Subscribed Magazine, Fall 2016 by Jayne Gonzalez

THIS IS THE 21ST CENTURY. WEâ&#x20AC;&#x2122;RE ALL IN THE RELATIONSHIP BUSINESS.

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Letter From the Editor

At 130 years, this is only the beginning of their story.

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From the Catalog

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10 pg /

The Ground Beneath Your Feet

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Bristol is Open

20 A Nation Subscribed

Interview with Subrata Mukherjee from The Economist Group

40 million Brits (78 percent of the adult population) are now subscribing to at least one product or service.

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Small is Beautiful in Data Science

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Design your Product around Price

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Watson Analytics

I think that AI will be as fundamental as the invention of printing, or the Industrial Revolution.

Self-Help in the Digital Age

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48 pg /

Time for a New GAAP

Six Ways to Optimize Subscription Payments for B2B Companies

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Ford Embraces Silicon Valley

Weâ&#x20AC;&#x2122;re trying to capture some transportation dollars through business model innovation.

SUBSCRIBED MAGAZINE | FALL 2016

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CIO Survey 2016 FEATURED

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Sign of the Times

Subrata Mukherjee VP of Product / Head of Business Systems, The Economist Group “We’re focusing on the subscription economy and have innovated a lot in our subscription business over the last five years.”

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66 pg /

10 Coolest Video Streaming Services From Around the World

Interview with Shawn Gold, CMO, TechStyle Group

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Heard on Subscribed Podcast

Sam Jennings Visual Designer, Creative Director and Prince Collaborator “There was always a sense with Prince, I think you find it in his music but also his business, where anything was possible. “

TEAM Executive Editor Gabe Weisert Managing Editor Aarthi Rayapura Sr. Staff Writer Erika Malzberg Art Director & Designer Shaun Middlebusher Brand Lead Lauren Glish Copy Editor Emily Aradi

Neil Whitney Director of User Experience and Design, Watson Analytics “AI isn’t just for the movies anymore."

Carl Gold Chief Data Scientist, Zuora “I'm a 100 percent believer in using specialized data analysis tools to answer different questions.”

Published by Zuora, Inc. 1051 East Hillsdale Boulevard #600 Foster City, California 94404 (800) 425-1281 editorial@zuora.com

Dragos Maciuca Technical Director, Ford Research & Innovation Center “We’re looking at the “transportation as a service” model...we think we can address this through either car sharing or some sort of a subscription model.” Want to subscribe?

Madhavan Ramanujam Partner and Board member, Simon-Kucher & Partners “Innovation is a clarion call for every business in every industry in every corner of the world.“

Send an email to editorial@zuora.com

Printed on 100% recycled paper

THE WAY PEOPLE BUY HAS CHANGED FOR GOOD Itâ&#x20AC;&#x2122;s time for your business to change with them

F R O M

T H E

E D I T O R

Letter

The arrival of the Fall 2016 issue of Subscribed coincides with our conferences in London and Paris, and so we look to Europe for Subscription Economy stories about companies reinventing themselves through cloud-enabled services and recurring revenue-based business models. As it turns out, adding sensors and connectivity to the things you manufacture is relatively straightforward—shifting from selling products to selling services, however, is where things get interesting. Tarkett, for example, is a 130-year-old France-based company that makes flooring material for businesses, hospitals, airports, and sports arenas. Today, those floors monitor real-time human behavior—when people arrive, when they leave, which spaces get used, which ones get neglected. All these new data services have obvious benefits in terms of maintenance and energy consumption, but hospitals and residential care homes are also using it to deliver timely help to people when they need it. Floors, as it turns out, are the ultimate connected products. Europe has always been ahead of the United States in terms of smart government initiatives, but the English city of Bristol (a thriving researching university town that has also brought us Massive Attack and Aardman Animation) is turning hundreds of discrete municipal data sets into a kind of civic open source code called “Bristol is Open.” Again, tackling obvious inefficiencies is the first order of business: traffic congestion, crime, emergency response routes, waste collection, public energy usage. But when elementary school classes can watch a chamber recital in real time over high-speed fiber connections, then all sorts of unexpected opportunities open up. We’re also looking for unlikely business model parallels, which happen all the time in recurring revenuebased companies, particularly in the B2C space. What do The Economist and TechStyle (a subscriptionbased fashion vendor) have in common? More than either might think. For these relentlessly consumerfocused companies, net user growth is paramount. They are constantly optimizing their subscriber acquisition rates through rapid pricing experimentation, tailored offerings based on behavioral insights, and seamless electronic payment methods. As a result, they are creating new kinds of experiences for new kinds of consumers.

Gabe Weisert Executive Editor Prior to Zuora, he has worked in senior editorial roles at Forbes and Yahoo! Inc.

Finally, in the technology industry, we hear a lot of discussion about savvy upstarts disrupting legacy industries. Companies like Ford and IBM, however, are happy to put talk into action. Digital disruption is creating both an opportunity and a necessity for these established enterprises to harness digital innovation and deliver new sources of value for customers. IDC predicts that by 2016, 65 percent of the world’s largest enterprises will have committed to becoming information-based companies, shifting the organizational focus to relationships, people, and intangible capital. By 2018, 67 percent of the CEOs of Global 2000 enterprises will have digital transformation at the center of their corporate strategy. Of course, this transformative shift is being driven by rapidly changing consumer preferences as well. The UK-wide study we conducted with YouGov earlier this year found that that 40 million Brits (78 percent of the adult population) are now subscribing to at least one product or service. The charts and figures all seem to be pointing towards one direction—access over ownership. But as Paul Wilson of the Bristol is Open project noted at our last conference, “You can terrorize people with data. You can drown them in figures. It’s only when you make something programmable and actionable that you find value.” Not just solving inefficiencies, but creating new opportunities. That’s what the Subscription Economy is all about. Gabe Weisert Executive Editor PS. If you have any feedback or story ideas, we’d love to hear from you. Feel free to drop me a note any time at gabe.weisert@zuora.com.

SUBSCRIBED

FALL 2016

In a variation on the theme “everything old is new again,” we take a peek into “the catalog” to find old world products subscriptionized for the digital age, in the ongoing shift towards services over products. by Erika Malzberg

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FALL 2016

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FALL 2016

A joint venture between University of Bristol and Bristol City Council to comprehensively virtualize the real-time behavior of a city.

by Gabe Weisert

hen the “Bristol is Open” project was introduced at our last Subscribed London Conference, I was reminded of the first time I heard about the Internet. It was a light bulb moment—the idea that a disparate collection of localized data sets could combine to become a powerful network of possibilities. Bristol sits near the coast of Southwestern England, due west of London. It has roughly 450,000 inhabitants, and is the eighth largest city in the United Kingdom (in other words, it’s a Goldilocks environment— not too big, not too small). Bristol is the home of Massive Attack, Aardman Animation, the Concorde, the BBC Natural History Unit, and two premiere research universities. Bristol is Open is a joint venture between the University of Bristol and Bristol City Council. Private partners have worked with an advisory board to turn the city into a giant testbed that contains several hundred municipal data sets: transportation, education, waste management, crime, energy, etc. Broadly speaking, it’s an effort to comprehensively virtualize the real-time behavior of a city. So is this just a new digital utility for Bristolians? A government wi-fi network to add to their garbage and power bills? No. Bristol is Open is very much a public and private sector hybrid that includes large telecom and software companies, start-ups, public service delivery organizations, and academic research groups. “We’re pleased to be working with Zuora to make this a pay-as-you-go environment,” said Managing Director Paul Wilson at our last London Subscribed Conference.

SUBSCRIBED

FALL 2016

It also creates the potential to make all sorts of cool stuff: • Create a mesh “wi-fi canopy” out of 1,500 lampposts. • Track traffic data to tackle congestion problems and pilot autonomous vehicle test programs. • Hold music concerts, lectures, and performances across multiple venues in the city at the same time. • Improve emergency response routes, waste collection logistics, and public energy usage. • Turn the city’s planetarium into a gigantic “data-dome” that can effectively visualize big data. But most importantly, it will create a municipal operating system (CityOS?) that’s open, agnostic, and programmable. As Wilson said, “You can terrorize people with data. You can drown them in figures. It’s only when you make something programmable and actionable that you find value.”

Paul Wilson Managing Director of Bristol is Open

All of these participants get access to a slice of the data. The idea is to let them leverage the network and create valuable new services—the plumbing itself consists of a fiber broadband network (installed in disused cable ducts) and thousands of new sensors provided by commercial partners, including NEC.

“What you use it for is obviously what’s most important to you,” said Wilson. “Assisted living, driverless cars, heating systems—if you’re a council, it’s probably something like traffic congestion and air quality. But there’s no one answer. This is a software-defined network that’s capable of addressing all of these concerns, as well as having fun. It’s life in a city.”

Bristolians will be able to interact with their city in entirely new ways, to look beyond consumption patterns and improve their quality of life. And I have no doubt that it will serve as a model for many other cities to come.

“Today, about half the people in the world live in a city,” said Wilson. “That number will be seventy percent by 2050, and will constitute a total urban environment roughly the size of Australia. Every day, a million people move to the city. This is a pathway to building a sustainable way of life.”

You can terrorize people with data. You can drown them in figures. Itâ&#x20AC;&#x2122;s only when you make something programmable and actionable that you find value.

Without knowing who our customers are ... we cannot serve them.

SUBSCRIBED

FALL 2016

Subrata Mukherjee

by Aarthi Rayapura

173 years. That’s how long The

Aarthi Rayapura caught up with

Economist has been around. As the

Subrata Mukherjee, VP of Product

digital era takes over, the media house

and Head of Business Systems at

is making significant changes—both

The Economist Group to learn

externally and internally — to cater to

more about the publication’s

the changing market scenario.

transformation into a modern media company.

Is print dead at The Economist? We are seeing some trends that are counter-intuitive to common thinking

Has the relationship The Econo-

Any

mist has with its customers chan-

acquisition strategies?

examples

novel

ged over time? Do you view your

around this issue. Many renowned print

digital and print subscribers diff-

titles have been closing shop or are being

erently?

A lot of companies talk about product bundling these days. We actually went the other way and unbundled some of

sold at ridiculous prices. Our print business is not declining—it’s flat in certain markets

We do not treat any of our customers

and growing slightly in others. Some focus

differently. Our goal is to wow readers

groups have shown us that young college

with a truly cross-platform immersive

students are using The Economist’s

content experience and we encourage

content to prepare for debates, case

readers to explore digital experiences

studies, quizzes, etc. They actually prefer

that they have not yet tried. We have

an immersive print experience and don’t

gradually started to launch digital-only

want the distractions of feeds from social

content such as the Espresso app or the

networks or instant messengers.

