The WTF Moment

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.

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.

Games are arguably bigger than Hollywood, and there are several parallels between the two industries. Much like Hollywood blockbuster franchises, every big game brand is a franchise, and their revenues are massively front-loaded in boom-or-bust release weekends. A major 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 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 the ascent. Retail channels like GameStop have been struggling lately. Not to pick on GameStop, but this news isn’t surprising—Starbucks still sells CDs to the occasional baby boomer, but for everyone else (and millennials in particular) on-demand media consumption is the accepted norm. And much like Hollywood, the video game industry is keenly interested in pursuing a multiscreen strategy: a console, a phone, a device like a Nintendo Switch, a store, a streaming site like Twitch, or even Madison Square Garden or the Staples Center for a big e-sports competition. Your average video game player is having all kinds of experiences with video games, generated by a myriad number of channels. She’s playing online with friends, paying for downloadable content (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.

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 in two years, probably only half the people who bought Starship Blasters III: Still Blastin’ will buy Starship Blasters IV: Blastageddon. And you know the kinds of experiences your player wants to have with her games just don’t align to a biannual release schedule.

So, you figure, if you can spread the $60 gamecost over a year for five bucks a month, andhold on to that player with lots of cool newdownloadable content, you’ll do better in thelong run. She won’t get bummed out payinglots of money for the occasional dud game, andyour company will benefit from a stable revenuemodel that’s less reliant on the ups and downsof Hollywood economics. You’ll also start everyquarter with a platform of recurring revenue toinvest as you see fit. As Final Fantasy producerNaoki 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.”

So, it’s decided. No more big splashy releases every two years. For just five bucks a month, now your player gets Star Blasters as a service— constant innovation, rolling updates, continuous engagement. Everybody wins. You slave away on an impressive PowerPoint presentation, the big board meeting happens, and then the companywide email goes out, and every department receives a clear set of directives and deliverables around shifting to this new business model, with a final due date.

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?

By Tien Tzuo, Founder and CEO of Zuora, and Gabe Weisert, Managing Editor at Zuora