Subscribed Magazine, Spring 2019 by Jayne Gonzalez

SPRING 2019

BRIAN HOYT

UNITY TECHNOLOGIES

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

MEET THE TEAM

Managing Editor Aarthi Rayapura Staff Writers Gabe Weisert Erika Malzerg Brand Manager Lauren Glish Visual Designer Peishan Li Contributors Michele Jackson Laura Scholes Deborah Adeyanju Julie Norwell

Published By Zuora,Inc. 3050 South Delaware Street #301 San Mateo, CA 94403 (800)425-1281

OWNERSHIP IS DEAD. LONG LIVE USERSHIP.

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The Subscription Economy Index, 2019

Spoiler Alert: The Real Battle On Television Is For LongTerm Subscribers

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The Company That Owns Its Customers, Wins

What Goldilocks Can Teach Us About Fending Off Amazon

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PwC’s 2018 Q4 Accounting Change Survey

What’s Revenue Recognition Got To Do With Subscription Growth?

p70 Printed on 100% recycled paper

Wait...There’s A Subscription For That?

THE FUTURE OF p10

GAMING Unity Technologies

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FINANCIAL PLANNING eMoney

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MANUFACTURING NCR

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THE WORKPLACE

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CONSUMER HEALTHCARE

Philips

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WELLNESS TECH FOR SOCIAL GOOD

Small World Social

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MOBILITY

LETTER FROM THE EDITOR Aarthi Rayapura Managing Editor

In keeping with the spirit of Spring, this issue bids adieu to the age of ownership and welcomes the rise of usership. A recent global Harris poll showed that more than half of the people surveyed said they wished they could own less stuff; 70% believed that subscribing to products and services frees them from the burden of ownership; and nearly three-quarters believed that, in the future, people will subscribe to more services and own fewer physical products. This change in customer preferences towards usage and consumption over product ownership is driving some phenomenal business growth—the latest Subscription Economy Index shows that subscription companies have grown more than 300% in the past seven years. In this issue, we take a look at some of the leading companies that are adapting to the rise of usership and shaping the economy of the future. We learn how Unity Technologies is offering “imagination as a service” to new creators and changing the future of gaming; how eMoney is using technology to redefine the financial planning industry; how

Philips and NCR, brands that have been renowned for more than a century, understand that the future is about people, not products, and are embracing the subscription model to offer their customers better outcomes and experiences; and how Small World Social is using technology to build a better future for society. In addition, we also have some delightful photo features illustrating how this rise in usership is helping us to reimagine both the modern workplace and wellness. While we know that the future lies in subscriptions, we also know that succeeding with this new business model can be challenging for some companies. To help you navigate the journey, we share some insights from the new Subscription Economy Index and the Subscription Maturity Model. And we take a deep look at why a threecloud strategy is essential for customer-centric businesses and how revenue recognition automation can help drive subscription growth. We really enjoyed putting this issue together and hope you find it inspiring and insightful. Let’s continue to build the future, together!

P.S. If you’d like to subscribe to future issues or have feedback and story ideas, feel free to drop me a line at aarthi.rayapura@zuora.com.

SUBSCRIBED

SPRING 2019

FROM THE CATALOG By Erika Malzerg

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.

/ SHOES

/ BEAUTY

/ FITNESS

DIGITAL AGE

www.easykicks.com www.shoedazzle.com www.sneakertub.com

www.justfab.com www.zappos.com www.mensshoe.club

www.ipsy.com www.sephora.com www.birchbox.com

www.glossybox.com www.boxycharm.com www.beautybox.allure.com

www.gaia.com www.24hourfitness.com www.onepeloton.com

www.grokker.com www.booyafitness.com www.classpass.com

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SPRING 2019

By Tien Tzuo Founder and CEO of Zuora

Marie Kondo seems to be everywhere. Even on Netflix! I haven’t read her book, and I haven’t seen her show, but I know all about Marie Kondo. All my friends and colleagues can’t stop talking about her. They’re all getting rid of stuff like crazy, and making all kinds of jokes in meetings about things that spark joy. “Just another fad,” I thought at first, “this too shall pass.” But now I’m not so sure. Something bigger is going on. Something I call “The End of Ownership.” And the fact that Marie Kondo has such a broad appeal speaks to the fact that this is truly both a global and a cross-generational shift. In the year 2019, people just aren’t as interested in filling up their lives with possessions. We used to equate success with materialism—a fancy car, a big house, nice clothes. Today we’re all chasing after experiences instead. Just take a look at Instagram. But here’s the thing—while ownership is in decline, usership is on the rise. What do I mean by that? Something fascinating is happening in the global economy right now. In industry after industry, unit sales are down, but consumption is up. And what’s more, those industries are healthy and growing. Take a look at music—sales of CDs and song downloads continue to sink, but the music industry is on a tear. The industry is on its fifth year of consecutive growth. Music subscriptions now account for 62% of total music sales revenues, crossing the $10B mark for the first time ever. Or how about cars—global sales are down 2.8% from 2017. Millennials are about 29% less likely than those in Gen X to purchase a car. And after 20 years of booming sales in China, individual auto sales actually declined last year. That’s right—car sales are slowing in China! But according to the U.S Department of Energy, overall miles driven continues to rise. Uber and Lyft certainly seem to be doing fine. The list goes on. We’re not buying as many newspapers (around 30M copies last year, roughly on par with numbers from the 1940s), but digital news consumption is up 20% over last year. Movie sales are down, but video streaming is up. According to the MPAA, the number of subscriptions to online video services like Netflix reached 613M last year—a 27% annual increase. And we’re obviously buying fewer shrink-wrapped video games, but engagement with platforms like Fortnite (which made $3B last year!) is through the roof. The Harris Group, a company that’s known for its insights on consumer sentiment, recently surveyed more than 13,000 adults in 12 countries around the world. And they discovered some fascinating trends. Nearly three-quarters of adults believe that in the future, people will subscribe to more services and own fewer physical products. More than 70% of adults have subscription services, up from roughly 50% five years ago. And overall, a third of adults (34%) believe they will be using even more subscription services two years from now.

“A new economic model built around services is catching fire across every industry on the planet, because of access, sustainability, discovery, and growth.”

Product ownership is increasingly seen as a thing of the past. Over 70% of international adults believe that a person’s status is no longer defined by what they own. The same number agree that subscribing to services frees them from the hassles of maintenance. And more than half of the people they surveyed wished that they could own less stuff. It makes sense. If you’re not interested in care and upkeep, preferring access to ownership is way more reasonable. The bigger picture here is that the dominant economic model of the last 150 years is coming to a close, and it’s about damn time. Ever since the rise of industrial production, we’ve operated under a straightforward asset transfer model. Companies built and sold products to the market. The fundamental goal was to create a hit product. Once that was achieved, then a company could spread its fixed costs over as many units as possible, so it could compete on the margin. Of course, this entire system was predicated on planned obsolescence. Instead, let me give you four reasons why I’m looking forward to a world based around usership: For starters, usership benefits us as consumers, because we get to directly access the services that sit behind the products we use on a daily basis: music from records, mobility from cars, software from servers. Are you interested in the care and maintenance of your refrigerator, dishwasher, or lawnmower? If so, great, but most of us just want fresh food and clean clothes and a decentlooking yard.

Second, usership encourages sustainability. In this new model, the margin incentive shifts from “units” to “utilization.” If manufacturers don’t make sure that their equipment lasts as long as possible, and that the materials used to build that equipment are recycled or repurposed effectively, they will lose out to their competitors. It’s that simple. Ikea just launched a new furniture subscription program based on this principle. Third, running a service makes your company more efficient. Notice how you never have to deal with customer service calls or some ridiculous five-hour “service window” to have someone come fix your Netflix! When your revenue is tied to usage, you can’t afford any downtime. Which leads me to my fourth and final point— services bring growth. And not just growth, but sustainable growth. We’ve found from our own data that over the past seven years, subscription companies have grown more than 300% in the past seven years. 300%! Let that sink in. What’s more, they are growing revenues about 5 times faster than S&P 500 company revenues and U.S. retail sales. So what are the implications for your company? Well, it means you’re in the service industry now. Today, all companies are service companies (even if some of them don’t realize it yet!). They need to prioritize usage and consumption over strict unit sales. But don’t just take it from me. In fact, we’ve found from our own internal data that subscription

companies that take advantage of usage-based business models grow 1.5 times faster than companies that just rely on straightforward recurring payments. In other words, you need to think in terms of miles driven, not cars sold. Imagine if today’s automobile companies based their revenue models on daily distance traveled. Think about all the consumption that’s happening in ride-sharing services right now. Their revenues would be going up, not down. But to make this shift requires a fundamental transformation. You need to change your mindset. You need to be agile. And you need a whole new set of tools. Because in successful service businesses, even minor customer interactions can trigger any number of adjacent operations: activations, suspensions, revenue adjustments. Keep in mind—those are good things! They are indicators that customers are finding value from your service. That’s why at this year’s flagship Subscribed conference, June 4-5 in San Francisco, we’ll be announcing a whole new set of innovations that will help companies translate usage into growth. A new economic model built around services is catching fire across every industry on the planet, because of access, sustainability, discovery, and growth. It’s a fundamental commercial shift that focuses on usership, not ownership. And it’s happening right now. Which reminds me—I have a closet to clean out.

Head to www.subscribed.com to learn how your company can survive the end of ownership.

THE FUTURE OF GAMING: UNITY TECHNOLOGIES By Gabe Weisert

//A still from a demo called “Reality vs. Illusion: Unity Real-Time Ray Tracing.” The car was rendered in Unity using real-time ray tracing technology to more accurately mimic how light hits the car, providing a greater degree of photorealism.

“The company is really about the creators, and enabling their success.” Unity Technologies is shaping the future of gaming, one creator at a time. One of the world’s most popular developer platforms for rendering simulated environments, Unity is currently used to create over half of the world’s video games, as well as dozens of feature films, every year. The stunning demo reels on the company’s web site feature a dizzying array of artfully realized scenes, from hypnotic spiral galaxies to bleak polar tundras to postapocalyptic wastelands.