Global Business Review Chinese app. Our premium bundles are also very popular,

So how is The Economist trying to

showing that our customers also support

stand out from all the noise in the

our cross-platform initiatives.

digital sphere?

other

our products to experiment with new options. We want to put up unique bundles by mixing content and services (conferences and other events). A lot of publications give away digital for free if you have a print subscription. Around three years ago, we decided to take out that model and pilot a premium model wherein we offered a print and digital package. The idea was to increase our renewal subscription revenue by making people opt for the print and

Are you diversifying your revenue

digital package rather than the print-only package. So, instead of giving it away for

Typically, if you’ve engaged with The

streams? How and why are you

free, we are actually starting to charge a

Economist’s content, you’ll see that a

betting on these new streams?

premium for it.

insights. If you notice carefully, you’ll also

As part of our subscription business

Apart from the other apps I talked about,

see that we don’t mention the writer’s

we are looking at niche apps

like our

we are also trying our Paywall 2.0 strategy

name. To be honest, it’s not just the

Espresso, World in 2016 and Global

which will allow us to drop more casual

outside world, but even internally, we

Business Review apps. We have recently

readers into the subscription funnel in a

don’t know who wrote what. That gives

rebranded our

bi-monthly magazine

variety of creative ways. We’re also going

the writers complete independence and

Intelligent Life to 1843, which is the year

to explore providing subscription offers to

editorial integrity. In fact, our editorial

when The Economist was born. We are

those who have ad blockers. We are trying

team doesn’t even report to the CEO, but

looking to ramp up our B2B offers to

to attract students, provide opportunities

reports to a separate board. This editorial

corporates, academic institutes, and non-

for frequent fliers to use their air miles,

independence is why our content is

profit and government organizations. We

and are also looking at other reward

valued so much and why people are

are also looking to cross-sell products

membership programs.

willing to pay for it.

from our sister companies like EIU, CQ

lot of what we offer is analysis and deep

Roll Call and our events and conference businesses. SUBSCRIBED

FALL 2016

What role does subscriber data

The CASE project is one of the biggest

What are some of the challenges

play in your growth strategy?

technology undertakings in the history of

you’ve faced along the way?

our company. The project has five work Data is central to our transformation strat-

streams undertaken by a cross-functional

egy. Creating a 360-degree-view of the

team of marketing, finance, technology,

customer is key to our strategy. Without

business analysts, and project managers.

knowing who our customers are, what

The work streams are (a) Sales Manage-

they prefer, what they do—we cannot

ment and Ecommerce (b) Access, Enti-

serve them. Our general philosophy is

tlements, and Paywalls (c) Subscription

that data output from one platform needs

Management and Revenue Management

to be an input to one or more other plat-

(d) CRM and Customer Service (e) Data

forms. Else, we would question why we

Migration, Business Intelligence, and Re-

are tracking that data element. Data is

porting. The general goal is to improve

useful for personalizing content, subscrip-

our customer experience, increase buyer

tion offers, paywalls, and newsletters.

flow conversions, increase time to market, enable our ability to easily cross-sell,

What about advertising related

and to provide predictable access control to readers. We have almost completed

data? With ad revenues declining,

the Ecommerce track, closely followed by

how are you making up for it?

the other streams in the coming months.

As everybody knows, advertising revenue

Can you briefly describe your

is not sustainable anymore. We’re focusing on the Subscription Economy and have innovated a lot in our subscription business over the last five years. On the

it. The other products that were added CMS and Ecommerce platform, Zuora as the subscription management and billing platform, Gluu as a single sign-on platform, CyberSource for credit card payments, GoCardless for direct debit, GBG

has been the CASE (Customer-Ac-

for address and email validation, Piano

cess-Subscription-Ecommerce)

for paywall, and they are all connected by

Digital Transformation project.

MuleSoft’s cloud service hub.

SUBSCRIBED

FALL 2016

a really low budget. Fail fast and move onto your next idea. The main challenge we faced when we got started with CASE was actually driving simplicity. This challenge is also closely linked to cultural challenges, where organizations undergoing transformation also face internal “resistance to change." Instead of rebuilding all the business processes we currently have, the goal was to simplify those same processes, focus on the broader

port and upgrade costs low.

Thank you for the insightful chat, Subrata!

to the ecosystem are eZ Publish as the

at the forefront of your transition

tain cases, you have to experiment with

costs low, but also keep longer term sup-

tral hub with other products hanging off

stands today?

And often, the market moves on. In cer-

That would not only keep development

revenue sources.

project, its goals, and where it

partners...it took us quite a few months.

tion?

service, and marketing cloud as a cen-

Can you tell us a little about the

ed something like that with our different

ecosystem as out-of-the-box as possible.

(like our GE Look ahead hub) as additional

“modern media company." And

very quickly. The last time we attempt-

evolved to serve your transforma-

The CASE platform has Salesforce sales,

self into what we at Zuora call a

ate and experiment with new products

objectives, and keep the products in the

at sponsorships and co-branded content

scious decision to transform it-

have a platform which allowed us to cre-

technology stack and how it has

media front, we have also started looking

The Economist has made a con-

The challenge had been that we did not

Thank you.

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The Ground Beneath Your Feet by Christina Porter

SUBSCRIBED

FALL 2016

ow many century-old companies can you think of that are still innovating and relevant today? One such company is France-based Tarkett, a global leader of integrated flooring and sports surface solutions. The 2.7B Euro company has been providing unique flooring experiences in homes, schools, workplaces, hospitals, retail stores, hotels, and sports venues for 130 years. A couple of years ago, Tarkett’s leadership team met with a hundred collaborators to brainstorm on the future of smart flooring. At the end of the brainstorm, the team concluded that the floor is the “ultimate connected product.” Jean-Sebastien Moinier, Head of FloorInMotion BU at Tarkett explains, “People are barely in contact with the ceiling of a building, but they are always in contact with the floor. It is the ultimate connected product.” Tarkett decided to focus on how to better serve the world’s aging population, or as Moinier refers to them—“the

silver economy.” The numbers pointed to a sizeable market— according to WHO, by 2050 there will be 434 million people aged over 80 years, three times more than today’s 125 million. This makes the issue of positive aging (i.e. preserving quality of life as you get older) a real challenge as an older population often means increased falls and other health issues. Half of people aged over 80 years suffer from fall-related issues such as loss of autonomy, cognitive decline, fractures, etc. The sooner they get help, the better their chances of minimizing injury. What if an automatic alert went out after an incident? Tarkett’s FloorInMotion service has just the solution. “We support aged-care facilities with an information service linked to their connected flooring that notifies caregivers immediately to incidents (falls, exits, or intrusions) in living areas and provides relevant and qualitative data in time,” explains Moinier. Sensors built into the floors provide full detection and monitoring information on resident activity. This data is captured via the FloorInMotion Care Real-Time Dashboard, which is used by the caregivers of Assisted, Independent, and Senior Living facilities to better serve their residents. This goes a long way in minimizing the patient or resident’s risk of injury and improving their autonomy. And it’s not just falls that are monitored. Moinier shared an example which is probably familiar to anyone who has had to care for an aged loved one. One evening, an 85-year-old patient in an assisted care facility had to use the restroom more frequently than usual. Not wanting to be a bother, he didn’t speak about it to the nurse the next morning. But the flooring had sensed the resident’s change in activity and alerted the nurse. On examination, it was found that the resident was experiencing the early onset of pneumonia, and was thankfully treated just in time.

When you look at what is flooring—it is building material. Either you do a one-time sale of building material (where there is a high pressure on margins) or you become a longterm solution provider.”

For us, the first winners must always be the residents and patients.

Unlike some other building materials, customers are not going to replace their flooring every few years. In fact, the average lifetime of a flooring system in today’s healthcare facility is 20-25 years. The beauty of the connected floor is the infinite number of subscriber services that can be layered on top. So the system can provide ongoing benefits to continually deliver value to the customer and also help Tarkett grow their business.

FloorInMotion’s subscriptions have been on the market since March 2015. Customers can start with a freemium package and upgrade to a more advanced service, including fall detection, 24 x 7 availability, advanced analytics, and real-time dashboards and monitoring. Subscribers have complete control over their billing frequency— monthly, yearly—whatever is needed.

For Moinier, the subscription business model allows Tarkett to connect patients with their caregivers and facilities. “Before, most of my contacts were technical people: facility managers, technical managers in charge of renovations, architects, etc. Now I work with medical staff and General Managers whom I can better help run their facilities. For us, the first winners must always be the residents and patients.”

By the end of 2016, Tarkett will have equipped 700 customers, which, given the lengthy build cycle, is a strong indicator of future success. Currently, the service is available in France and the Netherlands, with plans to expand to Australia, China, Taiwan, Spain, Belgium, Sweden, Japan, and the USA.

So what’s next for Tarkett? Robots talking to their connected floor? “Everything is possible. Why not robots and droids?! We have plenty of ideas about what can be connected to our flooring platform. As long as it brings additional value and benefits to our subscribers.”

On the business side, the FloorInMotion unit has helped Tarkett shift from being a product company to a subscription services company. What prompted this well-established and successful company to shift to a new business model? “It’s very simple.

In many ways, Tarkett is creating a new product and market from scratch. At 130 years, this is only the beginning of their story.

A NATION 2016 S TAT E O F T H E U K S U B S C R I P T I O N E C O N O MY

THE SUBSCRIPTION ECONOMY IN THE UK

HOW POPULAR ARE SUBSCRIPTIONS?

WHAT ARE WE SUBSCRIBING TO?

As consumer preferences have shifted towards immediate access over ownership, subscriptions have gone mainstream. 12% of Brits’ disposable income now goes towards subscription services, as the notion of paying regular fees for curated access to goods and services becomes mainstream.

Four out of five (78%) / 40 million Brits now subscribe to products and services Two in five of the UK population claim they use more subscription services now than they did five years ago

Subscriptions are moving beyond media. A broad array of industries – from food and drink to gaming to software and storage – are being totally transformed by subscription models in the UK.

VoD Services

>27%

(13.9 Million Brits)

Media Publications

17%

(8.8 Million)

Software & Storage Products

15%

(7.7 Million)

Financial Services

12%

(6.2 million)

Spotify

11%

(5.7 million)

Gaming Services (3.6 Million)

Food & Drink Services (2.6 Million)

Over a quarter think they will be using more services in five years’ time

24% Netflix (12.4 million)

14% Sky Go (7.2 million)

13% Amazon Prime (6.7 million)

5% Apple Music (2.6 million)

WHY DO WE SUBSCRIBE? The New Consumer Psychology

“Due to the ever-increasing availability of products and services, the need for instant gratification is growing. Consumers are now accustomed to receive instant access to a product or service they require, such as countless songs or films through online streaming services. The actual interaction with the product or service activates the reward system in the brain controlled by the neurotransmitter dopamine. This system is responsible for the pleasure we feel when we do enjoyable things, like eating chocolate. Subscriptions can support the production of dopamine, as they provide consumers with access to the things they want, when they want them – therefore meeting the desire for instant gratification. And as subscription platforms serve as powerful tools for understanding changing consumer preferences, brands can continuously provide a faster and better service, exceeding existing expectations.” - Kate Nightingale Consumer Psychologist

FROM TRANSACTIONS TO RELATIONSHIPS Microsoft Makes the Shift

“There’s a secular movement that’s happening ... more to an annuity relationship as well as a subscription relationship. These are the longterm relationships we want to have with all customers.” - Satya Nadella, CEO, Microsoft

5% SUBSCRIBED

FALL 2016

WHO IS DRIVING THE SUBSCRIPTION TREND? The Millenial Shift

As digital natives, we can expect millennials to quickly adopt innovative services through technological platforms. But, as we’ll see, older generations are also embracing these services.

