Subscribed Magazine - Fall 2015 by Zuora

Fall 2015

SURF AIR SHAKES UP AVIATION

ARROW ELECTRONICS: OUTCOMES OVER ASSETS

IOT: TURNING PRODUCTS INTO SERVICES ZERO UI: ACCENTURE INTERACTIVE DESIGNS INVISIBLE INTERFACES

BUILT BACKWARDS: WHY COMPANIES FAIL THEIR CUSTOMERS

A luxury travel destination club. A pet insurance provider. A farming equipment provider

A school lunch program. A wedding publisher. A French home furnishing company. A restau

marketing service. A plumbing & handyman service. A major American airline. A major Ame

publisher. A home rental service. A cable TV company. A foreign language learning program

A home improvement and interior design community. A salon & spa management platform

A legal contract resource. A lock manufacturer. A smart phone manufacturer. A private jet

supply company. A mobile gaming company. A food takeout delivery service. A real estate a

A 160 year-old British financial newspaper. A recreational marketplace. A home security c

club. A pet insurance provider. A farming equipment provider in New Zealand. A persona

publisher. A French home furnishing company. A restaurant reservation seating system. A s

& handyman service. A major American airline. A major American automobile manufacturer A cable TV company. A foreign language learning program. A standardized test preparation

design community. A salon & spa management platform. A radio network. A hospital mews

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gaming company. A food takeout delivery service. A real estate agent community. A Swiss t

financial newspaper. A recreational marketplace. A home security company. A French rest

provider. A farming equipment provider in New Zealand. A personal meditation app. A pro

home furnishing company. A restaurant reservation seating system. A streaming Japanese a A major American airline. A major American automobile manufacturer. A smart thermostat

A foreign language learning program. A standardized test preparation service. A 131 year-old

A salon & spa management platform. A radio network. A hospital mews publisher. An Ivy Le

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in New Zealand. A personal meditation app. A professional soccer scouting service.

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m. A radio network. A hospital mews publisher. An Ivy League university. A national telecom.

t service. A toothbrush delivery service. A multinational OEM. An 83 year-old beauty

agent community. A Swiss travel agency. A streaming music service. A weather data service.

company. A French restaurant guide. A visual effects studio. A luxury travel destination

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SUBSCRIBED FALL 2015

FEATURED CONTRIBUTORS

Executive Editor Gabe Weisert

Nick Mehta CEO of Gainsight “It’s critical to figure a way to track your buyers both at the executive level and at the level of the power user.”

Managing Editor Aarthi Rayapura Creative Director Shaun Middlebusher Head Designer Valentina Orlova Head of Brand Lauren Glish Editorial Intern April Zhao

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

Want to Subscribe? Send an email to editorial@zuora.com

Andy Goodman Group Director of Fjord “Digital has changed our expectations of how seamless the world should be.” Mac Kern Vice President of Commercial Planning at Surf Air “Subscriptions are magic in the aviation industry.” Matt Anderson Chief Digital Officer and President of Arrow Electronics “If you are a fan of innovation, you are fundamentally a fan of the Subscription Economy.” Tien Tzuo CEO of Zuora “Ultimately IoT is not just about extending a product’s capabilities. It’s about creating a world where a product is not a product — it’s a service.” Gudjon Mar Gudjonsson, CEO of OZ “If the internet has taught the world anything, it’s that for every niche there is a passionate and engaged audience.” Dr. Baba Shiv Professor of Marketing at Stanford Graduate School of Business “Ideally your product or service should try to incorporate elements of three rewards: rewards of the hunt, the tribe and the self.”

IOT: Turning Products Into Services

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CONTENTS 7 Letter From the Editor 8 Where is the Value Potential of IoT? 12 Devices Pushing the Envelope This Fall 20 IoT: Turning Products Into Services 24 Arrow Electronics: The Biggest IoT Innovator You’ve Never Heard Of

ARROW ELECTRONICS: The Biggest IoT Innovator You’ve Never Heard Of

29 Built Backwards: Why Companies Fail Their Customers

24 32 Consumer Psychology 101: An Interview with Professor Baba Shiv 38 The Subscription Experience

SURF AIR: Subscriptions are Magic in the Aviation Industry

50 Zero UI – Designing Invisible Interfaces 52 A Return To OZ: Streaming Media & the Creative Class 58 Breaking & Entering: IoT and Security 64 The Big Five of Customer Churn 66 The 3 Most Important Global Payment Methods for Subscription Businesses 70 Surf Air: Subscriptions are Magic in the Aviation Industry 76 CFO Speak! 78 Your Required Reading List for Fall 2015

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08/09/2015 18:29

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LETTER FROM THE EDITOR Welcome to Subscribed, a new business magazine focusing on the Subscription Economy. We’re interested in covering a broad array of stories around the profound, systemic commercial shift that’s currently underway — perhaps the biggest economic transformation since the Industrial Revolution.

The world is moving from products to services, inventory to outcomes.

Gabe Weisert Managing Editor at Zuora. He has previously worked in senior editorial roles at Forbes and Yahoo! Inc.

No matter what they’re selling, every industry vertical on the planet is shifting from a “sell-it-and-forget it” transactional mode, to a model focused around enabling and fostering ongoing customer relationships. Building a following, then monetizing it. We’re interested in exploring those stories, as well as sharing compelling and actionable advice for a range of roles including marketing, finance, technology and operations. According to the Oxford English Dictionary, the most basic definition of a subscription is simply a piece of writing beneath a document (sub script): a name, a note, an addendum. When two parties are involved, that text codifies a mutual accord — a relationship. While it’s a relatively old concept, its implications in an increasingly digitally native economy are profound. Subscriptions are exploding in popularity because newly empowered consumers are increasingly favoring access over ownership. The challenge for businesses is that those services have to be personalized, immediate, and offer compelling ongoing value. Otherwise their customers will walk. For example, Adobe just created over a billion dollars in recurring revenue in less than two years by shifting from installation software to cloud-based subscriptions. No one has ever done that before. “Think of it as a waterfall,” CEO Mark Garrett says. “We have more and more people paying us every month, as opposed to the old model where they paid at random times and we recognized all the revenue up front.” But this isn’t just a Silicon Valley story. These business model changes are happening everywhere, from ad firms

in Manhattan to sheep farms in New Zealand. While most of us sit glued to our laptops all day, the agriculture, construction and manufacturing industries are driving huge amounts of business innovation through mobile collaboration and service level agreements that prioritize outcomes over assets. This issue of Subscribed focuses on the Internet of Things, a vast commercial opportunity for OEMs (original equipment manufacturers) that comes with its own challenges: security, interoperability, corporate inertia. But we’re also featuring fascinating discussions with streaming media companies like OZ, global payment companies like Worldpay, and new transportation services like SurfAir. We’re talking with industry leaders in customer success, connected devices and consumer psychology. We’ve got a great photo feature on recurring revenue models that are popping in all sorts of places, from chai stands to bookstores. We want Subscribed to be an informed and eclectic periodical — something that’s nice to look at, and fun to read. We hope you find some sharp insights here, and stories that will hopefully provoke some creative entrepreneurial thought. Also be sure to visit our online academy for prescriptive, role-based advice. Let’s move forward. Best, Gabe Weisert Executive Editor PS. If you have any feedback or story ideas, we’d love to hear from you. Feel free to drop me a note any time at gabe.weisert@zuora.com.