While the gaming industry is awash in huge investments and breathless headlines (Fortnite brought in $3B in profits last year), it can still be a high-volume, lowmargin industry that remains relentlessly competitive. The comparison to Hollywood has its limits, but franchise games frequently have the budgets of major feature films and can succeed or fail quickly owing to an exacting audience base.

// Book of the Dead is a real-time cinematic that showcases how developers can use Unity to create beautiful environments.

SUBSCRIBED

A few years ago, Unity decided to pursue a recurring revenue model as a hedge against boom-or-bust industry cycles. At the time, Unity was contending with several nice problems to have. Numbers were on their side—more games were being built on Unity’s gaming platform than any other. That also meant, of course, that massive numbers of developers were using their system all the time, for all manner of projects. The company was also growing through acquisitions, which further complicated matters in terms of back-end systems. The management team saw their transactional solutions failing as the company grew like wildfire. They needed a new model that could help them go-to-market quickly with smart new offerings for an exceptionally sharp and demanding client base. Brian Hoyt Chief Information Officer at Unity Technologies

But the company’s shift from perpetual licenses to subscriptions wasn’t just a financial imperative— it was a creative one as well. “In today’s world, we can’t leave customers behind for a year because we are in the process of releasing a major version,” said Unity cofounder Joachim Ante in a widely read blog post. “We think it would be very bad for Unity developers if we held features for a full number release, rather than launch these features along the way when they are ready. With our switch to subscription, we can make Unity incrementally better, every week. When a feature is complete, we will ship it. If it is not ready we will wait for the next point release. Our switch to subscription is absolutely necessary in order for us to provide a robust and stable platform.” Today, Joachim Ante’s commitment to iterative development is manifesting itself in all sorts of arresting and unusual ways. The company has dramatically expanded its vertical expertise to include a range of industries, including automotive, architecture, construction, and engineering. Today, Unity’s 1,000 person development team works alongside partners like Google, Facebook, Magic Leap, Oculus, and Microsoft. And the company recently partnered with NVIDIA to create a simulated 3D experience for BMW.

SPRING 2019

As it turns out, all sorts of industries need help imagining and visualizing new scenarios, new landscapes, and new test cases. And pretty soon, those simulated environments may start blending with our own. Unity is also working with some mind-melting new VR and AR technologies that recall Albert Einstein’s observation that “reality is merely an illusion, albeit a persistent one.” But as CIO Brian Hoyt notes, the company is only as successful as the creators on its platform. “The company is really about the creators, and enabling their success. It’s probably the most mission-driven company I’ve ever really encountered because everyone is super passionate about making sure that the creators are successful, whether they be in gaming or architecture or some other field. That’s a core, fundamental belief of the company. Everything kind of goes backwards from there, to be honest.” So how does the CIO’s role change in a rapidly expanding company that includes a sizeable number of PhDs in silicon engineering and graphics technology? “You have to be equal parts selfconfident and humble,” says Hoyt. “We are still a scaling company with a lot of challenges that are not going to be solved by me staring at a dashboard and trying to pump one or two percent out of a number, right? I spend my time talking to my peers in the business and with my team to make sure that nothing’s in their way. That’s what I do. I don’t like to hone in and try to shine up metrics and make them look great.” Today we’re all contending with dozens of individual business applications, each with their own set of performance metrics and reporting capabilities. As Zuora’s CIO Alvina Antar has observed, this can frequently present technology executives with a “forest for the trees” problem. The imperative for Subscription Economy CIOs has changed—it’s not about managing systems anymore. It’s about coordinating with fiercely intelligent people to address fiercely difficult problems. “I spend a lot of time on airplanes,” says Hoyt. “I think a lot of problems can be solved by going to visit somebody and sitting across a room and

addressing uncomfortable truths. So, rather than trying to make my people completely hate me by talking about KPIs, I try to manage my stakeholders and ask them to manage theirs.” So far Hoyt’s approach seems to be working. Unity is offering “imagination as a service” to hundreds of new creators every day, and building the future of gaming in the process.

// Pokemon Go and Beat Saber highlight the kind of

// Baymax Dreams is a series of broadcast-quality shorts inspired by Disney Television Animation’s “Big Hero 6 The

AR and VR experiences you can build in Unity.

Series,” created and rendered in real-time in Unity. The team behind the project also just recently won a Technology and Engineering Emmy for the project.

// Hollow Knight is a great example of a well-known game made with Unity.

// The Heretic is the latest real-time cinematic created by the Unity Demo Team. It utilizes Unityâ&#x20AC;&#x2122;s High Definition Render Pipeline, along with other off-the-shelf Unity technologies, to demonstrate what is possible today in Unity.

THE FUTURE OF FINANCIAL PLANNING: EMONEY

By Aarthi Rayapura

While the financial industry has been notoriously slow to employ the full potential of new technologies, new financial technology startups are driving the development of compelling new business models. There’s Venmo for splitting tabs, RobinHood for buying stocks, and Lemonade for buying insurance. Leading the charge on financial planning is eMoney Advisor, a provider of planning-led wealth management software and solutions for financial advisors, firms, and enterprises. Its tools are used by some of the biggest financial firms around the country and its market share is among the highest in the industry. In 2015, a very forward-thinking Fidelity Investments acquired eMoney. Since the acquisition, eMoney has expanded its product roadmap, doubled its employee size, and grown its client base. Its aggregate assets are now worth a whopping $2.3T. A Changing Industry “The financial advice industry is in the middle of a transformative period. The business models that have underpinned the sector since its inception are being disrupted and reshaped by a number of forces ranging from regulatory pressure to technological change,” says Megan Murray, head of finance at eMoney. “The commissionbased model financial advisors have typically seen success from is being challenged as the industry—and perhaps more importantly, its investors—embrace an advice-based approach that provides advisors with the opportunity to charge for their service rather than only for the products they sell.” The industry also now focuses on comprehensive financial planning— that is, identifying financial goals unique to each investor for different stages in their lives. For example, an investor might want to build college funds for her children, buy a vacation home, or retire at 55. Younger folks may not even have money to invest yet. Instead, they need a financial plan to help them pay off student debt or manage budgeting and spending. Advisors help them develop a wealth management roadmap that forecasts how these goals might be achieved. Naturally, today’s tech-savvy investors demand more visibility in the management of their plans and the flexibility to

Megan Murray Head of Finance at eMoney Advisor

SUBSCRIBED

change them as needed wherever they are, on whatever device they choose. “We understand that leading with financial planning might be a big change for some of our clients. Whether it’s a technology change, a behavior change, a workflow change, or all three, we strive for seamless implementation and high user adoption. Ultimately, we strive to help our clients work more efficiently to drive business growth and provide better outcomes for their clients,” says Murray. The “FlexGen” Movement The advisors who are succeeding in meeting these new customer needs are what eMoney calls “FlexGen Advisors.” “FlexGen advisors have a fresh mindset and view opportunities where many traditional advisors may see challenges,” explains Murray. They display common traits such as embracing change, a love of learning, challenging conventions, being forward-thinking, focusing on delivering a great client experience, and utilizing technology more often to achieve these goals. When eMoney surveyed 458 financial advisors in partnership with Fidelity in the 2018 FlexGen Advisor Study1, it found that advisors with these traits reported, on average, a 24% increase in assets under management compared to a 14% increase by their peers. FlexGen Advisors were also found to more often provide clients with an interactive experience (82%) than their peers (47%). “FlexGen advisors are making waves and doing some really exciting things to transform the industry and how they serve their clients. By applying new technologies and strategies, FlexGen Advisors are improving the way they develop and market their businesses, shape their client experiences, and build their work environments,” says Murray. Innovating for the Customer “eMoney adapts a FlexGen mindset to how we operate as well. This is evidenced in the decision to work with partners like Zuora, who helped us transform important parts of our client experience,” says Murray.

SPRING 2019

A few years ago, eMoney realized it had to revamp its service model. The company was operating offline and knew it wasn’t scalable, and customers wanted a better digital experience. It partnered with Zuora and successfully transformed itself from a traditional service model to a subscription-based business model. One of the key benefits of the change has been the ability to offer an improved customer experience via an extensible self-service platform for customers to view contracts and update payments online. Delivering innovation to its customers is a core company value. “We’re constantly researching, building, and testing new prototypes and solutions behind the scenes that solve for many of the challenges our clients say they face,” says Murray. Once the company has a new product or feature to launch, it uses agile methodology to go to market more quickly. Being agile means that eMoney iterates in shorter periods of time to ensure the product or feature is where it needs to be, making adjustments along the way. Customer feedback is taken very seriously and plays a key role in the innovation process. In fact, the company has an entire platform called UserVoice that’s dedicated to capturing and prioritizing client feedback so it can be incorporated into the company’s roadmap. It is this focus on continuously evolving the customer experience that has ensured customer satisfaction is at an all-time high. eMoney ranked first in the industry in customer satisfaction (8.05/10) in a recent study by T3 (T3/Inside Information Software Survey, 2019). With more than 60,000 happy customers, its unbeatable innovation, and, a customer-centric approach, eMoney is redefining financial planning for the financial industry of tomorrow.

2018 Fidelity Financial Advisor Community—FlexGen Study

THE FUTURE OF MANUFACTURING: NCR The 135 Year-Old Startup

From the dawn of the product economy to the dawn of the Subscription Economy, NCR has a habit of anticipating sweeping commercial shifts. In just under a decade, this multi-billion dollar enterprise has transformed itself from a leading technology vendor to a truly customer-centric service provider. Today that transition is reflected in its prescient leadership, its operational mindset, and its dynamic business model. But in fact, the story of NCR and innovation traces its roots to the birth of the modern American economy. NCR got its start in 1884, selling cash registers to saloons and retail establishments throughout the Western United States. Founder John Patterson took advantage of what he perceived to be a profound commercial shift—a largely regional bartering economy was shifting to a national, cash-based product economy. With that broad vision in mind, Patterson started the country’s first sales training academy, introduced the concept of

sales quotas, and eventually spread his business to over 120 countries. (In 1914, Mr. Patterson made one misstep, however, in firing a top sales executive named Thomas Watson, who later went on to found IBM.) Since those early days, the former National Cash Register company has moved from strength to strength, inventing the electronic cash register, the magnetic credit card strip, and self checkout machines along the way. Today the company provides leading business solutions for industries large and small, including banks, restaurants, grocery stores, theaters, airlines, and modern stadiums and arenas. From pop-up food trucks looking for a way to accept credit card payments, to global restaurant brands looking for enterprise restaurant POS systems, NCR has a solution. It’s been eight years since NCR first ventured into subscriptions and services with its acquisition

By Gabe Weisert

SUBSCRIBED

SPRING 2019

“We are elevating our investment in digital-focused strategic growth platforms as we look to accelerate our mix shift to recurring software and services revenues.”