16-24 year olds are pivotal to the future of the subscription market, particularly in streaming media. They place significant importance on the convenience of not having to regularly buy products and having instant access to what they need:

44% of 16-24 year olds in the UK subscribe to video on demand services

76%

SUBSCRIBED

like gaining instant access

The Digital Lifestyle

“Buying and owning products isn’t that important to me. I just want the value in what they deliver, rather than the item itself. For example, once I’ve read a book I don’t keep it, I’ll pass it on to friends or donate it to charity. Otherwise it would just be gathering dust sitting on the shelf. Similarly, it’s much more convenient to just stream movies online than buying DVDs, as I get access to the same experience but without the physical product. It’s perfect for what I want! I’m also in the process of moving into my own place where there will be little space and storage options, so I need to be very smart about what products I keep and what I don’t.” - Leah B. 19, Lincolnshire

72%

like the convenience of not having to regularly buy products

21% of 16-24 year olds subscribe to music services

YOUNGER CONSUMERS VALUE OUTCOMES, NOT OWNERSHIP

FALL 2016

72% like discovering new things based on their personal preferences

Older Demographics (55+) Are Also Driving Change

78%

of consumers over 55 have a subscription to a service

15% say they couldn’t live without some of their subscription services

62% view the convenience of not having to purchase products as important

It is not just millennials that are driving uptake of subscriptions in the UK – older age groups are also contributing to the UK subscription economy.

• 10% subscribe to Netflix • 10% subscribe to Sky Go • 9% subscribe to Amazon Prime

58% like to discover new things based on their preferences

53% want instant access to the things they want

MATURE CONSUMERS MATTER A Newly Empowered Generation

“Consumers are increasingly interested in experiences over physical purchases as they realise that they contribute positively to their overall wellbeing. People, therefore, spend a large part of their disposable income on eating out, travel, sports and other similar activities. Experiences are strongly tied to identity and for the 55+ consumer this is increasingly important, as they feel they should make the most of their lives as they approach retirement. Age stereotypes have undergone a considerable change over the last few years and people of all ages are now encouraged to celebrate their uniqueness. To achieve this, over 55s increasingly turn to subscriptions which can be temporary and therefore feel more like an experience, rather than traditional ownership. Subscriptions also require less initial financial and emotional investment to enjoy a product/service, and the product/service is personalised to their preferences. They are ideal for over 55s to express their identity.” - Kate Nightingale Consumer Psychologist

EASE AND CONVENIENCE

Subscriptions Support Independent Living “I’m partially disabled and live by myself, so it’s difficult for me go out and buy the things I need. Subscribing to video content, daily meals, and premium next-day deliveries has helped me overcome this challenge, as I automatically gain access to the things I want and get the convenience of not having to regularly purchase anything myself. Subscriptions are also helping me to discover new things based on my personal preferences. For example, I sometimes try out new food deliveries or add a movie bundle for a month if I want to treat myself. With subscriptions I can do what I want, when I want to!” - Maureen R., 62, Sheffield SUBSCRIBED

FALL 2016

WHY ARE WE SUBSCRIBING?

THREE WORDS

Access, Upgrades & Personalisation. Brits are still saying they think it’s important to own the products they use, but at the same time, they increasingly expect these products to be customisable and upgradable (much like their smart phones). These new consumer preferences are driving demand for physical devices that come embedded with subscription-based, personalised services.

85% of Brits say they think it’s important they own the products they use but, at the same time, they prefer some of the benefits of subscriptions:

63%

think it’s important that they can upgrade and renew the products they use

62%

think it’s important they can gain instant access to the things they want

64%

say it’s important they can discover new things based on personal preference

SUBSCRIBED

FALL 2016

EXPERIENCES OVER OWNERSHIP The New Consumer Priority

“Ownership is a physical and psychological extension and expression of our identity. If we didn’t own anything, we would feel like we didn't exist. Materialism has, however, risen to an unhealthy level, especially in the Western world. Consumers, therefore, started to look for fulfilment and identity expression via experiences and things that they believe in, rather than physical products. The growing need for individuality, additionally, generates a requirement for personalised and authentic experiences and services. Renting and subscription-based companies deliver consumers precisely that: personalised, authentic, fulfilling, and individual experiences.” - Kate Nightingale Consumer Psychologist

HOW ARE SUBSCRIPTIONS CHANGING THE WAY WE CONSUME? Consumers in the UK like subscriptions because of the access they give to new experiences, because of their convenience, and because they give more flexibility than when buying and owning products:

56%

50%

say subscriptions give them access to new things

say they make upgrading and maintenance easier

40% say they give more flexibility than buying and owning products

47%

49% say they allow them to discover new things based on their tastes and preferences

22% say they could not live without some of their subscription services

say that subscriptions make life more convenient

37% say not needing to have physical products frees up space in their house

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BARRIERS TO ADOPTION WHAT PERCEPTIONS DO SUBSCRIPTION COMPANIES NEED TO OVERCOME TO INCREASE ADOPTION?

While many associate subscriptions with being modern and flexible, they are also thought to be expensive and restrictive. Subscriptionbased businesses in the UK must overcome a series of negative consumer perceptions about subscriptions if they are to continue to grow their market share and disrupt incumbents:

47%

35%

30%

are concerned about potential difficulties when trying to unsubscribe

fear increases in price or changes in the products or services offered during the contract period

don’t like being limited to certain products within the subscription

are concerned about lack of transparency in subscription deals

are worried about losing track of the different things and services they’re subscribing to

“While you can ‘subscriptionise’ nearly anything, that doesn’t mean you just slap a monthly price and a stamp on a product, ship it, and you’re done. A subscription service changes just about everything, especially your relationships with your customers. If you don’t commit to the shift—changing your core DNA, your business model, your day-today operations—then it’s not going to work. These figures show that businesses have a long way to go.” - Tien Tzuo CEO, Zuora

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FUTURE TRENDS – WHICH INDUSTRIES WILL SUBSCRIPTIONS DISRUPT NEXT? WHICH MARKET WILL BE DISRUPTED NEXT BY SUBSCRIPTION SERVICES? Home Security Services

45%

Now that UK consumers have become accustomed to the benefits of subscription services in industries such as entertainment, music, and food, they are interested in how subscriptions could transform their lives in other areas:

Connected / Self-Driving Cars

25%

are interested in the potential of subscribing to home security services

Including 40% of 16-24 year olds!

Including 61% of 16-24 year olds!

Personal Monitoring / Smart Healthcare Services

41%

are interested in subscribing to connected / self-driving cars

Connected City Services

are interested in subscribing to personal monitoring / smart healthcare services

37%

Including 67% of 16-24 year olds!

Including 58% of 16-24 year olds!

NEW MARKETS: 5 UNIQUE SERVICES THAT PEOPLE WOULD SUBSCRIBE TO

are interested in subscribing to connected city services

SMART CITIES IN THE UK Bristol Leads the Way

“Bristol is Open is a digital infrastructure project that’s providing new ways of connecting across an entire city region using software-defined networks. When we open up enormous amounts of connectivity to people — up to 30 gigabytes a second — it allows a whole revolution to happen: Internet of Things, Smart Cities, Big Data. But these fluid, on-demand services require equally flexible pricing structures, which is why we’re taking advantage of subscriptions.” - Paul Wilson Managing Director, Bristol Is Open

Subscriptions have the potential to transform every industry. Two in five (41%) of the UK population claim they use more subscription services now than they did five years ago, and over a quarter (28%) think they will be using more services in five years’ time. Here are five unique services that our respondents expressed interest in.

Holidays, Petrol Refuel

Hair Cuts

Air Travel

Restaurants, Concerts & Gigs

Toilet Rolls

(4.6M )

( 4.1M )

(3.6 M )

(3. 1 M )

(2 .5M)

Smarter subscription models for everything from digital software to music, movies, marketplaces, news, video games, sports, social and more

Increase conversion rates and customer life time value with the Zuora subscription platform powered by global payments from Worldpay

Pre-built payments integration through the Zuora platform Reduced development costs and continual support Reach more subscribers across new territories Faster time to market

Visit the Zuora integration page for more information www.worldpay.com/global/partners/directory/zuora 28 SUBSCRIBED | FALL 2016

WHAT CAN SUBSCRIPTION BUSINESSES LEARN FROM THESE INSIGHTS? Here in the United Kingdom, we’re at a critical inflection point in terms of widespread adoption of subscription services. As mentioned, this is a very sophisticated market: UK households spend more on streaming media services than newspaper or magazine subscriptions. But the greatest insight from this survey may be that Brits are increasingly starting to look beyond “traditional” media subscriptions towards a whole new world of connected devices and services: health and fitness trackers, municipal utilities, transportation services, as well as “smart” homes and offices. If companies are looking at the huge commercial opportunities of IoT as a way to re-market their existing product catalogue so that it works with an app, they’re clearly missing the point. It’s imperative that they focus on compelling, customised subscription experiences (with straightforward contracts) that earn legitimate customer loyalty. The broader message from these survey results is that stand-alone products are simply no longer sufficient. We increasingly view owning something as simply managing the decline of a physical asset. And in order to manage this shift effectively, subscription businesses in the UK are going to have to answer four important questions:

Have you oriented your business around customers, rather than products? Businesses are going to have to consider an array of new relationship-based metrics: annual and total contract values, payments and declines, monthly and annual recurring revenue, relationship retention statistics. They’re going to have to place us, as subscribers, at the center of their business model. Do you understand when, where, and how we want to use your services? We now expect products to adapt to our specific needs. We expect ongoing value and unique experiences. And we’re not as interested in methods as we are in outcomes. Are you being transparent with us? As consumers, we are naturally wary of binding agreements. Businesses should provide a simple, intuitive way for customers to subscribe (or unsubscribe) to their service. They should offer clear pricing and commitment details. Are you creating compelling experiences for us? You have to create services that can learn and adapt based on behavior. Services that can improve themselves autonomously. Services that can be truly customised, and create happy surprises for us on a consistent basis. Answer "yes" to these four questions, and you’ll be on your way. John Phillips, General Manager EMEA, Zuora

