Subscribed Magazine, Fall 2018 by Jayne Gonzalez

SPRING - FALL 2018

SARAH WILKINSON TI MEDIA

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

LETTER FROM THE EDITOR “Knowing the customers, their preferences, buying habits and how much they’re willing to spend are the price of entry in this new economy.”

The end of ownership is disrupting nearly every industry—from retail and entertainment to heavy equipment and healthcare. It’s a fundamental shift, not just in the way we work and live and accumulate things, but in the way we value ourselves and each other. So this issue we’ve decided to delve deeper into the mechanics of successful subscription management.

Things move fast in the Subscription Economy.

Zuora Senior Vice President of RevPro, Jagan

Since our last issue, half a dozen of the world’s

Reddy, explores the implications of new

largest automobile manufacturers have

accounting rules that are considered by many to

announced new subscription offerings. Facebook

be the biggest change to accounting standards in

is reportedly exploring an ad-free option. At

the last 100 years. Zuora Product Marketer, An Ly,

Subscribed San Francisco last June, we heard

explains how new CPQ (Configure, Price, Quote)

from a host of innovators pushing this model

software systems are helping to enable deals, not

forward: Zoom, Box, Square, Motor Trend Group,

just configure products.

Symantec, TheStreet, PTC, Intercom, Workday.

Gabe Weisert Managing Editor, Zuora

We’re also very pleased to offer an excerpt of Zuora

But since this is our fall issue, we turn our eyes

CEO Tien Tzuo’s new book, “Subscribed: Why

to Europe. According to our latest Subscription

The Subscription Model Will Be Your Company’s

Economy Index, subscription companies in

Future—and What to Do About It.” You should be

Europe are growing at least six times faster

seeing it around in airports and bookstores—buy

than the companies represented by the FTSE

a copy for a friend who needs one, and tag a photo

(London), CAC (Paris), and DAX (Berlin). They’re

on Twitter with #subscribedinthewild!

also growing faster than subscription companies in North America. So in Paris and London, we’re excited to hear from more luminaries in this space: Which?, DAZN, Husqvarna, Trustpilot, Royal Philips, Thales Group, PSA Group, Les Cinémas Gaumont Pathé, Schneider Electric. And in this issue, we’re particularly happy to feature subscription marketing insights from Sarah Wilkinson, Consumer Director of TI Media.

CONTENTS

MANAGING EDITOR GABE WEISERT SENIOR STAFF WRITER ERIKA MALZBERG

10 YEARS OF THE SUBSCRIPTION ECONOMY:

THE WTF MOMENT

BRAND LEAD LAUREN GLISH GRAPHIC DESIGNER YI SHI COPY EDITOR EMILY ARADI PARTNER PROMOTION KRISTIN HAGAN SHANNON DIEFENBACH AMANDA OLSEN COOPER KRINGS PUBLISHED BY ZUORA, INC. 3050 SOUTH DELAWARE STREET #301 SAN MATEO, CA 94403 (800) 425-1281 EDITORIAL@ZUORA.COM

THE MAKING OF THE WORLD SUBSCRIBED AND THE END OF OWNERSHIP

BANKING:

THE NEW CPQ:

THE NEXT BIG SUBSCRIPTION ECONOMY STORY

CONFIGURING DEALS VS CONFIGURING PRODUCTS

NEW ACCOUNTING STANDARDS

THE NEW ROLE OF THE CIO:

FROM POINT A TO POINT B:

REQUIRE SUBSCRIPTION BUSINESSES TO ACT NOW

BUSINESS TRANSFORMATION LEADER

GOING FOR A RIDE ON THE SUBSCRIPTION ECONOMY EXPRESS

#SUBSCRIBE TO DIVERSITY

WHAT THE MAGAZINE INDUSTRY OVERHEARD AT SUBSCRIBED CAN TEACH THE REST OF US ABOUT SUBSCRIPTIONS

YEARS OF THE SUBSCRIPTION ECONOMY:

This year Zuora celebrates our 10-year anniversary. And what a decade it’s been! Since our official launch in 2008, we’ve seen changing consumer demand create a business paradigm shift: the Subscription Economy.

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THE MAKING OF THE WORLD SUBSCRIBED AND THE END OF OWNERSHIP

Before the Subscription Economy, Netflix just rented DVDs, Apple iPhone had no App Store, you still had to hail a cab, you purchased CDs, many traditional businesses (and their head-in-the-sand leaders) said the cloud was a fad, and we kept physical files under our desk. It’s a vastly different world we inhabit in 2018. From work and relationships to entertainment, transportation, retail, healthcare, communication, and on and on and on...it’s not just industries, but our lives that have changed dramatically since 2008. Simply put, we have seen the end of ownership and have become a world subscribed. So, as we proudly celebrate our 10-year anniversary—and all the many ZEOs, customers, and partners who’ve made this journey with us—we take a look back at some highlights from the past decade: milestones that define Zuora, the Subscription Economy, digital transformation, and our collective world.

2007 DECEMBER In the beginning Zuora is founded by Tien Tzuo, K.V. Rao, and Cheng Zou and announces their Series A funding initial raise of $6 million.

Excerpted from the Penguin Portfolio book “Subscribed: Why The Subscription Model Will Be Your Company’s Future—and What to do About It” By Tien Tzuo, Founder and CEO of Zuora, and Gabe Weisert, Managing Editor at Zuora

customers are waiting for them at the end of

“

those channels. Video games are also following the same general media consumption trends as movies— retail disc revenue is plummeting, while online revenue from streaming and subscriptions is on

Marketing is irate because they lose their big

the ascent. Retail channels like GameStop have

blitz launch day. Development is having kittens

but this news isn’t surprising—Starbucks still

because they’ve lost their entire production

for everyone else (and millennials in particular)

schedule. IT is highly indignant because the

norm. And much like Hollywood, the video game

millions of dollars they just invested in a new

been struggling lately. Not to pick on GameStop, sells CDs to the occasional baby boomer, but on-demand media consumption is the accepted industry is keenly interested in pursuing a multiscreen strategy: a console, a phone, a device like

set of business systems just became instantly

a Nintendo Switch, a store, a streaming site like

obsolete. And finance is not exactly overjoyed at

Staples Center for a big e-sports competition.

the imminent prospect of seeing their quarterly

of experiences with video games, generated by a

revenue numbers tank.

with friends, paying for downloadable content

Twitch, or even Madison Square Garden or the Your average video game player is having all kinds myriad number of channels. She’s playing online (DLC), conducting micro-transactions, playing a mobile version on her phone, watching really great players on Twitch (and maybe sponsoring those players), and going to conventions.