Joe Koscik Vice President of Information Services at NCR

of Radiant Systems in 2011. Back then, NCR started with $50M in subscription revenues, largely handled with spreadsheets and ERP solutions. Today 40% of the company’s revenue mix is recurring, and NCR has plans to grow that figure to over 60% within five years. What began as an operational experiment has quickly evolved into a corporate mandate.

digital-first restaurant; digital-first retail; digital connected services; digital convenience and fuel; and digital small business essentials. As CEO Michael Hayford noted on a recent earnings call, “We are elevating our investment in digitalfocused strategic growth platforms as we look to accelerate our mix shift to recurring software and services revenues.”

What kind of priorities does Joe Koscik, Vice President of Information Services at NCR, look for in a subscription management strategy? “Number one, can it support how our strategy team wants to go to market? In most cases, we’re able to do that very quickly. Number two is the agility. How fast can we get that business up and running? Today, we are looking at selling our entire Pointof-Sale system as a subscription—so think about the terminal, the software, the loyalty, the back of the restaurant.”

And the entire organization is clearly aligned around these priorities. As Mark Sisco, Director of Operations, said, “The ability to switch from Capex to Opex has been one of the main drivers from NCR to explore new business models. The subscription model has allowed us to introduce offerings that are very robust, quite affordable, and easy to access by small customers who don’t have a lot of technical knowledge or a lot of capital to outlay.”

His CIO Bill VanCuren concurs: “Gone are the days of buying large up-front enterprise licenses. Our customers are demanding variable pricing models. Why? Because the time to implement is more aligned with their needs. The lower cost of entry is much more appealing, and it’s simply less of a balance sheet obligation for them up front. Our customers want choices.” For 2019, NCR has defined six strategic growth platforms for investment: digital-first banking;

NCR understands that the future really isn’t about products so much as people—delivering relevant outcomes based on customer needs. And the company has an excellent track record of recognizing those needs (not to mention larger macroeconomic trends). Here’s to the next 135 years!

THE SUBSCRIPTION ECONOMY INDEX Recurring revenue-based business models have exploded over the last decade owing to digitally enabled, pay-as-you-go services. As globalization has placed increasing margin strains on manufacturing and product sales, subscription-based businesses have benefited from stable and predictable revenue projections, data-driven insights from direct consumer relationships, and large economies of scale owing to relatively small fixed costs. IDC predicts that by 2020, 50% of the world’s largest enterprises will see the majority of their business depend on their ability to create digitally enhanced products, services, and experiences. Gartner predicts that by 2023, 75% of organizations selling direct to consumers will offer subscription services. And in its Digital Commerce State of the Union survey , Gartner found that 70% of organizations have deployed, or are considering the deployment of, subscription services. This is a broad, secular shift. The Subscription Economy Index™ report (SEI) is based on anonymized, aggregated, system-generated activity on the Zuora service, a comprehensive platform for subscription-based businesses. This index reflects the growth metrics of hundreds of companies around the world, and spans a number of industries including SaaS, IoT, media, telecommunications, and corporate services. Because the SEI data goes back to 2012, it reflects seven years of growth of the Subscription Economy. This edition of the SEI features new results from the second half of the 2018 calendar year. This study was conducted by Zuora’s Chief Data Scientist, Carl Gold.

SUBSCRIBED

KEY FINDINGS

SPRING 2019

THE SUBSCRIPTION ECONOMY INDEX LEVEL VERSUS S&P 500 AND RETAIL SALES GROWTH

Subscription companies have grown more than 300% in the past seven years. Overall, subscription businesses are growing revenues about 5 times faster than S&P 500 company revenues and U.S. retail sales.

Subscription companies have grown more than 300% in the past seven years. An average company in the Subscription Economy has grown its revenue by 321% since the launch of the index in January 2012, a compound annual growth rate of 18.1%. In addition, the Subscription Economy Main Index, in calendar year 2018, crossed 300% growth for the first time in Q3 and ended Q4 at 321%. Overall, subscription businesses are growing revenues about 5 times faster than S&P 500 company revenues and U.S. retail sales. Subscription companies grew 18.1% versus a 3.6% average for both the S&P 500 and U.S. retail sales in the seven years from January 1, 2012 to December 31, 2018. The long-term historical average growth rate of the SEI level is 18.1%, and 2018 ended with an above average growth rate of 19.8%.

THE SUBSCRIPTION ECONOMY INDEX GROWTH RATE AND GDP GROWTH 30.0

4.2

28.0

24.0

3.2

22.0 2.7

20.0 18.0

2.2

16.0 14.0

GDP Annual Growth Rate (%)

3.7

26.0 SEI Annual Growth Rate (%)

1.7

12.0 1.2

GDP

420 Q

320 Q

220 Q

120

17 Q

420

320 Q

220

120 Q

420 Q

320 Q

220

10.0

The Subscription Economy Index growth rate correlates with GDP.

SEI

The Subscription Economy Index growth rate correlates with GDP. The SEI data demonstrated a consistent pattern with broader economic trends. In 2017, the SEI companies led the way into a period of high growth in Q1, one quarter before GDP growth accelerated in Q2. In the first half of 2018, growth in the SEI level peaked in Q1, one quarter before the peak of GDP growth in Q2. And in the latter part of 2018, the Subscription Economy led the way again, slowing in Q2 while GDP growth began slowing in Q3 and is still slowing now, while the SEI level is on the rise.

KEY FINDINGS

EMEA SEI AND COMPARABLE GROWTH INDICES 190 180

European subscription growth surpasses North America.

Cummulative Sales Growth

170 160 150

Asia-Pacific (APAC) Subscription Economy growth exceeds sales growth in regional stock market indices by a wide margin.

140 130 120 110

EMEA SEI

NoAm SEI

FTSE Sales

18 Q

420

18 Q

320

18 Q

220

18 Q

DAX Sales

120

17 420

17 320

17 Q

220

17 120 Q

16 420

320

16 220

16 Q

120 Q

100

CAC Sales

European subscription growth surpasses North America. Europe is now trending well ahead of North America with cumulative growth of 64% over the course of 2017 and 2018, compared to 48% growth for North America over the same two years. Overall, EMEA subscription companies saw a CAGR of 25.6% and North American companies saw a CAGR of 21.6%.

APAC SEI & COMPARABLE SALES GROWTH INDICES

120 118

Cumulative Sales Growth

116 114 112 110 108 106 104 102 100

1/1/18 SEI Main

Q1-2018 APAC SEI

Nikkei Sales (Japan)

Q2-2018

Q3-2018

NZX Sales (New Zealand)

Q4-2018 ASX Sales (Australia)

Asia-Pacific (APAC) Subscription Economy growth exceeds sales growth in regional stock market indices by a wide margin. The APAC SEI level rose around 16% over the year 2018, giving APAC subscription companies almost 10 times the growth of ASX index (Australia) sales per share, four times the growth of NZX index (New Zealand) sales per share, and 2.5 times the growth of the Nikkei index (Japan) sales per share.

THE FUTURE OF THE WORKPLACE Goodbye Mad Men, Hello Office of the Future

Thanks to corporate subscription services, the idea of company “perks” has been radically expanded. It’s no longer just about 15+ flavors of LaCroix. Today’s workers are being supported like never before, from fitness memberships to mental health therapy, catered meals, and even customized ping pong paddles! Read on to learn how modern workspaces—the lovechild of coffee shops and VIP airport lounges—are being transformed from within.

The Wing is a co-working space dedicated to the advancement of women. But itâ&#x20AC;&#x2122;s also a club and an incubator of sorts, offering members a community of professional women for mentoring, networking, and other kinds of support that may not be readily found elsewhere. Events are designed to introduce people and build relationships, and an online app, with a member portal, keeps the community connected at a distance, with memberships starting at only $185/month. www.the-wing.com

Slack has taken the business world by storm. With its â&#x20AC;&#x153;corporate-sanctionedâ&#x20AC;? social media, it has displaced email as the main work collaboration hub at many companies. In addition to offering a single place for messaging, tools, and files, its messaging channels promote team spirit and group identity within the larger company. Plus those awesome custom emojis! www.slack.com

Sick of eating the same turkey sandwich from the local deli every day? ZeroCater can help. ZeroCater operates a subscription-based food ordering platform for companies and their employees in six U.S. cities, with plans for individual meals, recurring catering, and even enterprise plans. If the way to a personâ&#x20AC;&#x2122;s heart is through her stomach, then the way to employee loyalty is through delicious meals on-demand. www.zerocater.com

What better way to wrap a meeting than with a competitive table tennis matchâ&#x20AC;&#x201D;right on the conference table? Killerspin, a manufacturer of table tennis equipment, contends that 15 minutes of play per day rejuvenates digitally overloaded workers and helps build business relationships. Its UnPlugNPlay program concierge service provides a table, customized paddles for every worker, and a dedicated manager to set up lessons, tournamentsâ&#x20AC;&#x201D;and even do a full-scale redesign of your office. Game point! www.killerspin.com

Through their new connected health platform, Fitbit Care, Fitbit (manufacturer of wearable activity trackers) helps companies create programs to encourage employees to get moving and stay healthy. After all, healthy employees are a win-win. With Fitbit Care, companies are able to subsidize employees’ equipment purchases and develop a customized dashboard. Employees can track and support each other—and team challenges promote healthy competition and camaraderie, even among remote workers. “Member engagement is all in the wrist!” www.fitbit.com

WeWork has redefined shared workspace and the culture of work. Trendy decor, organized community events, and its iconic fruit water are just the beginning for members, who range from individual entrepreneurs to entire corporate departments. Not only can WeWork members benefit from group insurance, gym memberships, and accounting software, they can even live in furnished, WeLive short-and longer-term accommodations and send their children to WeGrow elementary schools. Itâ&#x20AC;&#x2122;s more than an office: itâ&#x20AC;&#x2122;s a lifestyle. www.wework.com

SPOILER ALERT: THE REAL BATTLE ON TELEVISION IS FOR LONG-TERM SUBSCRIBERS

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“Successful subscription companies focus on stickiness, not ratings.”

