular bit of Adobe news and investors began voting with their feet. Actually the drama came just after that, when the markets had closed and NASDAQ called the CEO to ask if it should suspend trading in the stock next day. That was enough to make anyone do a rethink but the answer was not simply damn the torpedoes, that would have been too easy. The answer was transparency and communication with employees, customers, and the financial press to deliver a message and a vision of a greater Adobe, one that was focused on customers and a better value chain with solid roots in the subscription culture.
It was one of the best stories I’d heard at a keynote and I’ve been covering these things for a while. Heck, my career as an analyst goes back to the foundations of the subscription economy, come to think of it. At any rate, that’s the message Nadella and most conventional business leaders need to hear, internalize, and evangelize. It’s the message of a new economy, new ways to market, sell, and service but also, new and more collaborative approaches to dealing with customers. Every recovery is led by a new, new thing and I think the subscription culture provides that.