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Watson Analytics Bringing Cognitive to the People

by Gabe Weisert

The trailer for the 20th Century Fox thriller “Morgan,” about an artificially enhanced human, has all the dark, creepy elements of a sci-fi thriller: lots of reflective glass surfaces, shadowy corridors, and a courteous, but vaguely menacing, young lady with gray skin. But this trailer is unique for one key reason. Its scenes were compiled by a cloud-based AI program from IBM that you’ve probably heard of—Watson. Yes, an AI made the trailer for a movie about an AI. It wasn’t a completely automated process. Using experimental Watson APIs and machine learning techniques, the system watched hundreds of thriller movie trailers for visual and auditory parallels, then, after learning what excites audiences, the AI surfaced relevant scenes from its new film for a human editor to arrange. The results are scarily effective. But AI isn’t just for the movies anymore. Within IBM’s Analytics division, Watson Analytics is being used by many forward-thinking businesses to manage helpdesks, minimize resolution times, optimize sales teams, align compensation plans, benchmark app resiliency, improve customer retention, and more. As Neil Whitney, IBM’s Director of User Experience and Design, explained at this year’s Subscribed Conference in San Francisco, Watson Analytics is a cloud-based analytics tool that is designed to guide the user through analysis with automated data visualization and discovery using natural language processing, which is the same cognitive capabilities that made its AI counterpart so successful on its famous Jeopardy appearances. IBM took what makes Watson so compelling—the ability to just ask a question in natural language and the ability to have this system suggest new,

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exciting offerings and opportunities for you—and built it into

ness partners transition to a recurring revenue-based economy

an intuitive self-service analytics and data visualization product

with cloud-based services and embedded solutions.

called Watson Analytics. “It can be quite difficult for them operationally to change their Users simply load their data, ask a question, and Watson Analyt-

business model – everything from how they go to market, how

ics will answer with suggestions in the form of interactive visu-

they attract new customers, how they engage with new custom-

alizations. It opens up analytics to a whole world of people who

ers, and how they pay their sales force,” said IBM Vice President

maybe never thought of themselves as analysts

Michele Stern recently.

or data scientists before. In other words, much like GE and dozens of Today over 40,000 organizations and two million users are taking advantage of Watson Analytics, from barbers and zookeepers to insurance services and financial firms. A restaurateur might upload his point of sales data to find out what dishes are most popular

other industrial giants, IBM is turning itself into

AI isn't just for the movies anymore.

on a given day, at a given time. That process

a service. “The opportunity is there to embed IBM technology, hardware and software into a business partner solution, and then to sell that either as a white label with their name on it or with a label powered by IBM,” Stern said.

may have parallels with how an investment banker is profiling her use of capital.

In a recent interview, the author and futurist, Kevin Kelly, explained that AI will eventually become an industrial

As Whitney explained, “So much of what we wanted was to get

commodity, like electricity:

closer to our user, to our subscriber, to understand them better. We wanted to get very intimate with them in terms of what they

“I think that AI will be as fundamental as the invention of printing,

wanted out of analytics, because we didn't want to build for just

or the Industrial Revolution. It will be a utility, like electricity, that

one segment of the economy.”

you can purchase as much or as little as you want. You’re not going to generate it, you’re going to buy it. So I think the funda-

As a result, IBM can see how distinct businesses over-

mental opportunity right now is to take something, add AI to it,

lap, compare and contrast various cohorts,

and you’ll have an entirely new product and business.”

informed

decisions

about

and make vast-

product

investments.

Watson Analytics’ most popular processes are being re-

With the help of Zuora’s subscription management platform,

viewed and streamlined to make the product more efficient.

which allows users to access Watson Analytics through one of three simple rate plans, IBM is executing that vision today in very

The tool could also be viewed as an element of the broader corporate imperative around cognitive, as IBM seeks to help its busi-

real and tangible terms.

Small

/ Beautiful in Data Science

by Aarthi Rayapura Carl Gold, Zuoraâ&#x20AC;&#x2122;s Chief Data Scientist, holds a PhD in Computation & Neural Systems and has spent most of his career as a quantitative analyst on Wall Street.

can leverage that expertise with the right tool set.

What’s the difference between Big Data and Small Data? When you have hundreds of millions, or billions of accounts, then you have big data. Companies with truly big data are the likes of Spotify, Netflix, Facebook, Google, Amazon. Those big companies have tons of data, and they have massive budgets to hire dozens of data scientists and pay for super expensive clusters of servers and do all kinds of great stuff. The thing with big data is that you can answer more complicated questions than you can with small data because you're a lot freer from the limits of finding statistical significance. But, small is just as beautiful in data science and companies with small data can use it to up their game, too! Companies with less data tend to think they need to get more data, but that doesn't necessarily make sense. B2B companies naturally have less data than B2C companies because they have fewer customers. But, each customer of a B2B company is worth more, and there are smart ways to reach useful conclusions, even if you don't have big data. As long as they have enough data to draw out actionable insights, companies should focus on what they can learn from their data. Moreover, with the cost of collecting and analyzing data coming down so much, if you're not doing it, you're at a competitive disadvantage.

If you're not learning from data, you're at a competitive disadvantage. What advice do you have for companies with “Small Data” who want to walk down a data-driven path? Many small and medium-sized companies gather a lot of data but don’t invest in the required tools and expertise. People tend to think spreadsheets and plot points are enough but data science is so much more! Having untrained people in various departments making plots and staring at spreadsheets is not really the answer. Sure, you can probably catch easy differences between your regions or things like that. But when you actually get into the question of detecting effects from different factors and analyzing the difference between finer and more specific groups, you won’t get very far. Here’s what you need to do:

Clean up house

What small companies need to do is clean up inhouse data, set up effective systems and processes for communicating about the data between departments, and use specific analytical tools to gain actionable insights. If you don't have the foundation of clean data and processes built around it, it's going to impact your analyses big time.

2. Seek out the experts

You need at least a little in-house expertise. But it doesn't have to be someone who studied data science, or has a PhD; working knowledge of undergraduate statistics is all you really need. Then, you

3. Buy tools when appropriate

Just like in software, it doesn't always make sense to build what you need in-house. I'm a 100 percent believer in using specialized data analysis tools to answer different questions. For instance, your Marketing team’s needs will be very different from your Finance team’s needs—you shouldn’t be using the same tool and approach for both. Find the right tools for the job.

Any favorite projects at Zuora? Our new Insights product is definitely my favorite! It’s a predictive tool that will help companies gain insights from subscriber life cycle events. It'll help businesses both at the strategic and practical level. At a strategic level, it's going to let you identify what factors contribute to customers changing their status, such as upgrading or downgrading, and what in your data predicts those events. On a practical level you can look at each account and say, "What's the most likely thing that's going to happen to this account? Are they a churn risk? Are they an upsell opportunity?" And why. That's extremely valuable information for any business to have. We’ve followed a very rigorous process with some serious testing of our predictive accuracy. We're providing the predictions, as well as a clear understanding of the behaviors driving the prediction. There's an emphasis on interpretability. It’s really cool! Another interesting project is our new Subscription Economy Index which takes a look at the health of the global Subscription Economy. There's so much buzz about it. It's good to dive into the data and get an in-depth view. We are now able to say, "Look, these companies have been really growing at a faster pace than the rest of the economy for the past couple of years. And here’s why." A lot of businesses wonder about it, but no one has had the data to show the trends until now. It has been a fascinating project to work on!

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Ford Embraces Silicon Valley

Walking into Ford’s Research and Innovation Center in Palo Alto feels like any other Silicon Valley workspace—engineers on their laptops at the center of an open office

set-up,

surrounded

meeting rooms and white boards. Until, you step into the labs. A car geek’s dream, the labs have it all—a simulation room to experiment on new technologies, such as vehicle and traffic sign recognition for self-driving vehicles; a garage that houses cars with their insides turned out; and a secretive infotainment lab where Ford is innovating ways to connect the car with the rest of our lives. The Center was started last January and aims to accelerate Ford’s development of technologies and experiments in connectivity, mobility, autonomous vehicles, customer experience, and big data. What started with a small team of 10 employees is now at 150+ employees (and growing), giving Ford one of the largest automotive research teams in the area.

Dragos

Maciuca,

experi-

enced engineer from Apple, was by Aarthi Rayapura

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brought in as Technical Director to head the Center.

So, what brings Ford to Silicon Valley? The major reason we are here is the fundamental shift in the auto industry towards software, and here in Silicon Valley, software is king. We’re here to leverage all the software development that’s taking place in Silicon Valley and bring it to cars, all the way from manufacturing to advertising platforms. We’re here to basically look at the latest trends, absorb them, and, together with the local talent, develop them and bring them into our cars. We want to be part of the ecosystem in Silicon Valley—work with startups, work with VCs, work with incubators, etc. As software becomes a bigger and bigger component of our cars, it’s important to have the knowledge in-house to develop it and bring it into our vehicles. What are some of the projects that the Center is working on? We’re looking at a million areas. One of them is connectivity. How do we connect the car to the cloud? Cars are not isolated things anymore. They’re getting connected to the cloud, to the rest of the infrastructure. You basically need to feel constantly connected, even when you’re in the car. It’s about the occupants of the car and about the car itself. They need to be constantly connected but that also means security and privacy. We need to address all these issues. We’re also working on the Ford Smart Mobility program, which looks at how people move from point A to point B, how they use multimodal transportation from bikes to shuttles. It’s not just about cars, especially in dense urban areas. You can’t solve the problem of mobility just by selling more cars. You need to figure out how people actually move from point A to point B, and we’re trying to solve this and address societal issues in the process. Do you have a favorite project that you’re working on? I have many favorite projects but I can’t talk about many of them! I think the only one that we can talk about is connectivity with Amazon Echo. From the Echo, you’ll be able to check the status of your car in terms of fuel, charge, start/ stop ignition, lock/unlock doors, etc. And from the car, you can do things in your house like open the garage door, turn on lights, etc.

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200

180

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We’re trying to bring in a lot of skills from throughout Ford. We not only have engineers but, as you said, we also have ethnographers, industrial designers, and marketing and sales teams. In an open office like ours, there’s a lot of interaction, and those interactions lead to much more interesting solutions to the problems that we’re trying to solve. Today’s Ford says, “We are no longer just an automobile company. We are a mobility company.” What prompted the organization to think differently? The biggest reason is global trends where car ownership doesn't necessarily make sense. In rural areas, it still makes sense. Suburban areas are probably going to be a mix. But in urban areas, car ownership is not necessarily the answer. It may be in some situations, but not all situations. We’re trying to solve societal problems by addressing mobility in urban areas. It’s when the car gets connected and becomes, I hate to say it but,

It’s also a financial proposition. Ford has 6 percent of the tradi-

just another “T” in IoT. Then, you connect it with the other “T”s,

tional automotive market, but we have essentially 0 percent of the

leverage it, and get more than the sum of the “T”s. You end up

transportation services market. We’re trying to capture some of the

exponentially increasing the value once all those things get con-

transportation dollars through business model innovation. It’s not a

nected.

completely separate concept, so we’ll leverage the two of them to expand our business.