By Amy Konary Chair of the Subscribed Institute at Zuora

When the third season of The Handmaid’s Tale, Hulu’s biggest ever hit kicks off this summer, one thing is for certain—millions of fans around the world will tune in to catch their favorite show. What is unclear is whether these fans will continue to subscribe after this season ends. Now, don’t get me wrong. The new season will most likely be as amazing as the previous two and probably garner Hulu more critical acclaim (eight Primetime Emmy Awards from 13 nominations, two Golden Globe Awards, and counting!). More people watched the series premiere than any other on the streaming service and the show has no doubt helped propel Hulu’s subscriber base to over 20M. So, shouldn’t hit content guarantee subscription success? Not quite. While success in the traditional entertainment business relies on selling a mega hit to many different customers, a successful Direct-to-Consumer (D2C) subscription play relies on offering ongoing value to individuals and creating frictionless opportunities for them to find and consume different types of content. Hits might entice subscribers to sign up, but once the season (or series) is over, what gets them to stay? The secret lies in building and nurturing a direct, long-term relationship with consumers and meeting their demands on an ongoing basis. Successful subscription companies focus on stickiness, not ratings. Since “value” is in the eye of the subscriber, providers must offer a broad range of content that both entertains and is easy to consume. This isn’t easy. And most D2C companies sit somewhere within the five stages of subscription maturity.

SUBSCRIPTION MATURITY MODEL OVERVIEW

STAGE 1

STAGE 2

STAGE 3

STAGE 4

STAGE 5

Source: Subscription Business Maturity Model, Subscribed Institute at Zuora, 2019

STAGE 1

STAGE 2

STAGE 3

The focus in Stage 1 of subscriptions is on signing up new subscribers above all else, not on keeping them. With no focus on retention outside of creating new hit offerings, the customer experience is inconsistent and churn is typically high. According to the latest Subscription Economy Index, the average churn rate for B2C companies was 24% last year. Wild West companies see rates far exceeding that.

Here, companies begin to build efficiencies that reduce acquisition costs, such as making it easier for new subscribers to sign up in lowtouch ways, as well as on service scalability. At this stage, it might be attractive to build relationships with an aggregator such as Apple that can offer scale and reach. However, in exchange, the provider gives up the direct relationship with the customer, as well as control over service and subscriber usage data.

In this stage, there begins to be a strategic focus on retaining subscribers. In the video streaming business, doing so requires compelling and differentiated content. But it also means making it easy to find and consume this content. Structures are put in place to optimize the renewal process, and the concept of a subscriber journey or lifecycle is taking shape.

Recurring payments are broken: We’ve fixed them

STAGE 4

STAGE 5

Companies at this stage have not only developed and articulated customer journeys but are also using data to help manage and drive all aspects of the business. This is why Smart TVs that include the Netflix app must agree to terms that prohibit them from capturing audience data. Customer data is gold in the subscription model. Content providers that are trying to build subscription businesses through aggregators must protect access to service usage data and subscriber preferences to progress to this level of subscription business maturity.

In an optimized subscription business, suppliers and their customers work together to achieve outcomes. There is a clear and systemized cadence of customer contacts focused on building and deepening relationships. A sign of an optimized subscription business: while they continue to sign up new subscribers, the majority of recurring revenue comes from upsells, cross-sells, and renewals.

Companies in this stage also offer subscription agility, such as the ability for customers to pause, cancel, or resume services, as well as easily add services or change service tiers. Trust is now a core value and an essential component for moving to Stage 5.

Companies offering digital subscription services must continually ask themselves—What are subscribers coming to us for? And what will make them stay long after the series is over? With this North Star vision in mind, D2C subscription companies should assess where they are in their subscription business maturity and work towards progressing to the next stage. With many of the traditional media companies switching to streaming and new services entering the space, it will be interesting to see how streaming companies deal with the competition. There’s no doubt that converting a large percentage of the hit-content fans into long-term subscribers will require a combination of hit content, sticky services, and subscription business maturity.

Download the Subscription Maturity Model at www.subscribedinstitute.com

GoCardless and Zuora power Direct Debit payments for the Subscription Economy by: • Increase lifetime value with significantly lower failure rates compared to credit cards. • Competitive, scalable, transaction-based pricing • Collect payments across the globe with bank debit schemes gocardless.com/zuora

Research & Benchmarks

Community & Conversation

www.subscribedinstitute.com

Events & Engagement

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THE FUTURE OF CONSUMER HEALTHCARE: PHILIPS

As one of the largest healthcare technology companies in the world, Philips has been creating and commercializing innovative technologies and customer-focused products in the healthcare space for over 128 years. But over the past decade, the world has changed—and so have the needs and, just as importantly, the expectations of customers. A global brand like Philips, realizing it can no longer depend on its historic success to stay a leader in healthcare, decided to refocus once again on its customers, this time by pivoting to more customer-centric business models. In 2014, the company decided to divest its lighting business and focus solely on healthcare. The idea was to leverage their deep clinical and consumer insights to offer more integrated, connected, and customer-focused solutions. These solutions span across two main customer segments: Consumer/Patient Care (oral care, mother and child care, sleep and respiratory care, elderly care, etc.) and Professional Care (remote patient monitoring, imaging, etc.).

Gil Adato Vice President of Digital Health at Philips

One of the key people leading the change to a customer-centric business is Gil Adato, Philips’ Vice President of Digital Health, heading new business development and connected value propositions. After bringing Samsung into the IoT era by conceptualizing an IoT platform and creating a new Samsung IoT business unit around it, Gil Adato joined Philips to drive its digital business innovation. Subscribed talked to Gil Adato about the shifts in the company and how the subscription business model is increasingly becoming a key lever of success. Philips is such a massive and diverse company. Can you give us a bit more context about what you’re driving there? I’m leading a lean-and-mean new business development and connected value propositions team in the IoT organization. The scope includes data-driven solutions and services enabled via external partnerships, investments, and acquisitions, spanning new technologies, services, business models, and channels. I see my team as a specialforces unit, and as such, we’re not a typical partnerships team. For us, everything starts with the value proposition and an engaging consumer journey. We also act as a “partner success team,” working really closely with our businesses, markets, and technical organizations to ensure a successful partnership. We’ve got a very customer-focused, end-to-end approach. Why is the shift to subscriptions so important for Philips? We have a 128-year history of selling customer-centric products; however, customer expectations have changed, and as a result, the definition of customer centricity has changed. Customers have higher expectations and different preferences.

It’s no longer about the physical products; it’s about the experience and outcomes. Products are just a means to an end, so customers care about access more than ownership. Customers want customized experiences. Customers want flexible payment options. Customers don’t want to deal with the hassle that comes with buying stuff outright. And finally, customers want a constantly improving experience that delights them on a regular basis. With this as the (very high!) bar, we had no choice but to start shifting from a product distribution model to long-term, 1:1 relationships via digitally enhanced products, services, and experiences. And subscriptions are key to achieving that. What have been some of the challenges of shifting to a subscription model? The big-picture challenge we faced was: How do we transform from customer-centric physical boxed products into customer-centric digitally enabled solutions and services? And how do we enable this shift at business, market, and company levels? It was clear from the beginning that we needed to leverage the IoT to cre-

ate and sustain engaging experiences, but to do that we needed a new mandate, a new mindset, and new skill sets. Like most product businesses, we were used to launching a “static” product and waiting X years until the next version was launched. But subscriptions require you to shorten the product lifecycle and treat your product as a living organism, meaning continuous innovation: beta, learn, improve, and iterate. That means the product is not king anymore; it’s the means to an end. That is a really hard shift to make, and it’s one that has to happen across all of your business divisions. The subscription revenue and risk model were ‘non-traditional’ for our finance and accounting teams, so we had to educate and adapt there. And the challenge with our IT team was to realize that our legacy subscription capabilities were just not up to the challenge of this modern age. Luckily, conviction, agility, and growth ultimately won. What are some of the subscription-driven channels you’re most excited about?

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“It’s no longer about the physical products; it’s about the experience and outcomes.”