If digital transformation means roles are changing, then by definition the way companies function as a whole is changing as well. To help us visualize how much transformation is needed to become a subscription business, let’s run through a thought experiment involving a fascinating industry— video games.

Now let’s say you’re a developer with a big franchise game called Starship Blasters. Every two years you come out with a bigger, better Starship Blasters game, with new characters, crazy new adventures, and (of course) better blasters. But these sequels are getting more expensive to make, and they’re making less money with every new release. You know that

Games are arguably bigger than Hollywood,

in two years, probably only half the people who

and there are several parallels between the two

bought Starship Blasters III: Still Blastin’ will buy

industries. Much like Hollywood blockbuster

Starship Blasters IV: Blastageddon. And you know

franchises, every big game brand is a franchise,

the kinds of experiences your player wants to

and their revenues are massively front-loaded

have with her games just don’t align to a biannual

in boom-or-bust release weekends. A major

release schedule.

game may cost up to $60 million to develop, and sometimes twice that number to market. In much the way you’d rather produce Titanic than Gigli, you’d rather release Grand Theft Auto V (which made more than $800 million in 24 hours) than Transformers: Rise of the Dark Spark (which did not). Game studios typically spend two years working on a title, blast it out to as many sales channels as possible on its launch date (mostly stores and consoles), and then hope that the

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FALL 2018

So, you figure, if you can spread the $60 game

So, it’s decided. No more big splashy releases

cost over a year for five bucks a month, and

every two years. For just five bucks a month,

hold on to that player with lots of cool new

now your player gets Star Blasters as a service—

downloadable content, you’ll do better in the

constant innovation, rolling updates, continuous

long run. She won’t get bummed out paying

engagement. Everybody wins. You slave away on

lots of money for the occasional dud game, and

an impressive PowerPoint presentation, the big

your company will benefit from a stable revenue

board meeting happens, and then the company-

model that’s less reliant on the ups and downs

wide email goes out, and every department

of Hollywood economics. You’ll also start every

receives a clear set of directives and deliverables

quarter with a platform of recurring revenue to

around shifting to this new business model, with

invest as you see fit. As Final Fantasy producer

a final due date.

Naoki Yoshida told GameSpot:

“With the subscription model, you have that constant flow of revenue. As game developers, creators of games, we want to be able to continue providing the best gameplay experience and sustain that. Of course, the initial subscriber numbers might not be as many as the free-to-play model, but we have that constant stream. We’re not thinking just about the business of the moment. We want to think about the long term and being able to have the funding to continue making updates. Some people might be focused on quickly gaining revenue, but you have to think about the long term.”

And the response from your company? A big, massive WTF. Marketing is irate because they lose their big blitz launch day. Development is having kittens because they’ve lost their entire production schedule. IT is highly indignant because the millions of dollars they just invested in a new set of business systems just became instantly obsolete. And finance is not exactly overjoyed at the imminent prospect of seeing their quarterly revenue numbers tank. So, how do you do it? How do you make the shift? How do you avoid your own WTF moment?

NEW ACCOUNTING STANDARDS REQUIRE SUBSCRIPTION BUSINESSES TO ACT NOW By Jagan Reddy, Senior Vice President of RevPro at Zuora

With the new accounting standards weighing on

guidelines, which require recognizing an amount

companies in media and entertainment, consumer

companies that offer subscriptions as at least a

of revenue proportionate to the goods and

services, telecom and utilities, financial services,

portion of their businesses models, the first step

services actually transferred to customers during

health care, education, manufacturing, and

is to admit there’s a problem.

the reporting period. That isn’t easy.

even farming are all adding subscription-based

The Financial Accounting Standards Board and

The new accounting rules are considered by

the International Accounting Standards Board

many to be the biggest change to accounting

issued new standards—ASC 606 and IFRS 15

standards in the last 100 years. More than half the

respectively—in 2014 for recognizing revenue from

companies impacted, especially those bundling

contracts with customers. The goal was to simplify

subscription and non-subscription services—

and harmonize revenue recognition practices,

that is, those with a “mixed business model”—are

which currently result in inconsistent accounting

unprepared for it, according to PwC.

outputs for similar types of transactions. Beginning in fiscal 2018-2019, public and private companies of all sizes must adopt the new

Yet the number of companies with a mixed business model is growing every day. Established

services, which are already increasing complexity for these companies, even without considering the new standards. The new standards serve only to increase the burden on corporate finance departments, especially those managing these complex calculations with spreadsheets. Why are the new standards a challenge for subscription businesses? First, subscriptions tend to change frequently.

SUBSCRIBED

Whether from customer upgrades, downgrades or other modifications, contract changes are the norm. This can make something as simple as “identifying the contract” for compliance purposes a difficult proposition. In some circumstances, contract changes are mere modifications to the existing contracts, while, in other situations, separate contracts are created—all with differing impacts on revenue recognition. Subscriptions are also complex and rolled out over time, creating additional uncertainty related to handling common subscription characteristics, such as evergreen subscriptions and nonrefundable upfront fees—that is, whether to recognize the revenue right away or defer it. Similarly, usagebased pricing makes determining the transaction price difficult. All of this adds to the difficulty of accurately tracking contracted, recognized, and unbilled deferred revenue. These challenges can in turn lead to inaccurate reporting, resulting in costly earnings restatements, tarnished reputations, and even litigation. And the new standards could limit new revenue opportunities for companies that avoid launching innovative and attractive new contract designs, pricing models, and business practices for fear of falling out of compliance.