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Rich Becker Vice President of IoT Strategy & Solutions, Zuora

WHERE IS THE VALUE POTENTIAL OF IOT?

The total value impact of the Internet of Things will reach somewhere between $3.9 and 11.1 trillion per year by the year 2025. This will affect every aspect of our lives and shift the way we deal with business across all industries and geographies.

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I’m always looking for sharp expository writing about IoT, and McKinsey’s latest study, “Unlocking the Potential of the Internet of Things” does an excellent job of mapping this massive commercial potential (somewhere between $3.9 and $11.1 trillion per year by 2025) across nine discrete “settings,” which our amazing in-house designer Valentina Orlova has illustrated in this accompanying infograph. Rich Becker Vice President IoT Strategy & Solutions at Zuora. Prior to joining Zuora, Becker led different sales and go-to-market organizations at PTC.

I encourage you to read the entire study, but here, in my opinion, is the biggest insight of the report (and I’m quoting in full): “The Internet of Things will change the bases of competition and drive new business models for user and supplier companies. The Internet of Things will enable—and in some cases force—new business models. For example, with the ability to monitor machines that are in use at customer sites, makers of industrial equipment can shift from selling capital goods to selling their products as services. Sensor data will tell the manufacturer how much the machinery is used, enabling the manufacturer to charge by usage. Service and maintenance could be bundled into the hourly rate, or all services could be provided under an annual contract. The service might also include periodic upgrades (software downloads, for example). Performance from the machinery can inform the design of new models and help the manufacturer cross-sell additional products and services. This “as-a-service” approach can give the supplier a more intimate tie with customers that competitors would find difficult to disrupt.” In other words, the explosion in smart connected devices is forcing organizations to change and consider new business models. In some cases, companies are even giving away their physical product as part of a complete subscription-based offering. When packaged and connected, that offering (consisting of a product, software, training, consumables, support, etc.) represents a very different business model. Having the ability to support subscriptions with allocations for usage or outcomes is increasingly becoming an operational imperative. If you are wondering how real this is, look no further than Apple’s recent announcement that it’s now essentially offering monthly subscriptions for a new iPhone every year. While some people are undoubtedly doing the math on the lifetime cost of their phones, many more of us are saying “finally.” No more negotiation of a bi-annual contract with my carrier for a subsidized plan, most of which I don’t understand.

What is really at stake here is the relationship, and Apple seeking to improve the digital experience of all of its customers. The company and its stockholders are well aware that 40% of all iPhones still in use are more than three years old. This represents a customer satisfaction problem and an opportunity to reach out with an improved experience. The question all product companies should be asking is: Can this model work for us? Can a similar model help develop a better customer relationship? Cupertino seems to think so. Add to this the developing need to manage more data, and have it operate effectively between IoT systems (as outlined in the McKinsey study) and the idea of using data from different product systems in combination to create a unique customer solution is yet another complex business model worthy of consideration. The study suggests that this “interoperability” could drive upwards of 40% of the value of the end solution, and upwards of 60% in some situations. The clear indication here is that data is part of the solution, and in many cases should be an integral element of the subscription experience. Is this something else worth thinking about? Personally, I think the opportunity for a complete business transformation is a far more exciting and challenging concept than slapping some cell phone sensors on your product and calling it “smart.” It’s inevitable that all products in the future will be smart and connected. That’s a given. What’s not is whether businesses will adjust their models based on subscriptions and the primacy of the digital experience. After all, connected devices and subscriptions are the ideal foundation for creating those “sticky” relationships that drive enterprise value for shareholders. IoT turns products into services, and in order to fully capitalize on that fact, companies are going to have to make some fundamental, systemic changes in the way they conduct their businesses. We’re all in the Subscription Economy now.

Things (connected or otherwise) are about to get a lot more interesting.

Communication

Music

Internet of Things

Consumer goods

Technology

Education

Healthcare

Every Industry is Shifting.

Media

PUSHING THE ENVELOPE THIS FALL In the IoT era, designers and engineers are fundamentally re-imagining all of our everyday physical products, from electrical outlets to bicycle wheels to carry-on bags. Weâ&#x20AC;&#x2122;ve scoured the market to find the coolest new connected devices at home and on the road.

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THYNC Thync calls itself “the first wearable technology that changes the way you feel.” Its products use “neurosignaling” to induce shifts in energy and calm states. This may sound like science fiction, but Thync has received positive reviews from the Wall Street Journal, Bloomberg, PBS and CNN. Thync System, $299, Thync.Com

THYNC STRIPS Thync Strips apply low-energy waveforms to safely signal neural pathways, allowing users to de-stress and unwind in minutes, or boost energy on demand. After a five minutes of use, Thync can induce mental states that last over an hour.

THYNC MODULE The Thync strips attach to a curvatured neck module to safely and comfortably stimulate nerves on your head and face using low-level, electrical pulses to signal specific areas of your brain.

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ZULI SMARTPLUG As frustrated early adopters can attest, today’s “smart home” often means a competing collection of siloed IoT networks. Zuli is attempting to solve this problem at the source – the electrical outlet. Its smartplugs allow you to connect all your lights and appliances to a single app, and enables them to adapt to your physical presence. Zuli Smartplug Presence Pack, $159.99, Zuli.Io

ZULI PRESENCE Any room with a Zuli Smartplug will know when you’re there, and instantly adapt to your personal lighting and temperature preferences – then everything turns off when you walk away. The system becomes more predictive the longer you use the app, and is fully compatible with Nest thermostats.

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COPENHAGEN WHEEL SMART CONTROL As you bike, the wheel is able to capture energy when braking or going downhill that it stores in a lithium battery pack. Then riders are given a boost as they pedal by measuring their effort, instead of using a throttle. When the rider pedals harder, such as when going uphill, the wheel pushes with increasing power. Using your smartphone with the Superpedestrian app, you can vary the level of powered assist.

Designed at MIT in cooperation with the city of Copenhagen, this rear wheel promises to transform your bicycle into a smart electric hybrid, quickly and easily. It contains a motor, batteries, multiple sensors, wireless connectivity, and an embedded control system. The Copenhagen Wheel learns how you pedal and integrates seamlessly with your motion, multiplying your pedal power 3xâ&#x20AC;&#x201D;10x. The goal is to make hills feel flat and shrink distances, so you can cycle just about anywhere. Copenhagen Wheel, $949, Superpedestrian.Com

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MOJIO The Mojio device plugs into any car’s onboard diagnostic port (standard in all cars from 1996 onward) and enables a suite of apps that empowers and informs you as a driver. It doesn’t turn your car into a Tesla, but Mojio users can diagnose car trouble, find nearby gas stations, know when their car is being driven when it shouldn’t, track their fuel mileage, and share their location with friends. Mojio $149, Moj.io

FEATURES 3G Connection Location Tracking Vehicle Diagnostics Driving Analytics Accelerometer Recalls & Maintenance Data Privacy Apps

GAUGE (THE APP) One of several Mojio apps, Gauge works like your own personal mechanic, handling basic maintenance reminders, mechanical diagnostics, and even vehicle recall alerts. It can also check engine codes against warranty extensions to save you money on repairs.