I see opportunities for subscriptions in almost every arena at Philips. Imagine that you could subscribe to a personalized sleep care team, including sleep specialists, dietitians, trainers, support groups for insomniacs, etc, that will advise you based on your real-time sleep data. Or imagine you could subscribe to a service that wakes you up with the latest songs by your favorite artists. Or subscribe to an oral care program bundle that includes bi-annual checkups and cleanings, along with quarterly brush head replacements and remote access to dentists. Or subscribe your beloved elderly parents to a service that seamlessly tracks their physical and mental health and well-being at home—transportation, cooking, cleaning services, monthly trips, weekly activities/lectures/ workshops/movie, etc. The possibilities are endless and exciting. Can you tell us more about a couple of your subscription services and how they differ from your previous product-based model? The idea behind our subscription services is to shift from selling a physical product to providing a holistic solution that creates ongoing consumer value and engagement, which are key to having consumers who return to our solutions and brand on a regular basis. Our first subscription launch was in our hair removal proposition, IPL Lumea. We took a €550 product and started offering it also as a try-andbuy subscription service. Consumers can now pay €39.95 a month, cancel the subscription at any time, buy the product minus the paid subscription fees at any time, and fully own

the product after 14 months of subscription. The app currently provides guidance on how the product works, safety measures, and a calendar with reminders. We are working on making it a connected device so we can see usage and behavioral data, which will enable us to optimize our value proposition, as well as offer additional value-adding subscription services. Our second subscription is also interesting since it is about transforming how we sell. For years, we’ve sold powered toothbrushes and brush head replacements to go with it. We decided to switch that to a subscription model where you have a one-time $19.99 fee and a $4.99 monthly subscription fee and in return you get a powered toothbrush and brush head replacement delivered every three months. We plan to continue adding more value to the oral care service by including a dental insurance component, tele-dentistry to remotely access dentists, different tiers based on the preferred toothbrush, digital incentives, etc. With the magnitude of the shifts you’ve had to make at Philips to embrace and drive the new subscription business, what signs are you looking for to determine if it’s a success? Internally, I look for two main signs: first, leaders and followers, meaning some Philips businesses to be leaders and others to be followers in the subscription experience—and that’s exactly what we’re seeing. Second, applied learnings, meaning we’re using a subscription launch in select business areas and markets to cull insights about how this model could be used more broadly and globally within Philips. We know that once we have the learnings from this, we’ll be able to validate this approach and use it to

transform the value we deliver to our customers and partners across the organization. As we embrace subscriptions, we measure them against the same four key metrics we measure everything against: scale (number of customers discovering our subscription services), engagement (number and behavior of customers subscribing to our services and building an ongoing relationship with us), outcomes (for our customers and partners), and monetization (for our businesses, markets, and partners via new subscription business models). Externally, we’re looking for signs that our competition is responding to our digital subscription model. That will mean that we’ve hit gold. Where do you go from here? We will continue to work towards demonstrating that subscriptions can create value and transform Philips across the four key metrics I mentioned earlier: scale, engagement, outcomes, and monetization. We have plans to launch several new subscription services for different businesses across different markets in 2019-2020. This is only the beginning of a very long and hopefully successful transformation for the whole company. It’s not going to be easy, but the potential rewards for our customers, partners, and our company are well worth it.

42 42

THE COMPANY THAT OWNS ITS CUSTOMERS, WINS. You can’t build a great building on a weak foundation—the same goes for your business. Here’s why you need a three-cloud architecture. By JJ Xia Director of Product Marketing at Zuora

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Since 2000, over half of all Fortune 500 companies have disappeared. This is digital disruption at work. And whether you’re in software, high tech, auto manufacturing, fitness, retail, or any other industry, you can feel the shift happening. To be competitive in this digital age, modern businesses are realizing they need to understand their customers through their usage patterns and buying behavior. As a result, companies are racing to become customer-centric, designing business models to build and nurture ongoing customer relationships. If you don’t yet know your customers, trust me...someone else already does: Uber tracks your transportation behavior. Peloton understands your fitness behavior. HBO knows your viewing and buying patterns. Amazon, Warby Parker, and other brands know exactly what you like before you ever walk into a store. That is the future of all business: customer focus, not product focus. Across every industry, companies with success stories are customer-focused in three specific ways:

They deeply understand their customers through usage patterns and preferences.

They find a way to tie what customers value into the revenue model. These companies focus on getting customers to use more and more of their product—and that ultimately drives growth.

They own the billing relationship with their customers, rather than letting Apple, Google, or another platform own the relationship.

THE PAIN POINTS OF MOVING TO A CUSTOMER-CENTRIC MODEL Companies trying to make the shift to be more customer-centric face the same challenges:

Pricing and packaging. It takes a long time to launch new pricing and packaging, which makes it difficult to move fast to keep up with smaller, nimbler competitors.

Acquiring and nurturing customers. To acquire and nurture customers over multiple channels creates data headaches.

Recognizing revenue. Accurately recognizing revenue becomes increasingly difficult and a manual pain.

Accessing key metrics. Calculating key metrics such as Annual Recurring Revenue, Net Retention, or Average Revenue Per Account is difficult and time consuming.

Processing subscription changes. Offering customers the flexibility to change subscriptions after sign-up—such as adding more seats or a new product—causes downstream billing complexities.

Many companies will try to muscle their way through these challenges with brute force, but ultimately these operational challenges—if not addressed—will become a bottleneck to a company’s growth.

HOW A TWO-CLOUD ARCHITECTURE BREAKS THE SUBSCRIPTION BUSINESS MODEL What causes this bottleneck? It always comes back to a company’s existing IT architecture. Most companies today anchor the heart of their business model (the order-to-revenue or order-to-cash process) on a two-cloud architecture. One cloud is a Customer Relationship Management system (CRM) to manage interactions with prospects and customers. And the second cloud is an Enterprise Resource Planning system (ERP), which businesses use to manage a variety of day-to-day business processes like accounting and supply chain operations. But stitching together a CRM and ERP does not work to manage the dynamic nature of a recurring subscription model and all the related business processes.

Why? Let me net it down to three reasons:

It’s too hard to monetize a product “as-a-service” in a two-cloud architecture. CRM and ERPs were built to sell products, so everything rests on the concept of a SKU (stock keeping unit). But subscription companies monetize products “as a service” through a variety of pricing strategies—different editions, usage-based pricing, tiered pricing, overages, recurring billing, and more. When companies try to retrofit these strategies into a SKUbased two-cloud architecture, they inevitably need hardcoded customizations and mountains of custom logic.

CRM

Evolving the go-to-market strategy leads to more hard code and customizations every time. After the initial launch, plans to expand internationally, add a second product line, focus on upsells, and more are all common strategies to sustain growth. The problem is, every new strategy requires the IT team to rewrite hard-coded logic— and rewrite again in response to every new go-to-market strategy. That’s because CRM and ERP solutions are not built to support the complexities of subscription processes, nor to easily pass information between the two systems.

ERP

Giving customers the flexibility to change their subscription after sign-up leads to added customizations—and finance headaches. We find that 70% of a subscription company’s revenue comes from existing customers through upsells, add-ons, and renewals. That’s why companies that let their customers make changes to a subscription after sign-up see greater growth, landing with a smaller product footprint and letting the customer value expand over time. Our own data shows us that B2B companies see four changes to their subscription every single year on average. But how do you support all of these change scenarios with your CRM and ERP? For every single possible scenario, your IT team will need to hard code a solution to anticipate the downstream impacts on order management, billing, collections, revenue recognition, and reporting. And if they don’t, the burden will fall to your finance teams to handle every scenario manually as a one-off.

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WORKING AROUND THE BROKEN TWOCLOUD SYSTEM Over the course of our work with over a thousand subscription companies, the pattern has become clear—a two-cloud architecture inevitably forces companies down the path of hard-coded customizations. As IT teams realize this, we’ve seen some creative workarounds:

OPTIONS TO FIX THE TWO CLOUD ARCHITECTURE

CRM

Manual Workarounds

ERP

can’t embrace new growth strategies

CRM

CPQ

ERP

limited to certain new growth strategies

CRM

Point Billing Solution

ERP

many integration points, without clear system of record

“Better to have manual workarounds than a hard-coded mess.” Some companies ask their finance departments to take on the burden. Every new customer order is manual, every invoice change is manual, every revenue contract modification is manual. While this is manageable for a small company with ~30 customers, it’s not manageable as companies grow.

“Better to have a CPQ than nothing. ”There’s a misconception that CPQ fixes everything. It doesn’t. A CPQ system is simply a channel for your assisted sales team to create quotes. After the quote gets created, it gets tossed over the wall to the finance team and the same havoc ensues. This magnifies if your company sells through multiple channels.

“Better to build a simple billing solution than have nothing.” Most commonly, companies just want a quick fix—so they build a homegrown billing solution or adopt a cheap, API-friendly recurring billing solution just to be able to send out some invoices. That works okay if you’re selling a $9.99 subscription, but it immediately breaks when a company’s go-to-market strategies start to evolve because there are a whole set of dependencies throughout order-to-revenue operations that are impacted that a point billing solution can’t solve for.

SUCCESSFUL SUBSCRIPTION COMPANIES HAVE A THREE-CLOUD STRATEGY There’s a better way. Because of the dynamic nature of subscriptions, subscription businesses need to adopt a three-cloud architecture strategy with:

CRM/eCommerce as the acquisition channel

ERP as the general ledger

And an end-to-end subscription management solution in the middle

SUBSCRIPTION BUSINESSES ADOPT A 3 CLOUD STRATEGY

app

CRM

SUBSCRIPTION MANAGEMENT

order-to-revenue

ERP

e-commerce

The subscription management solution is responsible for all order-to-revenue operations, enabling you to price, rate, bill, collect, recognize, measure, acquire, and nurture your subscribers. As subscriptions are added or modified, all of those transactions are captured in one system of record. As your business’ go-to-market strategy evolves, every impact to order-to-revenue operations is contained within one system. That’s how Zoom, NCR, Symantec, eMoney, Carbonite, Servcorp, and countless other companies have been able to drive subscription growth. A three-cloud architecture enables businesses to monetize products-as-a-service with ease and quickly expand or pivot to new growth strategies. It’s a seemingly small, but significant, paradigm shift—that makes a world of difference.

WHAT GOLDILOCKS CAN TEACH US ABOUT FENDING OFF AMAZON By Carl Gold Chief Data Scientist at Zuora

Amazon just released a children’s book subscription box that Prime members can subscribe to—and book publishers are all ”haven’t we been through enough?” We’re on the verge of a major macroeconomic shift—where people are shunning ownership of things for access to services. We call this The End of Ownership. You can subscribe to a service to read books, listen to music, drive a car. You can get your clothes or dog toys or razor blades delivered monthly. And yes—Amazon is very very good at getting these services into the hands of its billions of Prime members. It is consistently buying up more businesses to deliver even greater value to its subscribers, and it could be gunning for your business, too. But here’s the thing— Amazon doesn’t have to eat your retail business. Even children’s book sellers can survive. In fact,

Goldilocks, a storied children’s book, is actually a great analogy. The tools to compete with Amazon are available and cost competitive. But first, think about your customer and how to offer your services on a subscription basis. Businesses that offer subscriptions outperform businesses that don’t. Where can you deliver ongoing value that will improve your relationship with customers and your revenue outlook, too? And when you commit to that subscription offering, there’s lots you can do. You can customize your offerings, deliver flexible options and pricing, and cement those Prime-like relationships that keep customers excited and engaged just like Amazon. You just need to move quickly, and use what you know about customers to your advantage.