THE NEW STANDARDS IN ACTION The new standards are already creating a fair share of confusion as companies begin incorporating them into their reporting. Audit Analytics, a public company intelligence service, has found that some companies seemed to be struggling

“And the new standards could limit new revenue opportunities for companies that avoid launching innovative and attractive new contract designs, pricing models, and business practices for fear of falling out of compliance.”

FALL 2018

with ASC 606 adoption and predicts an increase in revenue recognition accounting failures. This isn’t surprising, as some companies seem to be benefiting from the new rules, while others seem to be hurt by them. For example, Aetna expects the new revenue recognition standards to increase its revenue and expense by $1.5 billion to $2.0 billion in 2018. SAP forecasts that IFRS 15 will add 200 million euros to profits. And Universal Technical Institute said its early adoption of the new accounting standard will result in a non-cash increase to equity of approximately $37.2 million as of October 1, 2018. On the downside, GE’s stock tumbled after reporting that the adoption of new revenue recognition accounting standards would result in a non-cash charge to its January 1, 2016 retained earnings balance of approximately $4.2 billion. The company will also recast its 2016 and 2017 earnings per share to reflect the change in accounting standards by lowering them by about $0.13 and $0.16. Rolls-Royce said adopting the new standards meant its core civil aerospace division took a £330 million loss last year, rather than the reported £520 million profit, and the company expects to remain unprofitable in 2018 on that basis.

“The right foundational technology that can automate business processes and adapt to change is essential for long-term success.”

WHAT’S AN ACCOUNTING DEPARTMENT TO DO? For subscription-only and mixed business model organizations, the first step in dealing with the new accounting standards is to admit the problem is serious and that inaction is unacceptable. In fact, there are several specific areas of the business model that need to be fully understood and tracked—and which are more complex now—

to avoid significant reporting issues. These

regarding subscription strategies will impact

include discounts over a period of time, usage-

revenue recognition. This is the only way to

based pricing, evergreen subscriptions, bundling

support innovative sales and marketing efforts

multiple products together, ramp pricing, and

without jeopardizing compliance.

mid-term price or scope.

Finally, depending on the scope of the changes

As a result, organizations will need to rethink

required, CFOs will need to select a technology

and revise their current accounting practices

solution capable of keeping them in compliance

to include elements and processes they have

with the new standards and the continually

not previously had to consider. Since the costs

evolving financial landscape. Keep in mind,

and consequences of getting this wrong are so

these new accounting standards are not the

great—time-consuming restatements, damage

only challenge for finance teams. Evolving

to reputation, potential litigation—businesses

international trade regulations and tax reform

should seek advice from a reliable third-party,

policies will also have significant impact on the

such as a top audit firm, to determine the scope of

bottom line, business practices and valuation.

the required changes and the best path forward.

The right foundational technology that can

The financial team must also educate itself about the new standards and develop the necessary skills to understand how future decisions

automate business processes and adapt to change is essential for long-term success.

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THE NEW ROLE OF THE CIO:

BUSINESS TRANSFORMATION LEADER

This story was written by Zuora CIO Alvina Antar and originally published in The Intelligent CIO.

Recent technological advancements in emerging

in todayâ&#x20AC;&#x2122;s economy. That includes managing

technologies such as the Internet of Things (IoT),

changing business models and the significant

advanced data analytics, and artificial intelligence

shift towards subscription models that we are

(AI) have ushered in what many commentators

seeing across a number of industries. Take the

are dubbing the Fourth Industrial revolution. In

media industry as a prime example. The move to

combination with the integration of millennials

a subscription model has been a challenging one

and generations X and Y into todayâ&#x20AC;&#x2122;s workforce,

for the sector and it is still in the midst of change.

this has created a unique global business

Just recently, Google announced that it will invest

landscape like never before.

in a new suite of tools to support the necessary

Consequently, businesses have been forced to rapidly adjust their best practices to align with the acceleration of technology adoption and the need to digitally transform. In fact, according to a recent report by Gartner, two-thirds of all business leaders claim that keeping pace with digitization is a prerequisite for success

digital transformation of media companies. All of this further strengthens my belief that in the future, business growth will only come from subscriptions. And the role of the CIO will be critical to success.

â&#x20AC;&#x153;

Above all, CIOs must break free of their comfort zones and push the boundaries of the role. With new business models, companies, and entire economies being cultivated today, seemingly at the drop of a hat, adopting an open-minded approach is vital for the IT function to not only be relevant but essential for organizations across industries.

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Above all, they must break free of their comfort zones and push the boundaries of the role. With new business models, companies and entire economies being cultivated today, seemingly at the drop of a hat, adopting an open-minded approach is vital for the IT function to not only be relevant but essential for organizations across industries. There has never been a better time for our IT leaders to welcome and benefit from change. Although risk is consistently a key determinant

THE CHANGING ROLE

in business decisions, innovation has long been a key determinant of success. CIOs are uniquely positioned to rebrand themselves—and rebrand

According to Gartner’s latest CIO Agenda Survey,

the role of CIO: to become nurturers of innovation

95% of CIOs expect their jobs to be significantly

and brokers of new technologies to meet evolving

reshaped due to digital transformation. We

organizational demands.

have, therefore, witnessed a significant increase in technology spending being liberated from the CIO’s grasp and allocated to that of other

DELIVERING VALUE

business units. No longer is the CIO the technology-facing executive of the past. Today’s CIO is more closely aligned with broader company-wide objectives than ever before. Their role has shifted from the “manufacturer” of IT systems to the “enabler”

Crucially, incumbents of the role must quickly learn to use their new-found freedom to best deploy the technologies that may be outside the understanding of those they lead in the IT department.

of business transformation, with success no

Doing this relies on sourcing and developing fresh

longer measured by the exective construction

and promising talent through the ranks. New

and deployment of such systems, but instead

hires should share in the vision of a successful IT

by the tangible outcomes that these integrated

function–i.e. one that works in conjunction with

technologies can deliver to a business.

the wider business in a combined bid to achieve its overall goals.