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SENGLED BOOST Sengled Boost is an ingenious smart light bulb that also extends your wi-fi range. Sengled also makes Pulse - a dimmable LED light with a JBL bluetooth speaker and Snap - a wireless HD camera with an energy-efficient LED light bulb for outdoor monitoring. Sengled Boost Bulb, $49.99, Sengled.Com

SENGLED APP The Sengled app is a command center for connectivity in your whole home, extending wi-fi, music and monitoring to your garden, balcony or garage. With it you can add new bulbs, customize connections, or control the lighting to suit your mood.

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TRUNKSTER

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DESIGN

Funded on Kickstarter with $1.4 million just last January, Trunkster is a GPS-enabled luggage piece equipped with a USB charger and an internal weight scale. In other words, it can charge your phone, it can weigh itself, and if you lose it, it can tell you its exact location. Carry-On $295, Checked $335, Plus GPS: $60, Trunkster.Co 27” CHECKED Dimentions: 27” x 19” x 11” Weight: 9.9 lbs / 4.5 kg Capacity: 86 L

22” CARRY-ON Dimentions: 22” x 14” x 9” Weight: 7.9 lbs / 3.6 kg Capacity: 43 L

Trunkster also features some innovative design features, including a sliding rolltop door that lets you instantly access your belongings in one swift motion. It also has a robust, full-width handle that adjusts to a variety of grip position and features omnidirectional wheels that roll in any direction. There’s a carry-on version and a larger check-in option.

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Tien Tzuo Founder and CEO Zuora

IOT: TURNING PRODUCTS INTO SERVICES

Ultimately IoT is not just about extending a product’s capabilities. It’s about creating a world where a product is not a product — it’s a service.

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Integrating products and services isn’t a new concept. There have always been after-market maintenance solutions, and at a very basic level IoT could be considered a virtual break/fix plan. The first wave of IoT will probably consist of devices that can diagnose their own problems and schedule their own field technician calls. Tien Tzuo CEO of Zuora. Prior to Zuora he served as Chief Strategy Officer and Marketing Officer of Salesforce.com.

2007 — K.V. Rao, Cheng Zou and Tien Tzuo found Zuora. 2008 — Benchmark Capital and Marc Benioff invest $6.5 million in Series A funding. 2009 — Zuora adds a hundred customers in a single year. 2010 — Zuora announces over $1 billion in contracted subscription revenue in first fiscal quarter. 2011 — Former PayPal executive Todd Pearson joins to lead Zuora Customer Success. 2012 — New clients include Citrix, DocuSign, Pearson, HP, Ustream and Servcorp. 2013 — Zuora unveils Z-Business for Media, expands EMEA and APAC field operations. 2014 — Zuora releases Z-Business Nine, Relationship Business Management platform for global enterprises. 2015 — Zuora raises an additional $115 million in Series F funding.

But then things will get much more interesting. IoT will move beyond efficiency and into possibility.When companies can actually start selling the outcome that the product was purchased for, then the product itself becomes an ancillary means to an end. Hence the recent popularity of service level agreements: a healthcare IT firm signs a contract with a hospital promising to reduce its patient re-admittance rate by a certain percent. SpaceX signs a service level agreement with NASA guaranteeing a particular cabin environment to transport lab rats to the ISS. Caterpillar asks clients how much earth they need moved, not how many tractors they want to buy. All hard good OEMs (original equipment manufacturers) are moving in this direction. Philips makes thousands of products, but these days they refer to themselves as a technology solutions partner. Here are the words of their CEO from their annual report: “With the transformation of our business model architecture, we are increasingly becoming a technology solutions partner, with recurring revenue streams accounting for over 25% of sales. And we are shifting from transactions to relationships via service and solution business models.” Similarly, Schneider Electric uses the word “solutions” in their most recent annual report: “With the completion of the Invensys acquisition, we have built an integrated portfolio of energy and efficiency solutions to serve the customers of our four key markets.” Thermo Fisher Scientific makes amazing high-end scientific and medical equipment (their human genome scanner is the size of a toaster oven). For Thermo Fisher, the first step in connecting their devices was about efficiency: low supply alerts, part service notifications, etc. But the next step was about possibility: What if we lower the cost of our equipment, and started selling small university labs subscriptions to powerful analytic platforms? What if we can give a doctor in a developing country the same big data capabilities as the CDC headquarters in

Atlanta? The products themselves start fading from the bigger picture. Whether they make scanners or tractors, companies are going to be talking to their products constantly, and data through fiber will be as important as electricity through copper. But IoT isn’t just about allowing companies to go beyond static products. IoT is about enabling companies to meet the demands of today’s changing consumer. Consumers today are more informed and demanding than they were ten years ago by an order of magnitude. They have the world’s store of knowledge at their fingertips. They expect ongoing value and unique experiences. And they’re not as interested in methods as they are in outcomes. Stand-alone products don’t cut it anymore. Other than picking a color or slapping a monogram on it, a standalone product can’t be personalized. A product can’t learn your behavior and preferences. A product can’t be constantly upgraded, so that it gets better and better — instead, it simply gets obsolete. People increasingly view owning something as simply managing the decline of a physical asset. To meet the expectations of today’s customer, companies must move beyond products into services — from a product experience to a subscription experience. They have to create services that can learn and adapt based on behavior. Services that can improve themselves autonomously. Services that can be truly customized. Sure, there will always be an actual physical object involved, but the point isn’t to ask “What can an Internet-enabled device do?” but rather “What do customers really want, and how can I deliver that as an intuitive service, rather than a stand-alone product?” Nest isn’t just a thermostat. It remembers your heating patterns after a week, it’s a central nervous system for your house that tells you when particulates are in your air, or raccoons are in your yard. An Autonet Mobile connected car isn’t just a vehicle with a 4G connection and a map (something you can get with your phone, anyway). It’s a diagnostic system on wheels that tells your garage to schedule an emissions-level check or lets you know when your teenager is driving too fast. The next eighteen months will see a tectonic consumer shift towards connected devices, from automobiles to homes to wearables. To meet the demands of today’s con-

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sumer, companies will need a clean break from their old product-based business models. They will need to reinvent themselves as subscription-based platforms. There will be as many failures as successes, and here at Zuora we’re very excited to be right in the middle of it. We’re having conversations with some of the best and biggest manufacturing companies in the world. Because ultimately IoT is not just about extending a product’s capabilities. It’s about creating a world where a product is not a product — it’s a service. Arrow did it. Lowe’s did it. And trust us, many others are coming.