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1. Getting pricing ‘just right’ Giving subscribers too many options is overwhelming. Giving them too few options is unattractive to customers who demand choices and value. But there’s a “just right” sweet spot based on understanding how your customer values your offering, which leads them over time to sign up for more. A good example is how you charge subscribers for usage with a pay-as-you-go component to your billing plan: Without usage billing, subscribers may feel that a one-size-fits-all plan is charging them for more product than they use. But if you charge primarily based on usage, subscribers feel like you’re looking over their shoulder and charging them for everything they do. Our research shows that churn is lower and companies grow faster when there is a usage component to pricing: 6% lower churn and 8% faster annual growth for companies that have a usage component to pricing. But the fastest growth happens when the usage component is less than 50% of the bill—an additional 4% annual growth, compared to companies where usage is the main mode of billing. A case in point is Ford’s new subscription service, Canvas. For most customers, most of the fee is a simple recurring fee based on your car choice, but you also select a mileage package and pay by the actual miles driven. In a typical month, a customer is paying mostly for the service, but they still won’t feel like they are paying for mileage they don’t use.

TOO LITTLE No Usage No usage offering creates a limitation for your customers 18%

TOO MUCH >50% Usage Too much usage flexibility becomes counterproductive 24%

JUST RIGHT 1-50% of Revenue Comes From Usage Give customers the flexibility to scale usage while staying grounded

28% Source: Subscription Economy Benchmarks, Zuora, 2018

2. Goldilocks’ return Allowing customers to opt into and out of accounts— or let’s say, to exit when the bears come home, but come back later when they’re gone—leads to better revenue and lower churn. Companies that have subscribers making changes to accounts. grow at 3 times the rate (28% faster) of companies whose subscribers don’t make changes to their subscription accounts. And, they reduce churn by 25%. Customers know they can be choosy about which subscriptions they have, so companies that offer the flexibility of opting in and out will set themselves up well for the long haul.

3x Growth

If all subscriptions average 1 change, growth triples

3. Be the bear

2x Growth

none

1 in 10

1 Change per subscription

9% Growth Rate

20% Growth Rate

28% Growth Rate

Companies with more subscription changes see reduced churn

none

One company that does this well is Dollar Shave Club. They let customers pause accounts for up to six months or easily cancel and resubscribe without any penalties. Subscription services in other industries like SaaS and media should take a page from this playbook. It is common practice to “let sleeping dogs lie” when a subscriber seems to forget they have a service by continuing to pay when they never login. But that ultimately ends badly and the subscriber may feel tricked or taken advantage of—a clean suspension would make them more likely to come back. California’s new subscription law is pushing more companies in this direction, which requires online cancellation options for subscriptions purchased online. Why not give those subscribers cancelling online an easy suspend option?

1 Change per subscrption

More than Less than 30% Churn 20% Churn Rate Rate Source: Subscription Economy Benchmarks, Zuora, 2018

Don’t just fall asleep while others are out there eating up your long-term viability. You alone know what your customers want and you have the ability to personalize your offerings and deliver exactly what customers will want, next on a recurring basis. We know that subscription companies have grown revenue 5 times faster than U.S. retail sales over the past 6.5 years. That means that offering the right subscriptions is a way to gain an edge over competitors and grow your business, too. Many, many companies from traditionally non-subscription industries are taking the plunge and discovering the power and predictability of recurring revenue! People think of Caterpillar Inc. as the quintessential industrial company whose machinery is ubiquitous at construction sites around the world. But Caterpillar is also reinventing itself with a new game: they are analyzing data gathered from sensors on its fleet of half a million construction machines around the world. This allows Caterpillar to offer customers a subscription data service that provides guidance on how to improve the operations of their building and mining projects. And Caterpillar isn’t alone. Car companies like Ford have started offering subscriptions (to help combat the trend towards ride sharing) and so have other traditional makers of capital goods like

Schneider Electric, the global leader in energy management and industrial automation.

The ending has yet to be written Despite the massive change we have already witnessed, it’s still early days for the Subscription Economy! But even if early movers have taken the lead in your industry, it’s still possible to learn from their experiences and missteps and ultimately catch up and even win the race. Just remember what Goldilocks can teach us.

TAKE THE STAGE AT SUBSCRIBED LONDON OCTOBER 3, 2019 TOBACCO DOCK, LONDON Your perspective is unique. Your knowledge is valuable. Apply to be a speaker at the Subscription Economy’s conference of the year! Share your learnings on winning with the subscription model. Topics include Product Launches, Pricing and Packaging, Billing, Payments and Collections, RevRec Automation, and more.

Submit your proposal at http://bit.ly/subscribed19 by 26 July, 2019.

When your sales tax compliance process feels as solid as Swiss Cheese, it’s time.

www.avalara.com

PWC’S

With new accounting standards taking effect soon—lease accounting for public companies and revenue recognition for private companies— are organizations meeting their implementation goals? To find out, PWC’s 2018 Q4 accounting change survey gauges progress since Q2, top challenges, and lessons learned so far. Responses were collected through an open, online survey in late October 2018. More than 450 executives from a wide range of industries participated and responses are summarized here. For additional information, including insights, analysis, and access to an interactive data explorer, visit www.pwc.com/us/accountingsurvey

ACCOUNTING CHANGE SURVEY

Which of the following best describes your company’s status in adopting the new revenue standards? Public company financial reporting status

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Which of the following best describes your companyâ&#x20AC;&#x2122;s status in adopting the new revenue standards? Non-public company financial reporting status

How far along is your company in assessing the new revenue recognition standards?

How far along is your company in implementing the new revenue recognition standards?

Which of the following processes have been or are expected to be modified as a result of ASC 606 adoption (check all that apply)?

500 300

300

50 0

10 0

100 200 00 3 3 0 0 300 100 500 400 0 0 1 0 400 0 2 2 2 0 0 00 20 200 0 0 0 1 2030 103000 3 0 0 0 0 0 3 0 0 5 0 0 0 0 4 0 0 0 5 4 30100 0 0200 400 200 00 00 2 200 4 0 0 0 4 0 5 200 0 2010 100 0 0 0 0 3 300 0 3 3 00 300 500 0 0 0 0 1 0 1 40 200 0 200 0 2 200 100 100 300 0 300 0 300 3 500 200 100 00 1 0 00 0 2 0 0 20405000 2 500 0 0 0 4 0 0 1 0 1 400 400 54

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WHAT’S REVENUE RECOGNITION GOT TO DO WITH SUBSCRIPTION GROWTH?

By Angela Ngo Director of Product Marketing, Zuora RevPro

Everyone thinks all C-suiters have an in-depth knowledge of accounting and finance issues. But, spoiler alert: they don’t. These are highly complex disciplines and most people without a CPA just aren’t equipped to keep up when their company’s accountants are geeking out over amortization schedules and IS / BS (Income Statement & Balance Sheet) impacts in a meeting. As a CPA and Big 4 alumna, I’ve been one of those geeky accountants. But I’m a firm believer that not every person in business should have to go get a CPA license to understand the essence of financial statements and accounting. Let me help bridge your understanding. Talking about the Subscription Economy and revenue recognition (my two favorite topics) can get a little granular but I promise: I’ll do as little CPA-speak as humanly possible. Before we get to recurring revenue and its impact on revenue recognition, let’s level set on the main components of financial accounting and external reporting: financial statements. These statements are standard and all public companies must follow GAAP or IFRS rules. This ensures everyone is speaking the same “language” so when you look at the health of Company A compared to Company B, you know it’s an apples-to-apples situation. One of the most important financial statements is the income statement, and a company’s revenue is the big number sitting at the top. It’s arguably the most important metric there is; at the very least, it’s the number the financial world pays the most attention to when making judgments and decisions about what a company is worth and whether it merits investment, loans, and other business considerations. So as you might expect, GAAP or IFRS have tons (and tons and tons) of rules to ensure the revenue figure on your income statement is accurately captured and stated in terms that are consistent with everyone else in the public arena. The most fundamental of these rules is that for all business with more than $5M sales per year, revenue and expenses must be stated on an accrual basis, not a cash basis. Accrual accounting means transactions must be recorded when the intrinsic value has transpired; not necessarily cash. That means you can’t consider something “revenue” until you’ve earned it; just because you have the cash doesn’t mean you can plug it into “revenue” in your income statement.

Here’s a fairly simple example. When I was a teenager, I mowed the grass every Friday afternoon and my dad paid me $10 for it every Sunday. If I had been a company, I could recognize $10 in revenue after I put away the mower on Friday afternoon even though I didn’t actually get the cash until Sunday. Conversely, if my dad paid me $10 on Thursday before I mowed the lawn, I couldn’t recognize revenue until I finished mowing on Friday. Let’s take a more sophisticated example. You go to the Apple store and buy an iPhone. $1000 cash out of your pocket and into Apple’s. Apple can’t immediately book that $1000 to revenue on its income statement yet. That’s because Apple’s accounting team knows that when you buy an iPhone, they can only recognize revenue for the intrinsic value they’ve given you that day—the phone itself—not the items they’ll deliver later, like the warranty, which they call deferred revenue and represents a liability to fulfill future services. Seems logical, right? But this is also why the recurring revenue model that’s the engine of the Subscription Economy is making accounting teams absolutely crazy. In the subscription business model, products and services are rendered over time, at various junctures, and the amount of revenue you get to recognize for each product or service you provide requires complex math and compliance with a very lengthy set of rules. (The most current and applicable rules are ASC 606 and IFRS 15, which have created their own set of issues for accounting teams but we’ll reserve that for another time.) Let’s consider an example of how you’d recognize revenue over time for a software subscription for $1,300 a year. I charge customers $100 to sign up and a $1200 annual subscription fee. The total payment comes in at once, so the accounting team has to determine the right policy for recognizing the daily revenue over time.