EMBRACING THE NEW ROLE

Companies of all shapes and sizes are now attempting to pivot and transform quickly

On one hand, it remains the case that a CIO must

and effectively. With the CIO positioned as the

have a deep understanding of their business

only person with a true understanding of a

and its strategy for growth—meaning they must

company’s end-to-end functional and technical

have a strategic vision and the right plan to

blueprint, the pace of change currently being

ensure all systems are able to meet a variety of

experienced provides them with the perfect

business needs.

platform to spearhead new growth initiatives and overcome challenges.

On the other hand, tomorrow’s CIOs will need to surpass what were deemed to be the traditional

It’s time for CIOs to transform their knowledge to

demands associated with their role. The

meaningful business impact.

expectation is that they should possess the traits typical of business leaders–i.e. confidence, flexibility, curiosity, trustworthiness, respect, sensitivity and self-awareness.

FROM POINT A TO POINT B GOING FOR A RIDE ON THE SUBSCRIPTION ECONOMY EXPRESS

By Erika Malzberg, Senior Staff Writer at Zuora

Transportation, like so many other industries, has been “service-

transportation by providing services and building ongoing

ified.” While we still have cars, trucks, trains, and planes crowding

relationships with their customers.

our freeways, racing down tracks, and zooming down runways, the emphasis is less on the vehicles themselves and more on the services and outcomes they provide. Across the industry, we see MaaS (mobility-as-a-service) companies—stalwarts and newcomers alike—revolutionizing

Here we take a look at just a few transportation services that are changing the nature of travel, whether you’re traveling across France or just trying to get home from work.

SUBSCRIBED

FORD SMART MOBILITY (FSM): FORD GOBIKE AND CHARIOT This is not your great-great-grandfather’s Model T! Today’s Ford is leaping into new territory.

As Ford CEO Jim Hackett stated at CES this year, what they’re going for is nothing less than a “total redesign of the surface transportation system with humans and community at the center.” This pivot is exemplified by their new bike share system, Ford GoBike. With thousands of public bikes for use across the Bay Area, Ford GoBike is designed to be a fun, affordable, and green way to get around town. Not into biking? Take commuter shuttle Chariot, the first Ford Smart Mobility (FSM) acquisition.

www.fordgobike.com

FALL 2018

Volvo has joined Ford, Cadillac, BMW, Porsche, Hyundai, and others with their new subscription car service, Care by Volvo. For a fixed monthly cost (and no down payment), you have access to your own new Volvo. But Care by Volvo goes beyond the actual car.

According to Volvo Senior Vice President Group IT + Chief Digital Officer Atif Rafiq, a subscription “solves for a bunch of wider things than actually owning a car.” Care by Volvo also provides valuable extras—from pick-up and delivery to concierge services, insurance, servicing and maintenance, and repairs. www.volvocars.com

SUBSCRIBED

Uber is aiming to be more than just a cheap ride home from a night out. Towards that end, new CEO Dara Khosrowshahi has been working to rebrand Uber—with an emphasis on its passengers, drivers, human connection, and responsibility, rather than “success” at all costs. Uber is expanding driver background checks and has designed a new app for drivers. They’ve also expanded Uber Movement, a program that uses Uber ride data to inform urban planning.

As Khosrowshahi notes “with building these platforms comes the responsibility to make sure that those platforms are being used for good.” www.uber.com

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Since 1938, SNCF has been Franceâ&#x20AC;&#x2122;s main rail carrier. To compete against other growing forms of transportation, SNCF recently launched their first subscription plans. Currently they offer different packages and passes for students aged 12 to 28. Passes provide options, convenience, and affordable pricing for youth who travel regularly to school or work. www.sncf.com

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Waymo started testing autonomous vehicles in 2009 when the idea of self-driving cars was still a Jetson’s fantasy. Now they’ve covered 5 million miles and continue to drive more than 25,000 autonomous miles each week in pursuit of their mission to make it safe and easy to get around—without anyone in the driver’s seat. As Waymo prepares to launch its first public trial of their self-driving cars, we’re getting ever closer to self-driving technology being not just an idea, but our everyday reality.

waymo.com

Connecting California with seamless private travel, Surf Air is a unique membership airline offering all-you-can-fly benefits and personalized service. Since launching in 2013, Surf Air has really spread its wings, now servicing 11 destinations with up to 90 daily flights. Their concept of an all-you-can fly membership airline has revolutionized air travel. Operating under a subscription model enables them to get closer to their subscribers and deliver an exceptional customer experienceâ&#x20AC;&#x201D;and ride.

www.surfair.com

BANKING: THE NEXT BIG SUBSCRIPTION ECONOMY STORY By John Phillips, Managing Director EMEA, Zuora

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In some ways, banks are the ultimate subscription business: from the moment you open your account with a financial institution, you’re essentially locked in to a long-term relationship. But in other ways, banks are the

WHERE’S THE VALUE IN BANKS?

antithesis of what’s happening in our modern Subscription Economy. Today’s banks don’t curate products and services for their customers or work at establishing and nurturing customer relationships built on value.

Historically there’s been very little competitive value in switching banks, so banks haven’t been motivated to deliver true value to their customers. But regulations worldwide are changing in the

Instead, the banking industry “banks”

wake of the recent global financial crisis—and

on the fact that customers will stay not

these new regulations are having a large impact

out of earned loyalty but due to a lack of more appealing options.

on the business models and strategies of banks. It’s no longer business as usual: banks can’t continue to generate the same revenues with their old strategies. New regulations and increased oversight are leading banks to consider new paradigms for generating revenue and managing customer relationships. Banks are trying to recreate themselves, and their reputations—for evidence, you need look no further than to the recent Wells Fargo ad campaigns in the U.S. with their taglines of “Earning Back Your Trust” and “Renewed Focus.” In this repositioning, there’s an opportunity for banks to move towards a new model in which they partner with their customers to provide real value and, as a result, realize new sources of revenue.

Over 45% of respondents would pay an extra

INDUSTRIES IN A STATE OF DISRUPTION

monthly bank fee in order to receive subscription media services (e.g. Netflix, Amazon Prime, etc.) —which is a greater number of respondents than those who said that they would pay a small recurring fee for an overdraft facility (37.20%) and/or earned enhanced cash back (39.60%).