“In the industries we serve today, we have the largest population of connected machines and engines in the world. Through Cat Connect and Minestar™, hundreds of sensors on machines and engines send terabytes of data to state of the art monitoring facilities at Caterpillar and Cat dealers.” — Doug Oberhelman, CEO, Caterpillar

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THE BIGGEST IOT INNOVATOR YOU’VE NEVER HEARD OF

Arrow Electronics is the world’s largest distributor of components and enterprise computing systems. It’s tempting to portray it as the world’s biggest IoT warehouse. But it’s much more than that. By Gabe Weisert

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Matt Anderson Chief Digital Officer & President at Arrow Electronics. He leads the continued buildout of Arrow’s digital strategy and new online operating model. Prior to joining Arrow, Matt was the CDO of hibu/Yell.

Arrow serves as a supply channel partner for over 100,000 original equipment manufacturers, contract manufacturers and commercial customers. Arrow brings technology solutions to a breadth of markets, including telecommunications, information systems, transportation, medical, industrial and consumer electronics. Arrow has a global network of more than 460 locations in 56 countries. Arrow provides specialized services and expertise across the product lifecycle. Arrow does this by connecting customers to the right technology at the right place at the right time and at the right price.

“If you are a fan of innovation, you are fundamentally a fan of the subscription economy.”

Arrow Electronics started in 1935 selling radio sets, a relatively new retail technology at the time. Today it’s a $23 billion business operating in 56 countries. Arrow has roughly 17,000 employees that include thousands of field application engineers and systems engineers who help companies bring exciting new technologies to scale. For many decades, Arrow was happy to conduct its business as a straightforward and extremely profitable parts warehouse. It distributed electronic components to thousands of technology companies. “Before you would come in and say I want a processor or I want an electro mechanical component, it could be a crystal oscillator or some kind of passive device. You would have a conversation with us about that, and we would go and buy that from someone and sell it to you for a slight markup,” says Chief Digital Transformation Officer Matt Anderson. But Anderson said the company recognized a decade ago that they needed to shift their business model from a commodity provider towards value-added services. They needed to stop acting less as a Home Depot for the tech industry, and more like a Bell Labs. These days they’re having very different conversations with their customers. “You might say we want to automate pest control in agriculture, and we’ve never really done that before but we know what kind of solutions we’re looking for because we’re chemists. How are we going to create a device that monitors whether or not the pests are out there, what

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the weather trends are, whether or not we have already sprayed? Are we seeing any evidence of pheromone levels going up? Those kinds of things.” In other words, Arrow’s customers used to come to them asking for isolated components. Now they’re looking for integrated outcomes. As a result, Arrow is offering design engineering services and system administration to help innovators bring their ideas to fruition and close gaps in knowledge and skill sets. They’re helping innovators surface the intrinsic value of their products. They started thinking in terms of desired outcomes, not stand-alone devices. Arrow now offers a subscription service to manufacturers that allows them to search over 300 million electronic parts for cross references, lifecycle, parametric, obsoleteness forecasts, regulation compliance, and inventory data. They can then apply that data to the manufacturer’s bill of materials (BOM) and active updates can be sent to manufacturers as updates to these components are made. This division, Silicon Expert Technologies (SET) has about 800 customers and is growing at a rate of 20-30 per month. Arrow is further leveraging subscription management, connectivity, design engineering, and enterprise computing to build an ecosystem of solution providers. This ecosystem allows innovators to build new technologies that gather unfathomable types and amounts of data. Recent examples include: • Working with a major fast-food dining chain to automate, monitor, and put sensors on every single piece of kitchen equipment. The data collected can then be connected with intelligent customer menu boards and headsets. This allows the management chain to collect and use an enormous amount of data – whether equipment is in good working order, do certain menu items need to be removed, can the menu be tailored for surge demand, etc. • A biotechnology firm is building a new network of insect pheromone detectors that, when it picks up specific signals, automatically sprays a dispersant rather than using pesticides, leading to healthier food. Everything is automated, from the data the crop manager sees about insect patterns to the machine that sprays dispersant. • They’re even working to build a better mousetrap: an automated trap that monitors activity and effectiveness, certifies that it’s meeting regulations that restaurant chains

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and grain elevators must abide by, and notifies the manager of any problems.

ARROW ELECTRONICS CAR Arrow has hundreds of fascinating IoT pilot projects in the works, including a semiautonomous race car that can be operated by the driver using only the head. It was built for former IndyCar driver Sam Schmidt, who was paralyzed in a 2000 race. In a recent road-test he steered, accelerated, braked and drove the modified 2014 Corvette Stingray.

The thing about IoT, says Anderson, is that it’s growing in previously unimagined ways. With all this new data comes new possibilities. Companies like Arrow have made IoT innovation more accessible to not only large corporations, but also small-scale innovators of the type found on Kickstarter and Indiegogo. So how does Anderson describe the difference between a transactional customer and a solutions-based subscriber? “I think at Arrow a customer is someone who buys a component or who buys a piece of technology that could make a data center,” says Anderson. “I think a subscriber is someone who is really interested in a relationship with Arrow that is solving a specific problem and that could look like a subscription to monitoring. It could look like a subscription to one of our ‘data as a service’ capabilities or it could look like somebody who has asked us to come along actually do design work for them.” Anderson goes on to note that subscription-based businesses enable a lot more players in the innovation market, simply because they are able to build products that don’t cost a lot up-front. As long as they can continue to make their subscriber base happy, they can invest more money in innovation and continue the virtual cycle. Arrow’s founders probably wouldn’t have envisaged a future where entire segments of their product catalog would be treated as loss leaders! Many of their customers give their new integrated products away for free, in order to kick-start smart, mutually-beneficial subscription-based relationships. As Anderson notes, when you put sensors on everything you create data about everything. And that lets you charge in completely different ways: “For instance if you had a pacemaker that had sensors in it you could charge for a subscription for heartbeats! If you had shoes that had sensors in them you could charge for how many kilometers do you want to walk per month! Those kinds of business models never existed before.” Today IoT is making every single industry and every single company a potential subscription business model participant. “If you are a fan of innovation, you are fundamentally a fan of the subscription economy,” says Anderson.

“If you had a pacemaker that had sensors in it you could charge for a subscription for heartbeats! If you had shoes that had sensors in them you could charge for how many kilometers do you want to walk per month! Those kinds of business models never existed before.”

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BUILT BACKWARDS: WHY COMPANIES FAIL THEIR CUSTOMERS Consumers now have the ability to price, critique and purchase anytime, anywhere. They increasingly value access, not ownership. Enterprises need to re-organize themselves to reflect those changes. By Marc Diouane

product

customers

channels

customers

product

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Why are so many large companies so inefficient when it comes to delivering a great customer experience? Because most of them are built backwards.

Marc Diouane President of Zuora. He was previously Executive Vice President of Professional Services and Strategic Alliances at PTC.