Here’s what the math looks like on just ONE transaction for someone signing up on January 15. Month

Formula

Monthly Earned Revenue

Deferred Revenue Balance

Cash Inflow

1,300

January (Y1) February

=100+((1200/365)*16)

152.60

1,147.40

=((1200/365)*28)

92.05

1,055.34

March

=((1200/365)*31)

101.92

953.42

April

=((1200/365)*30)

98.63

854.79

May

=((1200/365)*31)

101.92

752.88

June

=((1200/365)*30)

98.63

654.25

July

=((1200/365)*31)

101.92

552.33

August

=((1200/365)*31)

101.92

450.41

September

=((1200/365)*30)

98.63

351.78

October

=((1200/365)*31)

101.92

249.86

November

=((1200/365)*30)

98.63

151.23

December

=((1200/365)*31)

101.92

49.32

January (Y2)

=((1200/365)*15)

49.32

0.00

1,300.00

Total

I’m an accountant and even I have a bit of a headache looking at this chart. Imagine you have 100 subscriptions, 1,000 subscriptions, 10,000 subscriptions. And imagine your customers are signing up on different days of the year. The pro-rata calculation alone is complicated, let alone tracking the earned vs. deferred revenue balances over time. Your accounting team can’t spin up a spreadsheet for every new subscription. It’s the opposite of scalable. So because revenue recognition is ultimately the main figure that drives the investment world, subscription companies—big and small—must find a way to systematically recognize revenue.

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Why Automation Is The Future Of Revenue Recognition Traditional IT ecosystems and ERPs only understand point-in-time orders, not complex contracts and over-time recurring revenue models. Moreover, spreadsheets, ERPs, and traditional revenue recognition processes already tax the revenue and finance teams too heavily during period close and year-end audits. Add in ASC 606, and everyone wants to just get by with compliance, adopt the new standards manually, and keep chugging along. But it’s not business as usual anymore. In today’s world where every company is switching to an “as-a-Service” model, businesses need to have a dynamic ongoing relationship with customers. And what does this mean for revenue recognition? Complexity. Let’s take a look at contracts, for example. Today’s businesses need to: Give customers the flexibility to change their contracts (also known as “contract modifications” in revenue speak). Allow customers the ability to buy and pay only for what they consume, i.e, a usage-based pricing model (which may be considered “variable consideration” in revenue speak). While customers have come to expect these kinds of options, a lot of businesses struggle with offering them. Why? Because of the downstream implications on revenue recognition. A single “contract modification” can potentially trigger hours of manual work. So given that these new ways of selling are incredibly complex and could potentially break their back office, it’s no surprise that many CFOs and controllers choose to avoid these new models like the plague. But of course, we all see the problem here: Failure to adopt new business models means you’re inhibiting your business’s growth. Finance teams THAT stand in the way of business growth and recognition complexity ARE really an unacceptable excuse for denying your customers flexibility and delight. There has to be a better way. Enter revenue recognition automation.

Automation can help your business embrace X-as-a-Service revenue contracts with ongoing contract modifications, usage-based pricing models, and more. When your downstream systems are automated, your accounting team doesn’t have to spin up another spreadsheet, labor over another process, and create yet another workflow of controls and reviews. Similarly, when you want to sell in a usage-based capacity, your automated revenue recognition solution can automatically estimate, accrue, and true-up your revenue using the known variables. Automating also means you significantly alleviate the compliance burden and risk of reporting inaccuracies. Where you previously relied on people for complex calculations and complex ifthen revenue scenarios, you’re now relying on technology. Instead of IT, Excel, pivot tables and vlookups, you have a system that guarantees complete data capture, consistent revenue treatment, and seamless reporting for disclosures, management, audits, and more. As more and more businesses transition to the Subscription Economy, it’s absolutely crucial that finance teams learn to harness the power of technology to keep up. It’s not just about today’s compliance requirements; it’s about tomorrow’s growth opportunities. And automation is the golden ticket. Now that you understand what the hullabaloo over revenue recognition is, I hope you appreciate the importance and complex nature of work your accounting teams are grappling with each and every day.

WELLNESS

As with so many other industries, the Subscription Economy is changing the way we manage our health. Whether to support healthy aging, help manage chronic conditions, or keep you on target with your fitness goals, companies are moving to subscription models to expand their relationships with consumers. While consumers gain greater flexibility, companies benefit by turning potentially one-off or infrequent transactions into an ongoing relationship. Here are nine innovative services changing health care and the companies behind them.

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Launched in Boston in 2011, Iora Health operates a network of primary care practices in seven states. Founder Rushika Fernandopulle, aims to flip the script from the norm of underinvestment in primary care, in part by providing holistic, integrated care. This approach brings down overall health costs by tapping primary care teams, including not just doctors, but also coaches, nurses, and social workers to engage patients. Iora charges employers and health plans a per-user monthly fee. www.iorahealth.com

With the U.S. senior population surging, itâ&#x20AC;&#x2122;s no surprise to see the subscription economy transforming services for seniors. Best Buy-owned GreatCall offers monitoring and alert services designed to keep seniors connected, safe, and independent for as long as possible. Offered as part of a monthly contract with a cellphone or one of its Lively wearable devices, GreatCall devices have an emergency push feature seniors can use to get assistance. If the device detects a fall, the monitoring service will check in to assist, help locate a missing senior, and notify emergency services, in addition to loved ones and designated caregivers. The safety monitoring subscription packages, offered as add-ons to basic phone and data service plans, range from $19.99$34.99/month. www.greatcall.com

Joyable describes itself as changing the way people think. One of the San Francisco-based startup’s founders’ goals was to take the stigma away from mental health struggles. Using tools and approaches rooted in cognitive behavioral therapy, the company connects subscribers with coaches who work one-on-one with them (by phone, text, and online), providing tools, short activities, and support targeted at improving anxiety and depression. Individual subscriptions cost $99 a month. Joyable also contracts with employers. www.joyable.com

Livongo offers tools for monitoring chronic health conditions that affect a significant percentage of Americans, namely diabetes and high blood pressure. With Livongo’s devices, users can monitor blood sugar levels and check their blood pressure in real time. For subscribers who opt in, Livongo’s team uses the data it captures to alert them when their numbers are out of whack. Users benefit from individualized recommendations to improve their health management, including calls from a coach with advice tailored to their individual situation. Livongo partners with employers and insurers to offer its service to employees through their health plans. www.livongo.com

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Four year old Sightbox, recently sold to Johnson & Johnson, is on a mission to take the friction out of managing eye care visits and supplies. Its annual subscription packages include eye exams, content lens fittings, and deliveries. In line with Founder Travis Rush’s philosophy that “it should be about convenience,” Sightbox supports a wide range of lens brands, schedules appointments, and manages prescription orders, all for costs that start at $39 a month. www.sightbox.com

With oral health increasingly recognized as impacting so many other aspects of health, for instance, your heart, Philips Sonicare’s subscription service puts dental care in users’ hands. As part of helping to proactively manage oral health, the service delivers new brush heads to your door at an interval you choose. Monthly subscription packages start as low as $4.99 for toothbrush heads delivered quarterly, and users can choose from a range of brush heads. www.usa.philips.com

This three-decade-old company is one of the originators of the subscription-based business model. The fitness company and its “Do More with your 24” ethos sees itself as cultivating community, whether in person at its clubs or through its custom workout app 24GO. Launched in 2017, the free app lets users tailor workouts, create fitness plans, schedule classes, and track fitness goals. Users can also sync it to their fitness trackers from Apple and Google. www.24hourfitness.com

Gaia offers original and licensed streaming video content to more than 500,000 subscribers in nearly 200 countries. Content is organized in distinct channels covering yoga, alternative healing, and Eastern philosophy, but all focused on empowering personal growth. Gaia offers monthly and annual subscription options for $11.99 and $99.99, respectively. Last year’s new $299-a-year premium subscription package, which includes live event streaming, marked an evolution of its subscription model to include tiered pricing. Content is also available via Xfinity (for $9.99 a month), Apple TV, Amazon, and other partners. www.gaia.com

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Different perspectives, experiences and contributions matter. Everyone counts. Zuora is proud to be an equal opportunity employer committed to creating an inclusive environment for all.

THE FUTURE OF TECH FOR SOCIAL GOOD: SMALL WORLD SOCIAL By Aarthi Rayapura

There’s nothing tiny about Small World Social’s ambitions. Aiming to “make the complex simple,” the 11-year-old tech startup was born out of a desire to make the right information easily accessible in real time. Through its customdesigned SaaS applications for clients in the financial services, healthcare, and automotive industries, Small World Social provides interactive educational content that users can access across a range of devices and platforms, from the web to mobile to wearable sensors. The company’s apps and SaaS solutions make customized content including interactive videos, how-to guides, and knowledge transfer from subject matter experts, available to users. All offerings are designed to be accessed from anywhere: so

users determine how, when, and at what pace they interact with the content. Take the HelpMe Feed app for breastfeeding mothers. Despite guidelines from the World Health Organization and the U.S. CDC that recommend exclusive breastfeeding for the first six months, the reality is that only 25% of babies in the United States are reaching that benchmark, according to the CDC. While the percentage is higher globally, according to UNICEF, no country meets the recommended guidelines. Mothers often face significant barriers to breastfeeding, including a lack of support, timely information, and resources.

Photo by Sarah Lynch

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“All around the world, new parents face similar challenges, challenges that have been overcome by others who are willing to lend a hand providing support,” says Kathy Phelan, CEO of Small World Social. The organization’s beta tests in Australia showed that healthcare professionals are key to improving breastfeeding rates and health outcomes overall. “But with a worldwide shortage of nurses and health professionals, and birth rates increasing, there are just not enough qualified people to go around,” explains Phelan.