What’s going on in your labs to enhance the driving experience? We’re going to increase the number of connected vehicles. SYNC, our connectivity system, will be at the center of it. We just released SYNC 3 and it was received very well. We’re expanding connectivity so that we have more connection between the vehicle and the cloud, and then, the outside world. That will help the driver have better information, and it will help us have better information about the vehicle, so that we can enhance the experience for the driver. The Center has a very diverse team—designers, engineers, even anthropologists and ethnographers. It’s not something

It’s not like we’re going to stop making cars.

Ford has 6 percent of the traditional automotive market, but we have essentially 0% of the transportation services market. We’re trying to capture some of the transportation dollars through business model innovation.

We see the two strategies as very symbiotic, helping each other to give us a bigger business. How do you see that happening? How does Ford see tomorrow’s transportation system? We’re still experimenting and trying some things, but there’s going to be a mix between various modes of transportation. Some of it is going to be multimodal, where we’re going from bikes to cars to trains to shuttles. In others, it’s going to be some form of ride sharing or hailing, be it autonomous or driven by a human. Over the next few years, there are going to

we think of when we think of a software

be changes in how people move, and we

or a car company...

need to lead those changes. We’re definitely

We’re looking at user experience and that’s where industrial designers and ethnographers come in. We

trying to be leaders in this field and trying to capture a large slice of the pie.

are trying to understand exactly how people use their vehicles and how to provide information and entertainment to them, especially

Ford has also spoken of subscription-based mobility services.

as we move to autonomous vehicles. How does an occupant, who

Yeah, we’re looking at the “transportation as a service” model,

isn’t a driver, interact with the vehicle and how does the vehicle

especially for millennials who are looking more at services rath-

interact with the rest of the environment?

er than ownership over the long term. We think we can address SUBSCRIBED

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but these models open the horizon to what makes sense and what doesn't, and at least give us a baseline to start with.

We’re looking at the

What about customer data? Is that something Ford is look-

“transportation as a

We’ve said the data belongs to the user and we’re the custo-

service” model, especially

we can enhance their experience and manage access to their

for millennials who are looking more at services rather than ownership over the long term. We think we can address this through either ride sharing or some sort of a subscription model.

this through either ride sharing or some sort of a subscription model. We need to figure out exactly what, and that's why we have the Ford Smart Mobility program to figure out new business models, and how we can best monetize. How are you trying to discover what pricing looks like for these new businesses? For the smart mobility program, we actually ran about thirty experiments around the world. Some of them were about car sharing, ride sharing, and some were even about bikes. Within ride sharing, we looked at various pricing models at various densities. How many people does it make sense to put in a shuttle van? Is it five or is it fifteen? Would people prefer to be five in a shuttle, have more personal room but pay twice as much? Or would they prefer to be fifteen, not have personal space but save some money? Do they prefer to pay by the time or by the mile? The interesting and challenging thing is that it varies by geography. It varies even within the United States. You need to understand the cultural aspects extremely well. I’m sure with time we’re going to make adjustments, 38

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ing at leveraging? dians of the data. That being said, with the users’ permission, data for them. For example, if they have a relationship with an insurance company, with their permission, we can provide information to the insurance company so that they can have usage-based insurance. We’re trying to make life easier for our customers, as long as they understand exactly how the data is used and where. Thanks for the chat, Dragos. Thank you.

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Design your product around price Madhavan Ramanujam is a partner and board member at Simon-Kucher & Partners. He advises companies of all sizes, from startups to Fortune 500s, on monetization strategy and has helped bring numerous new products to market. His new book, “Monetizing Innovation: How Smart Companies Design the Product Around the Price,” co-authored with Georg Tacke, Co-CEO of Simon-Kucher & Partners, offers a practical approach to improve the odds of new-product success and illustrates the importance of putting the customer’s willingness to pay at the very core of product design. Aarthi Rayapura caught up with him for a chat.

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What exactly is the problem that your new book “Monetizing

That’s fantastic! Can you tell us more about the 5 myths of

Innovation” addresses? Aren’t good innovations automati-

product innovation that you describe in the book?

cally successful in the marketplace?

I find the most common myth to be “Build it, and they will

Today, innovation is a clarion call for every business in every

come." The belief is that if you build a great product, custom-

industry in every corner of the world. It’s the most important

ers will buy it and pay fair value for it. Often entrepreneurs are

driver of growth and the most critical element that determines

so passionate about their product that they believe its merits

your survival in the marketplace.

will be self-evident to prospective customers; that the innovation is so exceptional that it will sell itself. But this isn’t what

However, successful innovation—as measured in dollars and

happens in reality because they forgot to address the question

cents—remains elusive. Companies invest substantially in

of monetization.

designing and building highly innovative products. Yet they struggle to monetize them. As a result, billions of dollars are

The other myths are that the new product must be controlled

spent and lost every year. In fact, more than 70 percent of

entirely by the innovation team working in isolation, a high

innovations fail to meet revenue or profit goals or fail entirely.*

failure rate of innovation is normal and even necessary, customers must experience a new product before they can say

But it doesn’t have to be this way. We wrote "Monetizing In-

how much they’ll pay for it, and that, until the business knows

novation" to give entrepreneurs and organizations tools and

precisely what it’s building, it cannot possibly assess what it’s

frameworks to monetize innovation with confidence and cer-

worth.

tainty. In short, we are trying to help them go from hoping they’ll make money on their innovations to knowing they will.

Some people see monetization as dirty work, detrimental to true innovation. Why should big, bold new product concepts

*2014 Simon-Kucher Global Pricing Study

be hampered by stopping to ask for a price check? But if you

How you charge is often more important than how much you charge.

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don’t design your product around price, if you don’t under-

tomers asking to escalate deal discussions to higher levels in

stand how much your customers are willing to pay, failure is

your company because they are dissatisfied with your price.

almost inevitable. What are the other two types of failure? Designing the product around the price seems like a novel

The third one is what we call “Hidden Gems." These are

approach, some might even call it upside-down.

“Would-Be Winners” that never left the starting gate—Brilliant

When most people hear the word “price,” they think of a num-

ideas that live in limbo because companies don’t recognize

ber. That’s really a price point. When we use the term “price,"

the value of the product.

we are trying to get at something more fundamental—we want to understand the value that the innovation holds for

And the fourth is “Undeads." Just like the world of science

the customer and its monetization potential. How much is the

fiction, the business world has its own version of undeads—

customer willing to pay? What would the demand be? Seen in

products that came to market dead on arrival. These are prod-

this light, price is both an indication of what customers want

ucts a company should have never launched—either they are

and a measure of how much they want it.

an answer to a question that no one is asking, or they are the wrong answer to the right question.

Most companies postpone marketing and pricing decisions to the very end of product development. Price is just an af-

So, how can companies avoid these mistakes?

terthought, a last-minute consideration made after a product

Companies can avoid failure, but only if they play by different

is developed, even though it’s the single most critical factor

rules. The most important one is having in-depth pricing dis-

in determining whether a product makes money. "Monetizing

cussions with target customers long before the product de-

Innovation" flips the “build it and then price it” mentality on its

velopment team begins to draw up the engineering plans, and

head: Market and price, then design, then build. I can’t stress

certainly long before any manufacturing resources are com-

this enough—design the product around the price. By putting

mitted and configured to building something. Those discus-

customer demand and willingness to pay front and center in

sions need to center on determining precisely what features

your product development process, you’ll change the game!

customers truly care about, are willing to pay for, and the price they are willing to pay.

In the book, you talk about the types of innovation failures. Can you elaborate?

And if you find a market willing to pay, don’t force a one-size-

Sure, there are four of them. We call the first one “Feature

fits-all solution on them. Your customers are different, so cus-

Shocks." These are new products that have been over-engi-

tomer segmentation is crucial. But segmentation based on

neered with too many features! They end up increasing the

demographics—the primary way companies group their cus-

cost and the complexity of the product. And the problem rears

tomers—is not actionable. You should build segments based

its head when customers don’t want them, or won’t pay extra

on differences in your customers’ willingness to pay for your

for them. To avoid feature shocks, product development must

new product.

be centered around customer needs and willingness to pay. Lastly, choose the right pricing and revenue models. How you The second one is “Minivations." These are innovations that

charge is often more important than how much you charge. If

sell themselves short because their developers didn’t realize

companies don’t start with having the pricing and willingness

just how much value their offerings provided to customers.

to pay conversations early, they end up establishing anchors

And thus, they underestimated how much customers would

and often those are hard to get away from. And then, they play

be willing to pay for them and left big profits on the table.

constant catch-up with sub-optimal results.

How can a company know it has a minivation?

Pricing takes on a whole new dimension for subscription

Check to see if your Sales team is easily meeting its targets

companies where the goal is not only to monetize a new in-

with a new product. Also watch your channel partners—are

novation, but to also nurture and grow a customer relation-

they reaping big margins from selling your product? Another

ship. How can such companies know if they’ve got pricing

indicator, especially for B2B businesses, is having too few cus-

right?

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I couldn’t agree more. For subscription companies, it’s important to keep a good balance of landing and expanding customers. However, 90% of companies that claim to have a “land and expand” strategy, are only landing and not expanding. The primary reason for this is companies tend to give the farm away and make the entry level or free product so attractive that there is little value for people to migrate to paid options. If you find more than 70 percent of your customers concentrated on the entry level subscription package, you have a monetizing innovation problem at hand. Ideally, if you think about a “good-better-best” subscription option, the majority of your customers should be concentrated in the “better” and “best” packages.

Successful innovation as measured in dollars and cents remains elusive.

What are the pricing KPIs for subscription companies? What should we track? The usual suspects include ARPU, MRR (ARR), and CLTV. However, the most successful companies go beyond just tracking financial KPIs. They track operational, customer, and sales KPIs as well to gauge the pricing and packaging performance of their products. For example, it’s important to track KPIs such as number of escalations, percentage deviation from target price, and win-loss ratio (for businesses that have a direct sales component). It’s also very important to track the conversion mix of subscription packages to ensure that customers are being up-sold over a period of time. How can subscription companies know the time is right for a change in pricing, such as a price hike or the need for different packaging options? Subscription businesses should check the relevancy of their pricing and packaging every year. If you have annual contracts, you must revisit the conversation by default, showcase additional products and, if possible, try to upsell. Another good time is when you have a healthy pipeline of functionality. It isn’t enough to simply understand the product-market fit. You need to understand product-market-pricing fit. Think of it this way—if you ask someone “do you like this feature?" you might hear a “yes" but if you ask the question “do you like this feature at $20?" the conversation changes. Unless you put pricing and willingness to pay at the center of product-market fit validation, you might only hear what you want to hear! So the right time to think of monetization is when you have a whole bunch of ideas, so you can truly find out what your customers would need, value, and are willing to pay for. Thanks for the insightful chat, Madhavan! Thank you.