Large corporations and OEMs (original equipment manufacturers) are traditionally organized around product lines. This has a traditional logic to it. It allows management to have a direct line of sight into development cycles and sales performance, and thus provides for clear team ownership accountability. But while this product-based approach has some benefits in terms of assessing core transactional issues, it comes at a tremendous cost. It creates a siloed organization that lack any kind of coordinated vision. It fosters internal competition for customers. And it contributes to a myopic mindset that blindsides management to sudden changes in the marketplace. Unfortunately, most of the time this structure also works. It doesn’t work particularly well when it comes to consumers like you or myself, but in some cases it can still ship units and keep board rooms happy. It is a functional but mediocre way of conducting business. However, there is nothing more dangerous than successful mediocrity. Today’s buyers have changed. The golden era of post-war corporate dominance, when this original product-based management structure was created, was enabled by a relatively passive consumer base. This is clearly not the case anymore. Consumers now have the ability to price, critique and purchase anytime, anywhere. They increasingly value access, not ownership. Enterprises need to re-organize themselves to reflect those changes.

Companies have to integrate an rigorous focus on customer insight, satisfaction and success. A focus on ideal customer outcomes has to inform every aspect of the production cycle. But while everyone publicly concurs that customer focus is enormously important, no one seems to be doing anything about it. How do you make the systemic changes needed to instill customer insight into the framework of your company? First, it’s time to get rid of stand-alone business units. No more product groups with dedicated sales, marketing, and back-office support. Products are important, but they should not be dictating the way companies are structured. Second, product divisions with dedicated profit and loss targets should be replaced by customer segment teams that are just as financially accountable. Third, companies should be searching for new customer needs to address, not new features to implement. Foster institutional expertise in the people buying your products before you start designing new products for them. Finally, the overall strategy of the organization should be how to create the best solution for the customer, not how to ship the best product. This point is best illustrated by the diagram on the previous page, which is very important to us here at Zuora. Traditional corporations on the left are concerned with shipping their product through channels to sell to anonymous customers. Progressive companies start with their customer’s wants and needs first, then focus on their preferred news and purchasing channels, and then let

those factors inform the design and implementation of their product. I’m certainly not alone in my thinking. Forrester Research, which tracks roughly 85% of the global GDP, thinks we’re at the beginning of a new 20year business cycle that they call “The Age of the Customer.” Similarly, the Kellogg School of Management has released a paper called “The Rise of the Consumer-Focused Enterprise” noting a broad, systemic shift in capital models pivoting towards serving a newly empowered generation of customers. At Zuora we call this the “Subscription Economy,” or the transformational shift towards ongoing services over stand-alone products. It’s happening right now, and management teams have to make some changes. Many observers have suggested what needs to be done to create organizational change, but no one has spelled out how to get there, particularly how to make the changes that lead to a customer focus deep enough to become part of the lifeblood of an organization. Because companies with deep customer focus are constantly thinking about better, quicker, easier ways of doing things that customers need, they ultimately become indispensable. Whatever customers need to do (say, use information to make critical decisions differently, ensure employees’ lifetime well-being, manage energy or do on-demand computing), the company with deep customer focus excels at offering the outcomes each customer seeks. Through constant innovation, customer feedback and the use of knowledge, the enterprise becomes indispensable. And as the relationship intensifies, truly sustainable gains ensue.

A NEW INTEGRATION FOR ZUORA USERS THAT NEED TO CAPTURE CUSTOMER eSIGNATURES & PAYMENTS.

“

The Sertifi and Zuora integration was a true game changer for us — it allowed our clients to sign and pay online in the easiest way possible.

”

Visit sertifi.com for details or contact us today at sales@sertifi.com or 1.866.983.8877

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CONSUMER PSYCHOLOGY 101: AN INTERVIEW WITH PROFESSOR BABA SHIV

Understanding the consumer mind is an ongoing endeavour for all businesses. We spoke to Professor Baba Shiv who has done extensive work on the emotional brain, documenting its powerful role in shaping decisions and experiences.

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Baba Shiv Baba Shiv is the Sanwa Bank, Ltd., Professor of Marketing at the Stanford Graduate School of Business. His work includes the application of neuroeconomics to the study and practice of innovation and entrepreneurial leadership in companies, from Silicon Valley startups to Fortune 500 companies.

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Ideally your product or service should try to incorporate elements of all three basic human rewards: rewards of the hunt, rewards of the tribe and rewards of the self.

YOUR RECENT WORK EXAMINES THE INTERPLAY OF THE BRAIN’S “LIKING” AND “WANTING” SYSTEMS AND ITS IMPLICATIONS FOR MARKETING, INNOVATION, LEADERSHIP AND DECISION MAKING. CAN YOU ELABORATE ON THAT? Sure. Basically, the human brain has got two separate instinctual systems that guide our preferences and behaviors. The liking system codes for pleasure in real time – for instance I’m chatting with you right now, and I’m enjoying myself, and I have a liking system that is coding for that pleasure. This liking system registers what we call the reward value associated with something. The wanting system records the reward value indicated by the liking system, and then tends to shape my subsequent experiences.. For example, the next time I meet up with you, that interaction is going to be different than the first time I met you, because the wanting system has registered the reward value of the first interaction. The next time we chat, depending upon what the reward value that has been coded, I’ll either be more engaged with you or less engaged with you, at a very instinctual level. In general, of course, we like what we want and we want what we like. The liking system dictates the reward value, and the wanting system registers it, and the two together drive future interactions with a particular person, flavor, film, product, etc. But it’s not always the case.

For instance, I frequently ask senior executives if they like reading their emails. They all say no. But then I ask, but when you receive an email notification, do you check your emails? They all say yes. It’s a classic case where you don’t like a particular interaction but you do in fact want it. It’s the same basic principle at play in substance addiction. The brain is constantly assessing reward values. It’s an evolutionary trait. If I’m in prehistoric times, and I notice a fruit that looks delicious, and then I taste it and it’s in fact repulsive, then my liking system conveys the negative reward value to my wanting system. As a result, in the future, the negative value registered by my wanting system will go so far as to make me avoid any other fruit that shares characteristics with the fruit I tasted earlier. More recently, there was a classic study done by a cognitive scientist named Paul Lewicki. Imagine that you were one of the test subjects in the study and were treated quite rudely by a blonde greeter (the test itself, of course, was completely irrelevant). Later you were asked to submit their answers at a computer terminal which features four seats. Two are occupied – one by a brunette, one by a blonde. Now, who are you going to instinctively prefer sit next to? You guessed it, the brunette. So what does this all mean for your business? It means at a fundamental level you need to have both systems in place when you go to market. When people try out your product, their liking system needs to register a positive reward value, and store that value in their brain’s wanting system. AS CONSUMERS, WHAT OTHER FACTORS INFLUENCE OUR DECISION MAKING PROCESS? Well, one very important factor is a person’s cognitive load. By that I mean how much of your rational, cognitive mind is currently occupied. Because once you’re completely pre-occupied with a thought or a series of thoughts, then your subconscious system starts making decisions for you. That’s why people frequently fall prey to temptation when they’re fatigued. It’s late, I’m tired, I’ll go ahead and do x, y or z. Fatigue is just another form of cognitive loading. It probably explains a lot of late-night Amazon purchases. I once conducted a study where I told a group of test subjects that I was studying the effects of a change in environment on their capacity to memorize information. I

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asked them to memorize either seven-digit or a two-digit number in one room, and then walk to another room to recall the number.

for example, are essential. There’s a reason why IBM ran a very successful ad campaign targeted towards IT professionals that said “No one gets fired for buying an IBM!”