We’ve seen this sort of disruption before in

In other words, bank consumers are even more

industry after industry. Take publishing, for

tempted by media service add-ons than financial

example, Publishers who were raking in money

services. This opens the door to creative new

from advertising didn’t have to think about

bundling options.

value. But when ad revenue began to decrease, publishers were forced to rethink value and how to drive it. This created new revenue opportunities for them, but also greater value for customers. Win win. Now this breakdown of finance regulations is driving disruptive opportunities in banks and we’re poised to see the same trajectory of the Subscription Economy story play out in the financial industry as we’ve seen across countless other industries.

Also of note, while 24% of respondents have never changed bank accounts (and 28.30% last made a change more than 5 years ago), if the offer was right, many would consider making a change. When asked “what services would entice you to switch banks,” various non-banking related service offerings were of great appeal including travel insurance (19.10%), smartphone insurance (28.10%), flying club miles (12.60%), car services (10%), and utility services (23.70%). And, once again, the winner was media services with a majority of respondents (40.40%) saying that the offer of services like Netflix, Amazon Prime, etc. would entice them to switch banks.

CUSTOMERS ARE WILLING TO PAY—IF BANKS CAN PROVIDE EXTRA SERVICES

According to a recent survey of 1000 UK

THE THREAT OF NEWCOMERS, SCALE, AND MARKET PENETRATION

banking customers by CitizenMe, it’s clear that banking consumers are ready for a shift to the Subscription Economy. The opportunity lies in creating meaningful, While the overwhelming majority of respondents

thoughtful, creative bundles to better serve

(71.70%) do not currently pay a monthly fee to

existing customers (i.e. increase subscriber

their bank, 44.60% are likely to pay a fee if they

stickiness and satisfaction) and attract new ones

were to receive services, and 12.60% are very likely.

(i.e. competitive customer acquisition). This is a clear opportunity, but it’s also a threat, because

SUBSCRIBED

historically banks don’t have experience and expertise in building meaningful relationships with their customers.

FALL 2018

CUSTOMER FOCUSED BANKING: TOWARDS A NEW MODEL

But you know what company does have vast experience in building and maintaining meaningful customer relationships, along with the added advantages of built-in scale and market penetration? Amazon. Perhaps unsurprisingly then, we are already hearing reports that Amazon is considering branching into banking services by building out a checking account product for their customers. At the same time, we’re seeing more and more examples of disruptive new services that are stretching the boundaries of banking and posing some very interesting alternatives to high street banks. For example, look at challenger bank Monzo which is making its digital account offerings available to 16-18 year olds. With their unique focus on youth culture, Monzo already has more than 860,000 registered account holders and is quickly headed towards the one million account mark. Or Revolut, another digital challenger, which charges just £6.99/month for their “premium” services which include typical bank services, like free ATM withdrawals, but also nonfinance related services like free global medical insurance. Starling is another up-and-coming banking option experimenting with adding adjacent services to their offerings, as evidenced by their “marketplace” in which they offer a wide range of financial services from other providers. These new banking alternatives are pushing innovation in interesting ways to increase value for customers. If I were HSBC, Lloyds, or Barclays, I would be very afraid.

The question is, can the banking industry make the kinds of big changes they need to make in order to avoid disruption? Towards this end, banks should take note of this recent survey and start thinking about how to bundle services to create value and inspire loyalty. In the end, it’s all about how banks can maintain relevance in these shifting times.

THE NEW CPQ:

CONFIGURING DEALS VS CONFIGURING PRODUCTS

By An Ly, Product Marketing at Zuora

When it comes to today’s modern business models, you don’t need to configure products, you need to configure deals. What do we mean by that? Quick background: CPQ (Configure, Price, Quote) software is technology that helps sales teams quickly produce accurate quotes. When product offerings grow, many businesses choose to start using a CPQ to help manage the complexity of pricing. To be honest, in most situations the majority of businesses can manage pricing and quoting for their products without a CPQ. Unless your sales team is making serious errors or losing prospects due to a long and messy quoting process, then a traditional CPQ isn’t going to bring great value to your business. But what you do need is a system that can support your ability to configure deals.

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CONFIGURING PRODUCTS VS CONFIGURING DEALS? This isn’t just semantics. The difference is huge. Traditional CPQs weren’t built to support today’s modern business models. They are built to configure product cost. But today’s monetization models are built around outcomes, not products. Thus, businesses have shifted from configuring products to configuring deals. Let’s take a closer look. In the old product world, you were swimming in a mountain of SKUs. Each SKU represented a shirt color, a hard drive size, an engine speed, etc. To configure a product, your customer would select their SKU, and tell you how much of it they wanted. You’d attach the price, sum the total, and stamp the quote with the date. When you’re quoting in a product world, your quote simply turned into an invoice and a bill of materials that shipped out with the product. That’s configuring a product. In the subscription world, you’re thinking about how to configure a deal. It’s not just about a quantity, product, and price. You now have deals with varying prices, charge models, discounts, contract durations, and billing frequencies that change over the lifetime of a contract. In the subscription world, every quote fires off a series of actions that happen throughout the entire order-to-revenue lifecycle. Consider a typical subscription quote spanning three years that starts with an upfront platform fee, includes an overage usage fee that’s billed monthly in arrears, and a discount applied in the first year while quantities are ramping up. Because all these varying parts of your quote span multiple years, you’re not just check summing the total like you did on a product quote. Now you’ve got a new set of forward-looking metrics—including Annual Contract Value, Total Contract Value, and Total Contract Billing—to look after.

COMMON DEAL SCENARIOS To configure deals you need the ability to manage these common deal scenarios and complexities:

Ramp deals.

Extending the terms of an existing contract.

Customer-specific pricing.

When one or more variables in your deal steps

There are many use cases where you’d need to

Every customer is different. They

up or down over time, you need the ability to

extend the terms of an existing contract. Your

value your products and services

manage the ramp. The days when customers

customer may want to add a new product in the

differently and want the ability to

buy everything upfront are few and far between.

middle of their term or maybe it took longer than

pay based on their perceived value.