SUBSCRIBED

FALL 2016

Self-Help in the Digital Age

SUBSCRIPTIONS FOR A BETTER

you

by Caroline Wallis

For traffic directions to shopping

needs a recurring treatment. A growing

subscribe to lessons in mindfulness

suggestions, I rely on a search engine.

number

and motivation from the comfort of

But for many of life’s challenges, a

offerings aim to provide just that.

one-time search doesn’t cut it. A

Whether it’s meditation modules, diet

recurring issue—whether it be related

meal plans, or virtual fitness coaching,

Here we’ve rounded up seven of our

to self-esteem, relationships, goal-

the shift to self-help subscriptions

favorite self-improvement subscription

setting, mindfulness or otherwise—

has enabled thousands of users to

services.

self-help

subscription

anonymous mobile platforms.

Product Mindvalley sells subscriptions to original online courses spanning four categories: Mind, Body, Spirit, and Career.

Mission Inspired by the life lessons he wished he had learned outside of school, Mindvalley founder Vishen Lakhiani’s vision is to streamline e-learning on mindfulness, fitness, and interpersonal growth—all on beautiful digital platforms.

mindvalley.com

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FALL 2016

Product Based on the concept of a wellness challenge, movecoach is an online platform that allows employees to set fitness goals, create fitness plans, and share progress against those goals via an internal leaderboard. Employees can send â&#x20AC;&#x153;high 5sâ&#x20AC;? of encouragement to other employees and earn prizes based on their logged activity.

Mission Movecoach aims to enable employees to meet their personal long-term fitness goals while encouraging team bonding and boosting team productivity. movecoach.com

Product Headspace is a digital library offering hundreds of hours of original content that teach both mindfulness and meditation.

Mission By offering accessible, convenient audio modules on a mobile platform, Headspace aims to help users of all ages build meditation into their daily routines. Just as a gym membership enables users to develop physical fitness over time, subscribing to meditation develops mindfulness over time. headspace.com

SUBSCRIBED

FALL 2016

Product I Quit Sugar is an eight-week program that includes a dietitian-approved meal plan, shopping list, online support forums, and virtual mentorship and coaching.

Mission Designed by New York Times best-selling writer Sarah Wilson, I Quit Sugar is designed to not only help you lose weight, but also prevent heart disease, cancer, diabetes, and early signs of aging. iquitsugar.com

Product Lifetick is a web-based application designed to make individual, family-wide, and professional goal setting fun and simple.

Mission As the name suggests, Lifetick is, at its core, a tool to help users discover what makes them tick, and then to manage various life goals over time. lifetick.com

SUBSCRIBED

FALL 2016

Product Talkspace offers on-demand therapy services by way of text message. Once users complete a brief assessment, they’re matched with a therapist whom they can consult remotely at any time.

Mission Talkspace targets people who could generally benefit from therapy. Designed for newer tech savvy generations, communicating with a therapist is meant to be easy, convenient, and instantaneous. talkspace.com

Product BetterBox

offers

both

single

and

subscription gift boxes packed with hand-selected boutique goodies. Subscribers can choose from six different themes: Gratitude, Pay it Forward, Creativity, Slumber, Mindfulness, and Willpower. As soon as a customer activates their box, they’ll get daily email reminders, tips, and tasks themed to their BetterBox.

Mission BetterBox’s surprise-and-delight products are meant to jumpstart customers’ days with inspirational, personalized messages, while keeping them aware of their emotional state and mindfulness goals. betterbox.life

SUBSCRIBED

FALL 2016

Time for a New GAAP by Matthew Darrow VP & GM, Zuora

SUBSCRIBED

FALL 2016

Today, almost 90 percent of the S&P 500 currently disclose

works great if you’re selling CDs, but the rest of us have

earnings report figures that are not based on Generally

moved on to Spotify.

Accepted Accounting Principles (GAAP). Let’s take a look at one notable example: Apple.

An increasingly sophisticated investor community is also starting to move beyond GAAP in search of accurate growth

Earlier this year, their CFO Luca Maestri published a non-

signals. Note that non-GAAP metrics can give, but they can

GAAP supplement noting that services are becoming an

also take away.

important part of its revenue base, constituting roughly 13 percent of its total annual revenues of $234 billion.

Take a look at Herbalife. Last March their stock price fell more than seven percent after the company acknowledged that

Now why would Apple go and do such

they misstated their customer growth

a thing? Because GAAP is really bad at

numbers,

illustrating the value of service revenue.

reporting remained fundamentally the

At the most basic level, revenue is simply

the

money

your

company

makes from its business activities—the income from sales or services. Under GAAP revenue recognition standards, organizations count revenue when it is earned. This stipulates the discrete, finite delivery of a service or a product. Needless to say, there are no discrete, finite deliveries in the Subscription

For forward thinking companies, GAAP is a past-tense framework.

Economy. The delivery is ongoing,

even

though

their

GAAP

same. Keep in mind that this is a growth number that the company only started reporting on a year ago! As analyst Tomasz Tunguz notes, “If you sift through the 40+ public SaaS businesses, you won’t find mention of annual recurring revenue, churn, account expansion, or cash collection cycles in most of them - even though these are the metrics the management teams employ to evaluate and steer their businesses.”

and, as a result, revenue can’t be all recognized

front.

Subscription

So kudos to companies like ServiceNow,

companies have all sorts of revenue that they can count on

who

but can’t formally recognize, and if you throw upgrades and

Economy metrics in their earnings reports, in an effort to

bundling into the mix, these revenue figures quickly start

show investors how their business actually works. And kudos

diverging from standard GAAP metrics.

to Apple, for highlighting their pursuit of recurring-revenue-

are

respectfully

surfacing

relevant

Subscription

based services. This is a particular problem with SaaS companies, but I would argue that it isn’t just a SaaS problem anymore, it’s a business

For forward-thinking companies who are serious about

problem. Value is shifting from ownership to access. Today’s

digital transformation, GAAP is a past-tense framework. It’s

economy isn’t just about shipping units anymore. It’s about

time to start building paths where people are walking.

growing and monetizing a dedicated customer base. GAAP

SUBSCRIBED

FALL 2016

Six Ways to Optimize Subscription Payments for B2B Companies by Sam Halse, COO, Adyen

The growth of the on-demand economy over the past few years has been nothing short of meteoric. And as Uber, Netflix, Spotify, and countless more on-demand businesses continue to eat away at traditional business models and scale into new markets, putting a laser focus on the payments process is helping to drive subscriber loyalty and maximize recurring revenue. Optimizing payments for subscription businesses falls into two main areasâ&#x20AC;&#x201D;maximizing signups and minimizing involuntary churn. In this article, weâ&#x20AC;&#x2122;ll take a look at tried and tested best practices for both parts of this equation.

SUBSCRIBED

FALL 2016

MAXIMIZE SIGNUPS The signup process is the narrowest part of the con-

ond. If this kind of activity is rapidly repeated, then it

version funnel, and most businesses put a great deal

could be a likely indicator of fraud.

of analysis into making this process as frictionless as possible. With regards to payments, the signup

On a broader level, the traditional approach to stop-

process can be optimized in three key ways, leading

ping ecommerce fraud—still widely used today—is

to significant uplift in conversion.

blocking transactions that have suspicious data points around an individual credit card transaction.

Validate Card Details

But the problem with this approach is that genuine

If you operate on a freemium model, hands down

transactions that look suspicious may be blocked.

the most effective approach to ensure conversion is to capture and validate card details at signup. While

Today, much more sophisticated tools are at hand

this may have a (small) negative impact on signup

to help subscription businesses build a complete

rates, it is more than offset by the subscriber being

analysis of the transaction risk profile. Advanced

effortlessly converted into a paying customer at the

tools enable you to connect multiple data points,

end of the trial period.

such as card numbers, the device the shopper is using, email and IP addresses, and even basket value

Validation can be achieved in several ways. From

and time of day.

a subscriber perspective, the most frictionless way is through a $0 validation—basically a pre-authori-

With this data, you can assign risk scores based on

zation that enables a card to be validated without

your specific business situation. For example, if you

deducting any money from the account. For your

are a digital content business, you may be able to

subscriber, this is a pain-free way to validate a card,

tolerate a higher level of fraud than a retailer.

however, not all issuing banks accept $0 validations.

Support Local Payment Methods

Where $0 validations are not an option, $1 valida-

In many parts of the world, credit cards are not the

tions are the next best thing. In spite of its name,

primary means of payment. In China, only a tiny

no money is actually deducted from the subscrib-

fraction of online shoppers have an international

er’s account. Because it appears on subscriber ac-

credit card. Likewise, in Europe, many shoppers are

count statements, $1 validations can lead to ques-

more likely to use debit rather than credit to make

tions from subscribers. To mitigate this impact, you

online purchases.

should communicate to your subscriber what to expect with a $1 validation.

Offering the payment method preferred by the majority of subscribers in your target market is a key

Be Smart About Fraud

way to increase conversion. However, not all pay-

Subscription businesses experience among the

ment methods are able to support recurring pay-

highest rates of payment fraud in the ecommerce

ments. As you expand, you should look at where

industry. Criminal organizations are commonly set-

you have the most opportunity to make the most

ting up servers and scripts to attempt to “mass pro-

gains with non-card recurring payment methods.

duce” fraud by validating (up to) millions of credit cards, which can then be used for subsequent pur-

For example, Europe and China offer both huge

chases.

market potential and (comparatively) low card use. But with SEPA Direct Debit in Europe and Alipay and

Subscription merchants can guard against these

UnionPay in China, you are positioned to reach the

kinds of attacks by keeping an eye out for actions

hundreds of millions of potential subscribers who

that are not humanly possible, such as a shopper

don't use cards.

going from front-page to checkout in a few seconds, or entering 16 digits individually in a half secSUBSCRIBED

FALL 2016

MINIMIZE INVOLUNTARY CHURN

If you are already retrying transactions, be smart

Once a subscriber’s card details are captured, there

soon as possible is the fastest way to save the

is a temptation to set and forget—bill your custom-

transaction. But for insufficient funds, it may be

ers automatically and watch the revenue roll in.

better to look at the pay cycles of the market and

However, this is a strategic error.

retry immediately after the date that people receive

about it. If there are technical issues, retrying as

their salary. Also note that excessive retrying failed Involuntary churn, customers who unintentionally

transaction attempts can lead to problems with the

leave due to a payment disruption, is responsible

card schemes – it’s all about balance – test to see

for as much as 20 percent of all customer churn,

what you can save and then fine-tune from there.

and incrementally eats away at your long-term customer retention and revenue. To combat this,

Fine-Tune Your Billing Strategy

here are three areas that subscription businesses

Simply billing your subscriber at regular intervals

should focus on:

after signup may be tempting as the easiest thing to do, but it will cost you in conversion. Factors such

Use Account Updater Around 3 percent of cards expire, are lost, sto-

have a significant impact on transaction success

len, or changed for other unforeseen reasons. For

rates. By analyzing transaction success rates across

any subscription business, this is a black hole that

individual markets, you can make data-driven de-

sucks in what should be guaranteed recurring rev-

cisions about the optimal time to bill subscribers.

enue. Fortunately, there are tools to help. The card

Also, you may consider asking your customers at

schemes offer services—Account Updater for Visa

what intervals and what time of the week or month

and Automatic Billing Updater for Mastercard—that

they prefer to be billed.

enable you to maintain uninterrupted service by updating card-on-file account information.