Again, this was all a disguise, not the real purpose of the study. Before they memorized their number, I also mentioned that as a favor for coming in and taking the test I was offering them the choice of two snacks – fruit salad and chocolate cake – and they simply had to grab a ticket for the snack they wanted and hand it over to the experimenter.

Now, IBM could afford to assert that, because they had this big historic brand. For newer competitors, I would focus on emphasizing trust, rapport, and comfort. And starting that process as early as possible, because we now know that something like 80% of the decision-making process has already occurred prior to a face-to-face meeting, because all the relevant information is readily available.

Guess which snack was more popular with the two-digit memorizers? The fruit salad. And the seven-digit group? The cake. They were cognitively loaded. Instinctively, the cake has a higher reward value, right? It’s delicious! And the rational, slow-thinking system, which is currently trying to remember seven digits, has no time to come in and say, no, let’s go for the healthier option.

WHAT DO WE AS CONSUMERS SEEK FROM OUR BUYING EXPERIENCES? DO YOU SEE A PATTERN HERE?

This has huge implications in today’s world where, I believe, were are living in a more and more distracted society. But as I mentioned before, the reward value has to be set first before the unconscious system starts influencing decisions. It’s also definitely the case that as we get older we’re not as good at encoding new information. People who are older tend to take a longer period of time to switch from an older technology to a new one, or an old way of doing things to a new one. They tend to do that simply because it’s much more difficult for them. DO THE SAME RULES APPLY TO B2B PURCHASE DECISIONS? Absolutely. Even more so, because in B2B decisions, we’re talking about multiple people, so all these factors get multiplied. In general, the brain is looking for one of two things. It’s either looking for an escape from stress, fear, and anxiety towards comfort, or it’s looking for an escape from boredom into novelty or variety. In business settings, it’s usually the former instinct applying itself. Those people are afraid of failure, not missed opportunities. Their decisions will have a broad implications on their entire organization. That’s why the commercial emphasis should be on comfort. Schedule your meetings early in the day, when serotonin levels are higher. Your pitch needs to have comfort embedded into the value proposition – quality customer referrals,

Absolutely. At the end of the day, instinctively, what the customers are looking for are a few things. Number one, the customer wants to reduce pain points. Frustration. It could be frustration in the purchase decision. It could be frustration in usage. The customer is looking for an escape from fear, anxiety, and so on. We’ve all been in this situation: “Man, I have to make this big ticket purchase. I don’t know if this is the right thing for me to do.” Those are all the fears, and what the brain is looking for is this comfort. Huge commercial successes have been built on simply reducing pain points. A good example is Apple’s recent announcement that for a little over thirty dollars a month you can simply subscribe to your iPhone, and automatically get the new model when it comes out every year. Apple is trying to reduce pain points, because it knows that people aren’t upgrading their phones as a result of carrier contracts and their own rational concerns eg. should I be spending that kind of money every year? What Apple has done is, almost through a substitution model, dramatically reduced that pain point. “It’s only $33 a month. That’s a small amount.” Another one is Netflix. Before Reed Hastings started Netflix, there was no option but to go the local Blockbuster and rent your videos. Outside of the hassle of driving to the store, you had two frequent pain points: you go to the store intending to rent a specific movie and that movie is unavailable, and also getting charged for late fees. The consumers lived with that. I lived with that! Then Reed Hastings came along and said, we’ll always have the movie you want, and you can keep the DVD as long as you want. He discovered those pain points, and he solved for them.

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WHAT ABOUT SOME OF THE MORE POSITIVE ASPECTS OF PURCHASE DECISIONS? CAN THOSE BE INFLUENCED?

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that anyone goes through in buying a car is that final step where you’re getting to the finance office. That is a horrible experience: “Oh my god, I don’t know if the guy’s going to rip me off.”

Of course. Consumers are also looking for three types of rewards in general. They’re looking for excitement. They’re looking for novelty, variety. Sometimes I call those as the rewards of the hunt. Women especially, we know, and also men in growing numbers go into retail stores simply to explore. That’s the thrill of the hunt.

All they have to do is to say, listen. You pay $400 a month. Every 18 months, you have the option of upgrading the car. If you choose it, the car will be delivered to your house. It’s great for the automobile company. It’ll remove one big friction point out there for the consumers themselves.

Secondly, they’re looking for the reward of the tribe. Social recognition and status become very important. I want to catch up with my neighbor, who has recently bought a new car. That is social. That’s a status kind of thing. That’s a tribal instinct that kicks in.

Similarly, if you asked Adobe consumers to go back to the old days of $500 CD-ROMS, they would probably revolt. Companies are moving to subscriptions because it’s all OPEX right now. It’s not CAPEX anymore. I don’t have to go for these big investments. It’s all there.

Thirdly, there are the rewards of the self. Rewards of the self are more about self-actualization, learning. I want to discover. I want to travel to new countries. I want to acquire a new skill set. All those are rewards of the self. So on the positive side, ideally your product or service should try to incorporate elements of all three rewards: rewards of the hunt, the tribe and the self. WHAT DO YOU THINK EXPLAINS THE RECENT POPULARITY IN SUBSCRIPTIONS? WHAT ELEMENTS OF THE CONSUMER PSYCHE DO THEY APPEAL TO? I think the primary appeal, and it’s a very important one, is the removal of the last remaining pain point: “I don’t want to keep having to make those decisions. It’s a boring thing. It’s just bath soap. I’m never going to change my bath soap.” Etc. The bigger challenge for subscription companies, I think, is incorporating that sense of delight and variety into their service. Birchbox is an excellent example of this. It’s Christmas every month. You don’t know what you’re going to get. It’s curated by experts, but at the same time, the subscriber can set certain preferences, and choose to pursue certain product categories that appeal to them. So they balance comfort with novelty. I’m working with another company that’s working on a similar model in the fashion space: when you want to try something new, we’ll donate your old clothes to charity, and send you the new one. I always wondered why people are not doing this in the automobile space. One of the most painful experiences

Huge commercial successes have been built on simply reducing pain points.

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Itâ&#x20AC;&#x2122;s not just about media and software anymore. These days the subscription model is taking off in all sorts of retail environments. From tea to sunglasses to vinyl records, we found some of the most enticing experiences to subscribe to this Fall.

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VINYL ME, PLEASE

Vinyl Me, Please is a record of the month club that says “Our goal is to be the greatest music company ever, and to make your life even more awesome than it already is. We do this by not only sending you great music, but by also offering an amazing experience every month. Vinyl Me, Please works closely with both the label and the artist to come up with a truly special version of the record – creating a record pressing made exclusively for their members. Every Vinyl Me, Please record comes with a unique feature set (custom lyric books, art, color vinyl, inserts) you can’t get anywhere else. MEMBERSHIP BENEFITS INCLUDE: 1 Special-edition LPs pressed exclusively for Vinyl Me, Please members 2 Original 12” x 12” art prints and custom cocktail pairings 3 Special members-only pricing on additional curated albums & gear 4 The Standard: Playlists, vinyl releases & free downloads delivered every week

Plans start at $23 per month vinylmeplease.com

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An early force behind the subscription box phenomenon, Birchbox offers a monthly deliveries of deluxe beauty, grooming, and lifestyle samples, tailored to your profile. More than 800,000 subscribers discover cult brands, up-and-coming lines, and everything in between. Birchbox also has a popular menâ&#x20AC;&#x2122;s grooming box, and recently opened an innovative flagship store in downtown Manhattan.