Today’s consumers want to be able to sign up for

expected for the customer to go live so you need

This means you need to allow

a multi-year agreement and have the flexibility

to push out the end date of the existing contract.

customers to mix and match any

and freedom to make changes throughout their

This is a common deal scenario that shouldn’t

variation of charge models, from

contract, whether that’s increasing the number

require the deletion of one quote and creation of

one-time, to recurring, to volume

of seats as their business grows, redeeming a

another quote to represent each contract change.

tiers with overage rates, promotions,

discount during an implementation period, adding

limited time discounts, and more.

and removing products, or even changing the overall ramp frequency from annual to quarterly to monthly as needed.

Downstream impacts. There are major downstream impacts to billing, payments, and revenue that occur every time you sell into your existing customer base. Let’s say one of your customers decides to upgrade. You have to be able to go back and amend an existing quote, create an order for that quote thus kicking off a series of downstream actions. You’ll need to deprovision old services and provision new, generate a new set of recurring invoices with related credits and prorations applied, collect the payment due and retry any that have failed, and, finally, update ASC 606 compliant revenue contracts and performance obligations. Without a system that can support the entire order-to-revenue process, a business will not be able to properly support mission-critical growth initiatives.

“Every customer is different. They value your products and services differently and want the ability to pay based on their perceived value.”

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Future contracted bookings and best case upsell opportunities.

Sales compensation model.

FALL 2018

Forward-looking metrics.

What you close and when you close affects

Subscription metrics like Monthly

As you’re selling through each quarter, you’ll

your sales compensation model. You might be

Recurring

want foresight into your future contracted

retiring quota by ACV, based on the incremental

Retention, and Customer Lifetime

bookings and best case upsell opportunities.

changes to ARR; by TCV, based on the total value

Value are important not just to pay

Seeing ACV broken out by future quarters and

of the multi-year agreement; or by TCB, based on

out on any sales compensation

opportunity types like new business, contracted

how much you bill your customers. In a recent

model and to forecast bookings,

ramp, and renewals lets you see what you’ve

CFO survey, 48% of CFOs said they retire quota

but to identify upsell opportunities,

already got in the bag. And understanding how

attainment based on ACV. Regardless of which

ward off churn, satisfy your board,

customers are actually using your products and

compensation model you take, you need to be

and get a read on the general

services allows you to identify new upsell and

able to get the right set of metrics that your sales

financial health of your business.

cross-sell opportunities.

compensation tools can use to accurately pay out your sales reps.

So the question is: Is your business configuring deals or products?

Revenue (MRR), Net

# Subscribe To Diversity By Erika Malzberg, Senior Staff Writer at Zuora

Diversity is on a lot of people’s minds lately. And it’s certainly

Diversity is not an easy topic. It requires a lot of conversations.

top of mind for us at Zuora as we continually work to bring this

This year we were really strategic about selecting a panel

conversation into the forefront.

that wasn’t afraid to go deep and have candid dialogue

As part of our efforts around this critical topic, it’s become one

about diversity.

of our most treasured Subscribed traditions to host a breakfast

We were delighted to host Emily Chang, Anchor, Bloomberg

panel on diversity and inclusion.

Technology and author of BROTOPIA: Breaking up the Boys

At this year’s recent Subscribed conference in San Francisco, we launched a new theme for our breakfast discussion: #SubscribeToDiversity. To subscribe means to accept, believe, endorse, support, and champion. When we #SubscribeToDiversity, we champion prioritizing diversity and driving meaningful change.

Club of Silicon Valley; Suzanne McKechnie Klahr, Founder & CEO Build.org; Jennifer Tejada, CEO PagerDuty & Board Director Estee Lauder; and Tariq Meyers, Global Head of Belonging & Inclusion at Coinbase and prior Head of Diversity at Lyft.

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HERE ARE JUST A FEW HIGHLIGHTS FROM THIS EYE-OPENING AND INSPIRATIONAL DISCUSSION:

EMILY CHANG @EMILYCHANGTV @TECHNOLOGY

“I think it’s really difficult to have inclusion without diversity, so the numbers need to substantially change for culture to really shift.”

“Everyone is measuring diversity now. People are feeling pressure to do this. But how do you measure inclusion—how do you measure if you feel like you belong, or you have sponsorship?”

“Raising awareness about bias isn’t necessarily going to have a huge impact. It’s not enough to just say to someone ‘Change the way you think about women.’ You actually have to give people the tools to combat their bias.”

“Diversity is being asked to the dance, but inclusion is being asked to dance.”

“In 1984 women hit the high point of degrees in computer science. They were earning 37% of computer science degrees. That has since plummeted to 18%, where it’s been completely flat for the last 10 years. The tech industry created the pipeline problem but today the tech industry is reinforcing the pipeline problem. You can’t be what you can’t see.”

“This is an industry filled with the smartest people in the world, and the most money in the world. If we can get to Mars and build self-

SUZANNE MCKECHNIE KLAHR @SMKLAHR @BUILDNATIONAL

driving cars, and rides at the push of a button, we can hire more women, and pay them fairly, and fund their ideas. That is not too hard for Silicon Valley to do.”

FALL 2018

“Do you see employees of all types turning up together to try to solve challenges. That’s one of the best leading indicators that you’re onto something.”

“Play the long game and follow intent with money. I invest a lot of time with our initiatives. I am asking and demanding that our team gives personal time. We’ve chosen to take on the risk of a long recruitment cycle to make sure that every panel is half

JENNIFER TEJADA

underrepresented communities.”