If At First You Don't Succeed, Retry (And Retry Again) Transactions fail for a number of reasons, e.g. insufficient funds, card expiration, technical issues, and so on. By retrying transactions, you are able to save a percentage of potentially failed revenue, and improve subscriber satisfaction in the process.

as time of day, day of week, and day of month can

SUBSCRIBED

FALL 2016

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2 0 1 6

FOREWORD

As more and more companies pivot to recurring revenue business models, a new crop of CIOs are emerging—Subscription CIOs. These CIOs are a fearless group of technology leaders who are challenging the status quo, embracing the cloud and driving innovation with agility and disruptive technologies. I surveyed 50+ Subscription CIOs who are at the helm of this transformation. These leaders are focused on enabling business transformation and operational excellence that are key to staying competitive in the marketplace. I realized the uniqueness of the opportunity to gather objective input, actionable insights, validate similarities and share knowledge of like-minded Subscription CIOs who are collectively redefining this crucial role.

The highlights from the CIOs surveyed indicate, first, that Subscription CIOs are positioned as strategic partners and business enablers, as opposed to simply service providers. This is no surprise and validates the evolving role of the CIO focused on differentiating their business. Second, twothirds of respondents are not confident that their existing systems can meet their business strategies, which is astounding! Is the lack of confidence primarily due to technology talent gaps that are even more profound for Subscription CIOs who are facing business process reengineering and emerging technologies? The ‘’New IT’ requires us to hire only the best, invest in the right talent, embrace the cloud, take calculated risks and establish a culture and willingness to change.

Alvina Antar CIO, Zuora

In the ‘Subscription Economy’, customers aren’t a one-time transaction. Recurring revenue creates the importance of a continuous relationship. Here’s to creating and building meaningful relationships!

THE RESPONDENTS There’s a paradigm shift in the industry as companies transform to recurring revenue business models spanning a broad range of industries including High Tech, Media, Telecom, IoT and others. For subscription businesses, the relationship with your subscriber not the product - is key to your company growing and thriving.

>$1B High Tech 46%

B2B 75%

Services 71%

Direct 73%

Recurring 53%

$500M$1B $100M$500M

Other

B2C

Media/ Telecom

B2Any

Indirect

One Time

Both

Sales Channel

Software License

<$100M

Hardware

IOT

Industry

Software

Business Model

Products

SUBSCRIBED

Revenue

FALL 2016

Top 3 Business Priorities for 2016 In the old world, customer relationships are transactional and end at point of sale. In the new world, customer relationships are dynamic and your subscriber experience is constantly changing.

Top 3 IT Priorities for 2016 Subscription CIOs have a mandate to balance business enablement with the traditional role of operational excellence â&#x20AC;&#x201C; table stakes for any IT leader. Too little change will generate missed opportunities. Too much change too fast would wreck a companyâ&#x20AC;&#x2122;s momentum, brand and bottomline.

SUBSCRIBED

FALL 2016

Application domain impact to business strategy The universe has shifted, ERP is no longer the center of the world. Itâ&#x20AC;&#x2122;s time for existing and aspiring Subscription CIOs to take a hard look at existing Q2C processes and systems to enable the shift from products to relationships. 4%

12%

19%

84%

9.2%

46%

57.5% 33.3%

35%

CRM

BILLING

CPQ

16.7%

Importance

27%

50%

33.3%

23%

REPORTING

BI/DATA ANALYTICS 6%

35%

48.5%

45.5%

73%

ECOMMERCE

16%

29%

30%

65%

42% ETL

54%

ERP

TAX Significant

Zuora powers subscription management and usage processing

Moderate

Insignificant

Ability for IT to deliver business solutions for the following: The universe has shifted, ERP is no longer the center of the world. Itâ&#x20AC;&#x2122;s time for existing and aspiring Subscription CIOs to take a hard look at existing Q2C processes and systems to enable the shift from products to relationships. 3.3% 15.6% 15.6%

12.5%

6% 15% 34%

53%

39%

Pricing model change

New product launch

6.6%

6.4% 12.9%

16% 30%

40%

32.2%

International expansion

41.9%

Acquisition onboarding

New product launches, Pricing & Packaging and pricing model changes are integral to enabling go-to-market strategies.

Very hard

Somewhat hard

Neither hard nor easy

Somewhat easy

Very easy

Top 3 challenges IT leaders face Talent gaps and willingness to change are even more profound for Subscription CIOs facing business process reengineering and emerging technologies required to thrive in the new world. Skill/Resources

84%

Technology Challenges

58%

Business Alignment

50%

Culture/Willingness to Change Executive Sponsorship

40% 11%

Shadow IT

11% 0%

20%

40%

60%

80%

100%

Confidence level existing systems can meet business growth strategies Two-thirds are not highly confident that their existing systems can meet their business strategies. Highly Confident

Two thirds are not highly confident in existing systems

34%

16% Not Confident

SUBSCRIBED

FALL 2016

50%

Moderately Confident

Be your best reference account Technology company CIOs are among the chosen few who are able to create an even greater impact to their business and revenue by becoming their own best reference account - the power of investing in your own technology. This transforms the CIO role to an entirely new level of impact from service provider to strategic enabler to customer zero!

Do you use your own product internally?

Yes

N/A

25%

66%

What percentage of your capability have you adopted? 34%

22%

19%

1%-25%

25%-50%

>50%

100%

Do you believe in your own product?

Customer Zero

Product Advisor

Internal Believer

CIO to CIO Reference

WHAT BETTER SALES TOOL THAN AN INCREDIBLY SUCCESSFUL IMPLEMENTATION OF YOUR OWN PRODUCT?

Sign of the Times

PRINCE C O L L A B O R AT O R SAM JENNINGS ON STREAMING MUSIC Visual Designer and Art Director Sam Jennings worked for Prince for nine years, starting with the Love4OneAnother.com project at the end of 1998. After several web sites, he led the launch of the NPG Music Club in 2001, the first online music subscription service. Tom Krackeler and Rachel English had a chance to talk with Sam on the official Zuora podcast, “Subscribed.”

SUBSCRIBED

FALL 2016

Thanks for joining us, Sam. I wonder if you could give us some background on how NPG Music Club came together, and how Prince viewed the Internet back then?

At the time, Prince was in a position where he was basically an independent artist. He had broken away from his music label, Warner Brothers. Throughout the 90's, it had kind of been a consistent story for him that he was breaking away from the music industry, wanted to do things on his own, wanted to

an ongoing experience for them, so that they want to stay a part of it. They get the music, they get the downloads, but they're also investing in a larger experience, which is the community of subscribers themselves. The question was—how do we make them feel more like members, and less like customers? That’s fascinating. What did the fans think of this at first? Were they on-board, were they reluctant?

take as much control away as he could from people he felt that didn't have his best interest in mind.

The number one thing that his fans wanted was new music. As I said, there are very few artists that were as

When the Internet became commercially viable, I

prolific as Prince. As long

think his first thought was: this is a perfect vehicle for

as we delivered on that

me to reach my audience, to reach my fans direct-

level, the fans were going

ly. Gone were the middlemen and the record labels

to follow us to the ends of

controlling all the distribution channels. This was a

the Earth.

way he could go one-on-one with his fans. They were very happy. I'd been working with him for a few years up until

They were getting about

that point on web sites. It was definitely a topic of

three or four new songs

discussion at the time: how can we turn this into

every month, live ver-

a business? How can we take his music, reach the

sions, remixes, all kinds

fans directly, and create a viable commercial model

of things. Plus an audio

for him?

show. We called it an “audio” show but it was ba-

He's an artist who was very prolific, he was always

sically a podcast! It was

recording, he always had new material. For someone

essentially an hour-long

like him to find a solid distribution model was real-

radio program that Prince

ly important. We were looking into the subscription

put together in his stu-

model because at the time Napster was a big issue

dio that we provided as a

for a lot of the music industry. You have to remember

download. So they were

this is before the iTunes store.

getting a lot of material

How can we take his music, reach the fans directly, and create a viable commercial model for him?

”

every month, and were Napster! That's such a blast from the past.

very pleased with the situation.

Right. The industry hadn't quite caught up to the download model and they hadn't quite figured out how to monetize everything yet. From our perspective, we were thinking: well, we have this music, we want to connect it directly to the fans, why don't we present it as a subscription model, as a way to engage the audience, so it’s not just one-off files that they download to their system and then share out to Napster? It's more like let’s create a relationship, let’s create

Were you presenting NPG Music Club as an alternative to CD sales, or was this just another option, another way to connect with fans, a sort of preferred path?

It was definitely a preferred path. I think digital allowed us a lot more freedom than creating physical packages. Since some of his fans skew a little bit older, I think they liked having the physical CDs in their hands. So we were able to tell them that yes, we'll do a big album release every year or so, but in addition to that, we're going to provide you with all of these SUBSCRIBED

FALL 2016

other materials that wouldn't necessarily ever get released. Why? Because it wouldn't ever necessarily be economically a good idea to print out a whole bunch of CDs that may or may not get sold! So the digital distribution model just allowed for a lot more freedom on Prince's part.

Today, streaming music has taken over everywhere, but you guys were truly pioneers. If you had to go back in time and do this whole journey over again, is there anything that you would have done differently?

It's hard to say because I do feel that overall it was a success, so I am pretty happy with how it all played out. It’s interesting because at the same time I was also designing CD packages for Prince, and now, fif-

What were you thinking of in terms of business models and monetization?

One of the things that I think set our business apart a little bit was that it was following the whims of Prince.

teen years later, the things that I have to show people are often times this physical work. The digital things kind of disappear with the wind. There's a lot of work we did that may never see the light of day again.

His decisions weren't nec-

I think if I could go back, I

essarily the same decisions

would document a lot more

a company that was be-

and keep better track of our

holden to stockholders or something like that might make. If Prince changed his mind, we just had to make it work. It was definitely a tricky balance

between

what

the fans wanted and what Prince

wanted.

had

a tendency to want to change things a lot. He

They get the music,

work. I think it's hard in the

they get the downloads,

pact you're having and to

but they're also

spect, there's a lot of things

investing in a larger

member, but there's a lot of

experience, which

don't necessarily remember

is the community of

moment to realize the imreally document it. In retrothat happened that I do rethings that happened that I that I wish I had a record of.

in his live shows. Even with

These new streaming music companies—Spotify, Pandora, Apple Music—what would be the big things you would point out to them as lessons from your journey with NPG

the music club, even with

Music Club?

was the kind of artist who always evolved his music, always evolved his band, the people he played with

subscribers themselves.

our distribution, he wanted to evolve that. He was like, well we did that for a

I’ve been talking to a lot of fans about this lately.

year, why don't we try something different?