Photo by Sarah Lynch

Kathy Phelan CEO of Small World Social, Advisor at HelpMe Feed Foundation

Designed in collaboration with the HelpMe Feed Foundation, the HelpMe Feed app hopes to close this gap—and improve both women’s health and that of babies—by providing an array of tools and resources to support breastfeeding. “The application enables people to connect and support each other in new ways, health professional-to-health professional, woman-towoman, and family-to-family,” explains Phelan. Users can access educational videos, upload their own content, receive emotional support, and share tips. Importantly, they become part of a community that includes healthcare professionals, lactation consultants, and volunteer coaches. Parents can connect through instant messaging and mothers can communicate with their health providers in a secure, HIPAA-compliant way. The HelpMe Feed Foundation’s goal is to support 50M families around the world through the use of smart technology and a social enterprise business model. “The social enterprise business model provides a self-sustaining income via subscriptions, which in turn funds the application and our marketing efforts,” says Phelan. Subscribers can choose among tiered subscription offerings that range from $15 a month for individuals and $30 a month per person for teams. Small World Social negotiates custom pricing packages for businesses. Madeline Sands, Director at HelpMe Feed Foundation, explains that “one of the reasons the HelpMe Feed app works so well as a subscription is that we can tailor it for each user, whereas if you’re buying an information pack, it doesn’t necessarily adapt to your changing needs. We also get a lot of feedback from health professionals about what they’re looking at and what additional resources they want to be included. We’re constantly taking all that feedback and improving the app. So when you have a subscription service, you know that you’re going to get the latest updates and the newest resource as soon as it comes out. I think that’s very, very powerful.”

SPRING 2019

The project is a great example of how the Subscription Economy can benefit nonprofits. “We are a nonprofit, so it was really important for us to be self-sustainable and not to rely only on grants. Early on, we decided that we wanted to go with the subscription model because it gives you a stable income. I think that the most interesting thing about a nonprofit having a subscription model is the fact that you need to run it like a business. You need to have people who are looking at your books and analyzing what’s working and what’s not. Zuora’s subscription management platform and its dashboards are very clear. We can look at them and see a lot of things, such as if our cost of acquisition is massive or what our churn is at month three, or how many people are not converting from their free trial, etc. And then, we’re able to target those specific areas for improvement. We are also now able to really understand our users and see what matters to them. I think it’s a really different way that nonprofits can look at how they run their businesses,” says Sands. Small World Social’s other notable clients include the Australian Ballet, Genentech, Toyota, and Lexus. The company has won several awards for its cutting-edge design and for facilitating better communication. With offices in Australia and the United States, it’s employees come from diverse backgrounds and include visual artists, researchers, engineers, and big thinkers. “Our team tackles really big challenges, ones that take 10 or more years to realize fully. All the projects we have worked on involved technology, community development, and innovative business models,” says Phelan. And as the company continues to innovate and expand its global footprint, it maintains an unwavering focus on “using technology to solve real-world problems.”

REVPRO

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J.P. Morgan Merchant Services is the payment acceptance and merchant acquiring business of JPMorgan Chase & Co. — a global financial services firm with assets of $2.6 trillion and operations worldwide. It is a leading provider of payment, fraud management and data security solutions, capable of authorizing payment transactions in more than 130 currencies. Businesses are required to complete an application and agree to terms and conditions at the time of enrollment. All businesses are subject to credit approval. Merchant services are provided by Paymentech, LLC, a subsidiary of JPMorgan Chase Bank, N.A. IC19-352-DB 0419 ©2019, Paymentech, LLC. (“J.P. Morgan”) All rights reserved.

MOBILIT Y THE

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OF FUTURE By Tom Krackeler and Rachel English

Anne Widera has been working on strategy and go-to-market planning for self-driving cars since 2013. She is an independent consultant to a range of companies from startups to Fortune 100 companies, helping them develop strategies to tackle the changing mobility industry formerly known as the auto industry. Most recently, she was heading Product and GTM strategy at Uber , and prior to that, she led strategic special projects and helped define the strategy and business plan for Waymo (formerly the Google Self-Driving Car Project). Tom Krackeler and Rachel English talk to Anne about the future of the mobility industry including selfdriving cars, scooters, and more.

You’ve spoken about how car ownership isn’t even really feasible in the age of ride sharing. Can you tell us a little bit about your thinking around that? If we think about what it really means to own a car, it comes with these benefits: You get a car that you can leave your things in; you essentially have a zero wait time if you live with a garage or a parking spot outside; and you get to pick the car you want. Today, those benefits are generally better than the alternatives. If you want to use Uber all the time, you have to pay a lot, wait five minutes, and you can’t just leave your stuff in the car. With self-driving cars, what’s really going to change is that all those benefits of ownership can be cloned in a service model, once labor is no longer the main cost of the service. If you think about the future, you will be able to get all the benefits of ownership with

very low wait time to no wait time, and potentially even be able to leave your things in a car. You will also never have to worry about maintenance, or fueling, or insurance, and will be able to switch out the car anytime you want for something that actually meets your needs. You can imagine these models where you can get those benefits that you can’t really see in the world today where labor costs which are time-dependent are really the key driver of your consumer cost. Autonomy unlocks the shift from time to a usage-based cost structure. As services become cheaper and more available, it just becomes so much more pleasant as a consumer to have a service-oriented model than to have this single asset that you’re tied to for many years.

“As services become cheaper and more available, it just becomes so much more pleasant as a consumer to have a serviceoriented model than to have this single asset that you’re tied to for many years.”

Anne Widera Independent Consultant

What would you say are the top three challenges facing the mobility industry today? For the car companies, it’s really a question of, what do you do really, really well? There’s a lot of change coming to the industry, some driven by autonomy, a lot driven by electrification. Electrification fundamentally changes what it really means to build a car. If I’m the head of one of these businesses, I’d be thinking: Do I have what it really takes to compete in mobility? What does it even mean to compete in mobility? Do we need to start thinking about the electric vehicle supply chain differently? Are these scooters and bikes things that I should be making? What is the future of the simpler electric vehicle? I would also think pretty seriously about how to partner with some of the software companies that seem to have more of an inside track on having a great relationship with users so that I can provide customers with a really holistic experience.

How do you see pricing models evolving? Is the whole mobility industry going to move to usage or consumption-based models? This movement towards consumption is going to be a trend as we move more toward a service model for mobility. It makes you think about people’s inherent biases—they don’t necessarily love paying and being reminded each time they use something that they’re paying a certain fee for it. It will be a challenge to align the consumer demand for a single payment per month, “all you can eat” structure with the actual underlying cost. For transportation, it’s going to be a very interesting path to figure out the right balance between pure consumption pricing, and this “all you can eat” single charge model.

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Self-driving cars have far reaching social implications. What are some of the implications a decade from now in terms of city planning and the ethics behind it? If you think about it, transportation is one of those things that has had a huge impact on the history of cities and how they developed. It’s the connective tissue that connects the different fabrics of the social aspects of a city i.e. lowincome and high-income areas. The question really comes down to how can we make sure self-driving cars as a technology are evenly distributed? What makes me excited is that in general, transportation is a pretty price competitive market, and for self-driving, in particular, that’s likely to remain the case. I think we’ll see this isn’t going to be a tool of the rich. It’s going to be something where many people have access to cheaper, safer, more convenient transportation than they’ve ever had in the past. I actually see some high potential for very good outcomes for cities if they take the right regulatory framework toward ensuring equitable access to technology.

SPRING 2019

What’s your take on the scooter and bike sharing businesses? Do you think it could scale to massive adoption in the US or internationally? I am pretty excited and bullish about scooters and bikes and this micro-mobility revolution. In general, my basic take on humanity is people are pretty lazy. If you give them an option that takes them away from walking or having to park, and it’s pretty cheap, people are going to like it. There are a lot of those short trips where you always find yourself thinking – “Do you walk? Do you take an Uber? Do you take your car?” “How should I make this trip?” Scooters and bikes are a perfect option for that. And in many ways, they are great for the environment and urban traffic flows. I really hope that scooters and bikes actually become a major part of people’s transportation portfolio.

WAIT... THERE’S A SUBSCRIPTION FOR THAT?

If you’ve ever been to a coding conference, Renaissance fair, or muscle car show, it’s immediately clear: People love having a tribe. But what’s better than schlepping to an event to collect your favorite swag? Getting it delivered right to your doorstep on the regular.

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WHO (DIDN’T) LET THE DOGS OUT? We were initially a little skeptical about this one, but we have to admit: it’s brilliant. With DoggieLawn, your by-himself-all-day-in-the-apartment dog gets his own little patch of fresh, real grass to do his business in. He’s relieved (literally). You’re happy. DoggieLawn www.doggielawn.com $26-$38/month

PUCKER UP! Artisanal pickles are one of those foods that really taste a heck of a lot better than what you’ll find at your corner store. Mouth dishes up the best, from extra-crunchy spears to plump pickled tomatoes. Mouth www.mouth.com $60/month (discounts for prepay)

SURVIVAL OF THE FITTEST If all the floods and fires are making you a little anxious, Apocabox is like a little bit of Xanax in subscription-box form: survival gadgets like homemade pocket knives and books that teach you to tie knots. Apocabox www.myapocabox.com $50/month

MAGIC MUSHROOMS Okay, so maybe mushroom elixirs arenâ&#x20AC;&#x2122;t the strangest thing to Silicon Valley folks, but for the other 98% of the country, downing a cup full of brain- or immunity-boosting mushroom juice is, well, interesting? Thanks to Four Sigmatic, you can be a trendsetter. Four Sigmatic www.us.foursigmatic.com Assorted plans & prices

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BEHOLD, THE UNIVERSE For all the magic of the digital age, holding a piece of our history in your hand is kind of humbling and oddly satisfying. Matter delivers cosmically real stuff like fossils and artifacts every month to bring you back down to earth. Matter www.boxofmatter.com $40/month (discounts for prepay)

GET MOSSY WITH IT We didnâ&#x20AC;&#x2122;t know there was a Tribe Called Moss, but theyâ&#x20AC;&#x2122;re a growing breed (get it?!). Every month, Moss-of-the-Month Club sends you a bag full of assorted mosses and lichens, or maybe even a non-rolling, moss-covered stone. Moss-of-the-Month Club www.etsy.me/2CEscCG $99/year

P O D C A S T www.zuora.com/podcast Hear from innovators, entrepreneurs, CXOs, and VCs, on the global business shift towards recurring revenue.

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