Monthly subscriptions start at $10. birchbox.com

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As a complete litter box alternative, Poopy Catâ&#x20AC;&#x2122;s subscription service removes a major pain point of cat ownership. The company sends you four disposable, biodegradable litter boxes every month. They fold together in seconds, and allow cat owners to get rid of litter without getting their hands dirty.

Currently available for home delivery in Europe, subscriptions start at 24.95 euros per month. poopycat.com

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CHOTU CHAI WALA

The traditional Indian tea stall, an ageold cultural symbol, has taken a small but important step into the Subscription Economy. Mumbai-based Chotu Chai Wala allows offices in the business district of Bandra to subscribe to daily tea deliveries from their favorite local chai stands. Created by Zepo in a local ecommerce development platform, Chotu Chai Wala works with local tea vendors to set up online profiles and coordinate daily office deliveries.

Monthly subscriptions start at 280 rupees, or $4.20. shop.chotuchaiwala.com

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The Cravory promises â&#x20AC;&#x153;the ultimate cookie experience, with a soft cookie center and perfectly baked surface that provides both a gooey and crisp cookie eating venture.â&#x20AC;? The San Diego-based company was co-founded in 2009, and opened its first brick and mortar storefront just last year. Signature flavors include salted caramel, red velvet, pancakes and bacon and birthday cake.

An ongoing monthly subscription to a dozen cookies costs $19.00. cravorycookies.com

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Bye Buy is hoping to solve the transactional treadmill of the consumer electronics industry with a service that offers unlimited access to over 150 personal technology products including cameras, tablets, drones, wearables and laptops. Members subscribe to specific products on a pay-as-you-go basis, and return them for upgrades when they like. As the company says, “Don’t own it. Enjoy it.”

Monthly subscription prices vary per product. saybyebuy.com

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Keplerâ&#x20AC;&#x2122;s Books in Menlo Park, California has a popular membership program that rewards customer loyalty and enables the store to remain a vibrant cultural center. Since the program began in 2005, Keplerâ&#x20AC;&#x2122;s has enhanced the lives of readers in their community through the sale of over 2 million books, 1500 author events, $200,000 raised for local schools and non-profit organizations and $3 million in collected sales tax. None of this would have been possible without their nearly 5000 Literary Circle Members.

Subscriptions range from $60 to $2,500 per year. keplers.com

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Inspired by other fashion subscription successes like Rent the Runway, Ditto Glasses offers a “Netflix for Designer Eyewear” program called Endless Eyewear. Subscribers choose a pair of glasses for delivery, and if they don’t like it or simply get tired of it, they can swap them out for another with free shipping and returns.

Ditto has monthly plans for both prescription glasses (starting at $29) and sunglasses ($24). ditto.com

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ZERO UI – DESIGNING INVISIBLE INTERFACES At the heart of the Subscription Economy lies the “Subscription Experience.” And one of IoT’s revolutionary promises is to make this experience intuitive and delightful, time and again. Andy Goodman, Group Director of Design Strategy at Fjord (part of Accenture Interactive) and his team work with companies to re-imagine the relationship that their customers have with their products and services. They use the power of design to create experiences that customers will love and return to. By Andy Goodman

Our seemingly unquenchable attachment to screens—rectangles that glow in the corner of rooms, on our tables, by our bedside, and in our pockets—has come to inform societal norms and mores; so much so that it may be difficult to imagine a world not dominated by screens—yet that’s where we, as Fjord, believe we are heading.

Andy Goodman Group Director of Design Strategy at Fjord. A pioneer in the Services Design industry, Goodman has a background in designing for the games, interactive TV and mobile industries

The word “screen” itself has tension: it simultaneously means an object we look at and something that we hide behind. A postcard-sized surface has somehow become a barrier and escape route in social situations, absorbing our gaze and taking us away elsewhere. At Fjord, we view the replacement of screen-based interaction (along with its constant fracturing of attention spans) by ambient technology to be a very good thing; natural social interactions could be restored, and our attention could again return to the people sitting at the table with us, instead of those half a continent away. In short, we see tremendous opportunities in a “Zero UI” world. Zero UI refers to a paradigm where our movements, voice, glances, and even thoughts can all cause systems to respond to us through our environment. At its extreme, it implies a screen-less, invisible user interface where natural gestures trigger interactions, as if the user was communicating to another person. It is brought about by the emergence and eventual mainstream adoption of sensors, wearables, distributed computers, data analytics, connected everything, where anticipatory, adaptive and contextually aware systems provide what

we want when we want it – “by magic.” Zero UI will not be limited to personal devices but will extend to homes, entire cities, even environments and ecosystems, and as a result have a massive impact on society as a whole. It matters because it takes us away from the tyranny of the glowing rectangle and makes us more human again. Whilst we do not believe that we will ever have a screenless world (or at least a world where visual input isn’t the primary mode) it is incumbent upon designers to consider the impact on the world of our work. If we just slap a screen on everything, and make everything an interface – which will certainly be possible with advances in Smart Materials, Flexible OLED and Piezo sensing technology – then we are not being diligent enough. A lot of things, particularly functional things can be relegated to the background and not demand so much of our attention, leaving us more time to experience the people we are with and the places we are in. At Fjord, we are exploring the contexts, scenarios, and uses of Zero UI, and what it means to design and build these services. Our first exploration was to uncover the human response to vibrational messaging (haptics) in a way-finding scenario for cyclists. The devices we prototyped would link to a mapping application and in a totally unobtrusive way tell the rider which way he had to go. Biology is playing a big part here and insights into physiology and perception are going to be important in our new discipline of Zero UI design. The goal is to see if we can uncover a “universal”

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language of haptics. The ambition is to have a system that would not have to be learned in any way but just naturally communicates with the user. Our other main exploration is to understand if we can arrive at a universal gesture language. Using a leap motion sensor we ran experiments to see what gestures people would make for common actions to see if there was a modal gesture. For example a television that can sense gestures. Depending on who is standing in front of that TV, the gestures it needs to understand to do something as simple as turn up the volume might be radically different: a 40-year-old who grew up in the age of analog interfaces might twist an imaginary dial in mid-air, while a millennial might jerk their thumb up. As the world becomes increasingly digitised we are no longer cognisant or forgiving of systems that don’t “just work.” Digital has changed our expectations of how seamless the world should be. We are also prone to applying the same expectations and performance criteria from one system to another totally unrelated. The payment experience of Uber – i.e. “just opening the door and getting out the cab” has created a perhaps unrealistic and certainly unmet expectation of how everything else should work, from our banks to our airlines. In the long term, this is a good thing, as we drive towards frictionless experience in every sector and type of experience.

Digital has changed our expectations of how seamless the world should be.