Prince plugged his whole catalog into Tidal. I believe it had to do with what he perceived as Jay Z's

All of those things were something that I, being the

relationship with artists, and the sense that Tidal is

person that was running the operation, had to make

perhaps more artist-friendly than other services.

work and try and convince the fans that, "No, this

is different but it’s going to still get you what you

I think Prince had a sense that the recording indus-

want," and keep them connected and involved. I

try had kind of caught up with digital distribution,

think the main way that he did keep them invest-

and they controlled a lot of these channels in the

ed was because it was that direct connection to

same way they did twenty years ago with radio and

Prince, like I was saying. They really felt like they

record stores. He made the bet on Tidal, but I think

were supporting him directly.

his fans felt like, I'm not really supporting Prince di-

SUBSCRIBED

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rectly. They kind of feel like, I'm supporting Beyonce and Jay Z so I don't know if I want to give them my money every month even though Prince's catalog is there. I've always thought that a good strategy for them might be to do a white label service. For instance, if Prince went to them and said, I want to use your service, letâ&#x20AC;&#x2122;s white label a Prince streaming service on top of Tidal that perhaps is an extra dollar a month or something like that. It would let the fans take advantage of the infrastructure of Tidal, but create more of an experience that would allow them to feel more connected to Prince. Maybe something that he could then customize, maybe something that he could then put music into as often as he wanted to, without necessarily going through the same process as Tidal, but it would still rely on Tidal's network and their abilities as far as streaming are concerned. Obviously that's a big undertaking for anyone to take independently. Tidal is starting to do concert sales and streaming events and videos, so it seems like doing that for an artist separately, somebody as big as Prince, who has a catalog like Prince, would totally make sense. But I don't think people want to pay for eighteen different streaming services either. Prince was a pioneer and an innovator in so many ways. Can you give us a general sense of what he was like to work with as a creative professional?

There was always a sense with Prince, I think you find it in his music but also his business, where anything was possible. To say something hasn't been done yet, was to just say, "That's irrelevant. Why don't we build it?" Like, there is no music service for artists? Well, why don't we build one? We'll see where it goes, we'll just see what happens. If you say we can't do it, it's like, well, did you actually try? Have you tried to do that? No? Okay, let's try, let's see what happens. Maybe it will fail, I don't know, but let's give it a shot, see what happens. That was a really SUBSCRIBED

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exciting experience to be a part of. Sometimes you don't really realize the impact you're having at the time because you're just doing it, you're just trying to get to the next milestone, but looking back, I'm pretty astounded by the amount of music that Prince released independently through our club. It's a pretty amazing volume of material. Your story with Prince has parallels with so many of the other companies and creative people that we've talked to that are charting new distribution models and connecting directly to their buyers and customers. It's exciting to live vicariously a little bit through your work with Prince and the New Power Generation, and to be a part of helping other companies do similar things here at Zuora, so thank you very much for spending time with us today!

Thank you, thanks for having me on.

Check out Zuora’s “Subscribed” Podcast at www.zuora.com/podcast We are also on all of your favorite podcast distributors, including Stitcher and iTunes. Check out more of Sam’s work at his personal website, SamJennings.com Instagram instagram.com/samnation3000/

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HELPING PEOPLE SUBSCRIBE THE NEXT COOLEST THING EVER.

Coolest Video Streaming Services Around the World by Erika Malzberg

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Where can a Korean soap opera

Around the world, viewing behavior is

With this explosion of subscription-

enthusiast

trending strongly towards OTT (over-

based

K-drama? Or a Catastrophe devotee

the-top) video streaming services.

providers

get an immersive online education in

According to a recent Parks Associates

appealing to niche audiences, with

British comedy? Or a manga maniac

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unique genre content, is an effective

get her Japanese anime fix?

households and 51 percent of French

way to compete with the big OTT

get

his

daily

dose

streaming are

video

content

discovering

that

households watch OTT video while

players (like Netflix and Amazon Prime)

Fortunately, subscription-based stre-

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and build a loyal subscription base.

aming video services are going the

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of global audiences. This means that

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compared with 64 percent of US

paid

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(as

Happy binge watching!

households).

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If you've been driving your

Fandor offers 8000+

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OTT video isnâ&#x20AC;&#x2122;t just for If categories like "Killers,"

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enough content to ensure you'll be sleeping with the lights on indefinitely.

toongoggles.com

screambox.com

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If K-pop is your thing,

MUBI offers the best of

DramaFever is your

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day, film experts select a

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If you're desperate for

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spuul.com redbull.tv

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Anime fans are

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TechStyle Fashion Group by Christina Porter

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T H E FA C T S TechStyle is an industry leading commerce platform that was created to build hi-value fashion brands and efficiently distribute them across the globe. Includes well-known brands such as Fabletics (Kate Hudson's a co-founder), ShoeDazzle (Founded by Kim Kardashian), JustFab, and FabKids. Justfab, Shoedazzle, and Fabkids are 39.95/month, Fabletics is $49.95/month. The company scaled from $0 to $650M in less than 7 years and has more than 4 million active members.

How does subscription-based fashion Who is your hero?

work?

From about age 16 onwards, my answer

Memberships are TechStyle’s not-so-se-

to that question has been the humorist,

cret sauce. In the Fashion business, the

columnist, and social commentator Will biggest costs to a company are a) adRogers, for his ability to communicate vertising to re-acquire customers and b)

Shawn Gold, Chief Marketing Officer, TechStyle Fashion Group

with insight and humor to the broadest

waste from clothing that people don’t

group of people.

want. Membership solves both problems. We know our customers’ preferences in

You childhood career aspiration?

advance. And memberships save us mon-

Professional football player—It didn’t

ey on advertising and customer acquisi-

work out. I stopped playing football at 12.

tion because our customers have agreed to visit us regularly. In turn, we are able to

As CMO, where do you find inspiration?

What do you wish you could do, that you

People—listening to people, understand- can’t? ing what motivates them, their hopes,

pass on the savings to them in the form of steep discounts for on-trend fashion.

Speed read and retain the information. What are the top three things you’ve

fears, and dreams. Four things you can’t live without?

learned about subscription businesses?

What's the one thing that you think pre- Pen and paper, laptop, and Japanese Your ecommerce funnel must properly vents success?

food.

disclose your membership relationship.

Listening to other people who tell you

Happy customers deliver long-term val-

that you can’t do something. Oddly What's your motto?

ue. Unhappy customers not only don't

enough, I believe the three things nec-

Where there’s an open mind there’s al-

buy, but they also inhibit other people

essary for success are great faith, great

ways a frontier!

from buying and cost the company time

doubt, great effort.

and money. We describe our member-

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ship requirements to new customers 14 times throughout the enrollment process. We, in fact, lose revenue on every customer who doesn’t understand how it works. The first deal is at a loss—$85 worth of product for $25. If they don’t come back again we lose money, and bad reputation is loss of money. There’s no business case for customers to be misled. The second important thing I’ve learnt is to communicate and then iterate. With a new commerce model, it can be very difficult to effectively communicate. In the beginning, we were a startup going at rocket speed. We knew that we needed better communications, but we didn’t know the extent for which we had to build around it. We now have 700 customer service reps. As both an ecommerce and membership organization, this has been a huge key to our success. I spend a lot of time figuring out what customers are not understanding by testing and using heat maps. We added video into the shopping cart to explain the membership, and we added 24 x 7 online cancellations via chat. What we are doing with fashion has never been done before. Before us, there was no 76

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precedent for the ecommerce infrastructure needed to test and scale our brands globally. Now, we can just iterate. I also learnt that you have no option but to personalize, if you want to succeed. When you come into our system, you complete a survey. This is not gratuitous. We do it to serve our customers better. Members who take the quiz are dramatically more satisfied. We use this data to understand the customer and then let our algorithms kick in, recommending personalized colors or

size preferences based on geography and other variables. Thatâ&#x20AC;&#x2122;s what allows us to be a really efficient business. Because we make clothing specifically for our members, we are very efficient as a retailer. We sell out most of the things we make. We are only making the number of Smalls, Mediums and Larges that our membership wants. We are not doing the "ship and pray" model where a store suddenly has more size Smalls than they can sell. In many instances, a retailer has to charge you for what they donâ&#x20AC;&#x2122;t sell. Because members come back to our site on a monthly basis, they reduce overall acquisition costs for us to get new customers, saving us 30-50 percent off the top. SUBSCRIBED

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AS HEARD ON

by Aarthi Rayapura

zuora.com/podcast

“Pricing used to be an af-

“Because we are subscription based, we have revenue

“In a subscription busi-

“Pricing power is when a

clarity. We are also different

ness, the customer has

company or product in

in how we operate which is

to decide that the val-

the market can charge a

that we are on a schedule

ue of being a custom-

fair price for its products.

because our members want

er outweighs the cost

That’s because of two dif-

a schedule. When you run

of renewing. That’s the

ferent things—it creates

a schedule, you know how

constant decision that

a lot of value for its us-

many hours you're going

customers address time

ers and it’s differentiated

to fly on the aircraft, you

and again. The entire

from other products in

know what it takes to fly and

company needs to keep

the market.”

maintain those aircrafts. You

tossing more weights

know what it takes from a

into that value bucket

- Tom Tunguz, Partner at

cost perspective. You don’t

so that renewal is al-

Redpoint Ventures

find too many companies

ways the easy decision

with that kind of clarity on

to make.”

managing the business from an economic standpoint.”

- Anne Janzer, Author and Marketing Consul-

- Jeff Potter, CEO of Surf Air

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tant

terthought..but that’s the complete opposite of the direction the world has gone in. You definitely have to be more nimble and flexible, need more information and the ability to analyze that information to make pricing decisions

much

rapidly than in the past.” - Amy Konary, Program VP at IDC

9 keys to building a successful subscription business

Defining a winning subscription price model

Is freemium the right business model?

An introduction to subscription finance

The 6 stages of a customer lifecycle

7 subscription billing mistakes to avoid

Innovative subscription pricing strategies

The new paywall: 5 strategies for newspaper readership growth

7 ways to sell subscriptions

SET YOUR BUSINESS FREE. HERE'S HOW ZUORA CAN HELP. Filled with informative content, from foundational overviews to industry deep dives, the Subscribed Academy offers straightforward and actionable advice for a range of roles including marketing, finance, technology and operations. We invite you to learn, contribute, and engage.

www.zuora.com/academy

ZUORA ANALYTICS Turning your data into actionable growth strategies, fast.

Learn more at zuora.com/product/analytics

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