@JENNTEJADA @PAGERDUTY

“I am going to prove through my own business that you can impact inclusion and belonging and have balance in the workplace and build a culture that brings out the best “It’s one thing to say you want to be a diverse

in everybody, that gives every person in

organization, but what’s your goal? Do you

your business an equal opportunity to kill it,

have operationalized processes to get to that

every person in your community to have the

goal? Do you have the support and sponsorship

career opportunity of a lifetime. Why does

of everyone from your board to your CEO to

this matter to me? Because my 13-year-old

executive sponsorship? Are you actually going

daughter deserves the same opportunities as

to do the work to measure your progress,

everyone sitting around or beside her, above or

which means exposing when things don’t go

below her.”

to plan and having conversations about why aren’t these things working?” “My job as a CEO is to find the best people and bring out the best in those people in service to “What’s the intent? How are you improving

our customers and our stakeholders.”

your commitment and investment to diversity? Where is the money coming from? We won’t work with a recruiter who can’t deliver diverse candidates. I’m not going to partner with a firm that doesn’t demonstrate commitment to this change. That’s how you start an ecosystem of change.”

“Speaking the language of diversity and inclusion is learning a new language. It’s clumsy, your grammar is bad, you’ll possibly sound stupid and offend people. So people sometimes prefer not to speak it. But you just need to get out there and try and demonstrate that it’s okay to fail.”

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“My goal is to make sure we’re not only expanding

“When we start having conversations about

our breadth and depth in the consumer base but

equality, we get really concerned about what

that we’re also reflecting the world that we’re

we’re going to have to ‘give up’ to broaden

trying to build the system for.”

the opportunity landscape. I understand that equality is a threat to privilege.”

“Under represented communities are a real talent power. They have the ability to choose

“We’re talking about unconscious bias training

now more than ever because companies are

and everyone’s excited about it, checking the box.

competing for their talent. So that’s a signal to

But we’re not actually talking about how to go

focus less on trying to create the best D&I report

a step further to stand with the communities

using rigid metrics that are only really focused

that need us.”

on moving the needle for certain demographics and instead double down on the employee experience to create a culture that will thrive.”

“Bring the center to the margins and bear witness to the experiences of those who have been most left out.”

“My favorite poem is ‘The flower doesn’t dream of the bee. The flower blossoms and the bee comes.’ And in my mind, instead of companies constantly dreaming about finding underrepresented talent, diverse talent in the industry, instead, let’s make sure that our company is the best place to work. That we have the safeguards and policies and practices to really encapsulate the employee experience, and, by that very nature, folks who have been historically left out will be attracted to your business.”

JOIN US AS WE #SUBSCRIBETODIVERSITY !

TARIQ MEYERS @THETARIQMEYERS @COINBASE

FALL 2018

WHAT THE

MAGAZINE INDUSTRY CAN TEACH THE REST OF US ABOUT

SUBSCRIPTIONS

SARAH WILKINSON CONSUMER MARKETING DIRECTOR, TI MEDIA

As a subscription marketer of over 15 years, I’ve observed, with ever more excitement, how the subscription model has become the norm rather than the exception for many of us today. With more and more opportunities for customers to purchase products and services on subscription (everything from TV to telephones to razors to ink cartridges), there’s never been a more interesting time to work in this field. Indeed with the market so well-educated to accept subscriptions, this really is a golden opportunity to develop a new and robust revenue line for your business. When I first started my career in magazines, subscription marketing was still in its infancy, and very much regarded as the “less exciting” area of the business. We certainly weren’t considered as cool as the glamorous brand marketers who organized large retail promotions and exclusive events such as the NME awards. But for me, as a self-proclaimed data geek, the opportunity to really understand our customers, analyze their behavior, and build longterm, one-to-one relationships with them is much more exciting than, say, getting upfront and personal with Oasis.

So, starting at the beginning, why are subscriptions so important to publishers and what, if anything, can businesses beginning their subscriptions journey learn from our experience? For TI Media, the data speaks for itself—the lifetime value of a subscriber is on average more than four times higher than that of a retail customer, and while retail revenues are being challenged across the industry, subscription revenues continue to grow. We optimise every part of the customer lifecycle, embracing new technology as we go, and put data at the heart of everything we do.

As a team, we are structured around areas of expertise—digital acquisition, offline acquisition, e-commerce, loyalty, customer experience, and data—ensuring that we can optimise performance in each area. Projects are tackled in squads, pulling resources together from each key area to increase agility, all the time ensuring a great experience for customers. The way we tackle each area of our customer lifecycle is certainly not unique to publishing, and, as such, hopefully there will be some relevant takeaways here:

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FALL 2018

encourage a subscription trial. We always ask for

AWARENESS

a small upfront payment (£1) and make the followon payment very clear, to ensure customers are aware right from the start what they are signing up for. We see varying levels of attrition following

Retail is our shop window, and we promote

a trial period, depending on the markets in which

subscriptions heavily within the magazines

we operate (specialist markets such as cycling

themselves using a combination of ads and

seeing low levels of attrition, lifestyle markets

inserts (the two combined proving to be our

such as fashion seeing high levels), so we adapt

winning formula). We offer customers a clear

the strategy accordingly.

saving on the shop price if they commit to a subscription, generally a discount between 20% and 30%. These subscribers tend to be our most engaged, and, as such, generate the highest lifetime value. We also exploit all opportunities to collect customer data at retail, so that we can continue to promote subscriptions directly using competitions as well as access to our online rewards platform “My Magazine Rewards.”

CONVERSION

Partnerships are another pivotal part of our awareness strategy. We work closely with

We spend a significant amount of time ensuring

carefully selected partners to put “mini-

that all our customer touchpoints are as easy

subscriptions,” or short-term deals intended

and logical as possible. We are constantly

to initiate engagement with the brand, into

optimising the funnel on our ecommerce platform

customers’ hands. For example, we recently ran

magazinesdirect.com, and we know that just

a hugely successful campaign with O2 Priority

small changes, such as the way we display

Moments where we offered customers a free

payment methods, can have a significant impact

three-month subscription to one of ten different

on conversion. In addition we work closely with

magazines. The campaign was truly symbiotic, as

customer care teams to not only ensure they

O2 got to thank and reward their customers and

provide the best service, but also capture all the

we drove awareness in a new market.

key issues and reasons for cancellation, so we can work to resolve them.

Trials can also be a very effective awareness tool, and we tend to use them for “cooler” marketing channels where customers are less engaged. We may give away a free issue in exchange for data, for example, and subsequently upsell a subscription. We also use what we call “X for X” campaigns such as three issues for a pound, to

PROFILING

PROMOTION

We use a variety of methods to capture data,

Over time we’ve seen a significant shift in sales

but the most successful efforts are driven by

driven from offline to digital channels, with big

our content. Most of our brands have a daily

increases in PPC (pay-per-click), email and

or weekly content email, and we use these to

social channels. When it comes to promoting

capture email addresses and data preferences

subscriptions, we find it’s not how beautiful

across all our websites and social channels. For

our campaigns are, it’s how frictionless the

a number of brands, we’ll also collect additional

experience is that drives response. Is it clear

data. For example, on Woman & Home we ask

what the customer is signing up for? Is it obvious

customers whether they are interesting in beauty,

where they need to go? How straightforward is it

fashion, diet, or travel. That enables us to focus

when they get there?

the content to increase their engagement. We test every element of each campaign to Our HDP (holistic data platform) sits at the heart

ensure it’s optimised over time. For example, on

of everything we do, pulling together all customer

email we know that urgency drives response, so

interactions in one place in order to ensure a

we use daily and weekly deal promotions with

single customer view. We’ll overlay RFM (recency,

a countdown timer. We’ve found that showing a

frequency, monetary value) to identify our most

range of covers rather than just one increases click

and least engaged customers. That drives the

through rates. Making it clear that customers can

contact strategy: new customers are served a

continue their subscription and cancel any time

“welcome series” (showcasing the brand rather

also drives significant increases in conversion.

than a straight sales message), highly engaged customers are sold subscriptions alongside additional products and services, and less engaged customers are nurtured and likely to receive low commitment trial offers.

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FALL 2018

LOYALTY

PRICING

In a business as mature as ours, renewing

Underpinning our entire marketing strategy

customers are responsible for 80% of our

is pricing. This is an area we continue to test

business, so this area receives our biggest focus.

as buying habits change. One size definitely

For us, loyalty starts at acquisition. We know

doesn’t fit all and, as such, we use a range of

that if we can get the customer’s authority to

prices and offers across our portfolio. In order

bill and take payments automatically we will

to drive lifetime value, we use introductory offers

achieve a higher lifetime value than one opting

for new customers—offering between 20% and

for a fixed term on a single payment. This is why

30% discount. And then, at renewal, we increase

we incentivise this decision by offering a higher

the price so that the discount is slightly lower:

discount for customers opting in to automatic

between 20% and 10%. Our biggest learning is

payments. We often default to this payment type

that offers wear out—we need to update them

when we know customers are already engaged.

regularly to keep driving acquisition.

For customers opting to receive annual

Looking at the future, there’s never been a better

subscriptions, we segment as we do at acquisition,

time to launch a subscriptions proposition. With

using propensity modelling to drive the contact

nine out of ten Brits choosing to subscribe to their

strategy. In general, we find that key indicators

favourite stores, brands, and services (this from a

for renewal are price paid, length of time as a

YouGov and Zuora study), adoption will continue

subscriber, and acquisition channel. We use

well into 2019. From a marketing perspective,

these indicators to tailor our communications. We

ever increasing amounts of data provide more

also segment out subscriptions given as a gift, so

opportunities to build that all important one-to-

that we talk first to the donor, and subsequently

one relationship.

the recipient.

Research & Benchmarks

Community & Conversation

www.subscribedinstitute.com

Events & Engagement

OVERHEARD AT

SUBSCRIBED By Erika Malzberg, Senior Staff Writer at Zuora

Subscribed, the conference. What started as a Zuora customer event in San Francisco in 2012 has grown exponentially in size and scaleâ&#x20AC;&#x201D;and expanded globally, from New York to Melbourne, Tokyo to Paris, London to Boston, Tel Aviv to Stockholm. Here we take a look back at some highlights from this past year of Subscribed events.

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FALL 2018

“We realized it was important to deliver a whole new way to consume products and services, even for a security business.” Sheila Jordan CIO, Symantec

“ARR, conversion, churn, burn—these metrics are new. If you can’t measure, you can’t manage a business.” Simon Minett Head of Global Operations, Unify

“The Subscription Economy offers freedom: Freedom from products, from obsolescence, from barriers of time and location, freedom from one size fits all, freedom from “you can have any color you want...as long as it’s black.” Freedom to try, buy, upgrade, downgrade, pause, cancel, rejoin.” Tien Tzuo CEO, Zuora

“The key to any successful company is being customer-centric. As we work with our customer base, it’s driven us more into a service business.” Tom Bucklar Director of IoT and Digital, Caterpillar

“When new companies disrupt, that’s cool.. but more interesting is when legacy companies disrupt, because they have to transform as well.” Martin Whitlock CTO, Telenor Connexion

“Simplify everything. ARR drives all. Once you know your ARR level, you can go and make some decisions. This is fundamentally different from thinking about revenue. Our GAAP financials are at the end. If we get the subscription stuff worked out right, the GAAP stuff will fall out.” Tyler Sloat CFO, Zuora

“If you’re going to give something away for free, think hard about the value you’re giving to that user and the value you’re getting back—and be very deliberate about that.” Neal Patel Head of BD and Sales, Crunchbase

“Acquisition, monetization, retention– which one do you really want? There has to be an inherent trade off.” Mark Billige Managing Partner, Simon Kucher & Partners

“Leo Fender actually never played guitar. But he listened to artists. At Fender we still believe in listening to our customers.”

“Pay as you go has deeply influenced the offerings of B2B companies. Usage is increasingly replacing ownership.”

Andy Mooney

Eric Lucas

CEO, Fender

CEO, Econocom

2015 10

USD $20

2018 09

Subscribed Magazine, Fall 2018

Articles inside

What the Magazine Industry Can Teach the Rest of Us About Subscriptions

What The Magazine Industry Can Teach the Rest of Us About Subscriptions

The New Role of the CIO: Business Transformation Leader

New Accounting Standards Require Subscription Businesses to Act Now

The WTF Moment