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Gabe Weisert Executive Editor

A RETURN TO OZ: STREAMING MEDIA & THE CREATIVE CLASS

If the internet has taught the world anything, itâ&#x20AC;&#x2122;s that for every niche there is a passionate and engaged audience.

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During the Golden Age of Hollywood from the late 1920s to the early 1960s, the “Big Five” motion picture studios hired creative professionals under long-term contracts. Thousands of writers, set dressers and costume artists (not to mention lowly actors and directors!) worked on dozens of feature films a year for fixed annual salaries.

Gudjon Mar Gudjonsson CEO at OZ, Inc. Gudjon has driven the research, development and design of many leading-edge technologies and is the author of several granted patents.

Based in Reykjavik, Iceland and Santa Monica, California. CEO Gudjon Mar Gudjonsoon previously founded a number of consumer broadband and mobile companies in the UK, Ireland and Iceland. OZ lets video creators create and promote dedicated subscription channels. Creators determine channel costs and receive 70% of subscription revenues. Currently features a number of popular bands like Samaris, Retro Stefson and GusGu.

The emphasis was certainly on quantity over quality, but every now and then an ordinary-seeming genre film did quite well: The Searchers, The Wizard of Oz, Casablanca. It’s important to note that these masterpieces were mass-produced along with hundreds of other westerns, musicals and mysteries. Of course this all happened when box office revenues were much more stable than they are today. For most Americans going to the movies was a dependably recurring activity which happened on a weekly or even daily basis. The studios ran a relatively predictable business and their preference for fixed contracts reflected that. Today these sorts of professional relationships seem very distant. The end of steady contract work for creative professionals can be attributed to a number of factors: successive waves of corporate consolidation, the rise of the agency system, Internet piracy, the spectacular diffusion of media and culture in general. While it’s no question that artists were exploited in the old system, these days they’re lucky if they get a single chance to fail, much less three or four opportunities a year. But echoes of the old studio system are starting to reappear in the creative industry, and they’re being enabled by low overhead costs, mass distribution channels and stable, subscription-based revenue models. While today’s Hollywood remains chained to the hit-or-miss model, more and more consumers are opting towards subscription-based content services in music (Rdio, Spotify), video (Netflix, Crunchyroll, Twitch) and reading (Kindle Unlimited, Scribd). The steady and predictable income generated by subscriptions lets these companies make considered investments towards their future (whether sourcing great backlist content or developing original material) rather than scrambling to hit their numbers every ninety days amid an unpredictable advertising market. According to Liam Bolus of REDEF, today the largest YouTube Multi-Channel networks (Maker, Fullscreen and Machinima) are already delivering enough minutes to US audiences to challenge major TV networks such as CNBC, FXX and Fox Sports 1. This year Netflix’s 41 million US accounts averaged almost two hours of video on the service each day, making it larger than two of the four major US broadcasters and twice as large as the largest cable network. In another year, Amazon’s Twitch network (which is solely devoted to video game spectatorship) could be a top 25 network. So how is today’s newly empowered creator to start? Flip on a YouTube channel and hope to start getting advertising percentages (but only after generating hundreds of thousands of views)? Oz is taking a different approach. The video streaming company, with offices in Santa Monica, California and Reykjavik, Iceland wants its creators to make a living loving what they do — on the subscription model. Using its Channel Creator tool, any creator can build a video channel with their work and set their own subscription pricing. Oz handles the rest — everything from delivering the video experience to collecting the subscriptions from a global audience. Then Oz cuts the creators them monthly checks, allowing them to consistently support their projects and while avoiding relentless self-promotion and crowdfunding campaigns. I had a few questions for CEO Gudjon Mar Gudjonsson.

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WHY DID YOU START THE COMPANY?

It’s rewarding for OZ creators to see the monthly income they have earned from their subscribers.

It’s really simple. We are driven by the need to help creators distribute and generate revenue from their content. We want creators to be able to focus on creating. We want their audiences to enjoy viewing and engaging with their favorite shows, films, videos and with creators without interference from the viewing platform. YOU’RE BOTH US & EUROPE BASED. WHAT KIND OF PERSPECTIVE DOES THAT GIVE YOU ON AMERICAN VERSUS EUROPEAN MEDIA CONSUMPTION HABITS? ARE THERE ANY NOTABLE DIFFERENCES THAT YOU’RE AWARE OF? OZ has offices in Santa Monica, CA and in Reykjavik, Iceland. One of the biggest differences between the US and Europe is the market fragmentation in Europe. This is somewhat driven by language and cultural barriers, closed territories and varying means of doing business between each country. These factors however open up opportunities for improvement so that content can be shared and viewed globally. Iceland is a great prototyping market, as it’s small, curious and engaged. Testing in Iceland has worked out really well for the company, as it is culturally influenced by both North America and Europe. We’re able to get valuable feedback from the community before launching features internationally, which gives us a market advantage. WHICH OZ CHANNELS ARE DOING REALLY WELL RIGHT NOW? HOW WOULD YOU EXPLAIN THEIR SUCCESS? The success is mostly related to the effort put in by the creator in terms of bringing over their audience. Subscribers to OZ channels tend to be the creators’ true fans, who want to be closer to the artists they love, gain access to exclusive content and engage with content without the noise that comes with ads. They really enjoy the members-only feel of OZ. GusGus is a band in the EDM genre with a global fanbase.. They launched their OZ channel as an experiment to see if they could engage with their fans, even when not on tour, by sharing exclusive content. It’s become like a fan club of sorts, where their subscribers are insiders on all things GusGus. It makes the fans feel closer to the band, which in turn inspires the band and helps them feel more connected to their fans. GusGus, with very little promotion so far, has begun generating more revenue from their OZ channel than they have on the top two most well known music

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sharing services. And it’s not even about the music so much as letting fans get a bit closer to the band. There are other channel genres gaining traction as well in the area of lifestyle, music, sports, fishing, culinary and children’s programming. IT’S ONE THING TO MAKE SOMETHING. IT’S ANOTHER THING TO CREATE IT. HOW DO YOU HELP YOUR CREATORS GET THEIR WORK OUT INTO THE WORLD? It’s important for the creators to make sure that their established fans are aware of the existence of the channel. Additionally, OZ has always supported our creators in different ways, whether it was help with production, enabling them to live stream concerts or marketing and public relations tools and support, even working space! We have a team dedicated to making sure that the work of the creators is out there in the world and that they get all the support they need to become successful on OZ and beyond. DOES OZ HAVE ITS OWN PRODUCTION STUDIOS? We consider OZ a product and a technology company. We work with a range of amazing studios, creatives and have an extensive network of partnerships in development. From the very beginning, we have been offering OZ creators the opportunity to work from our facility, utilize the expertise of our staff for production and marketing. Having creators around us every day inspires our team to make the best possible tools and platform to support their visual works. It’s definitely giving us a good understanding of their needs and fosters an incredible working relationship. We have creators who utilize our space for production and post-production and maybe one day we’ll have grown enough to open our own production studios. For the moment, we’re laser focused on making OZ the best possible platform for creator content. YOU’VE GOT A LOT OF FUN, ESOTERIC ENTERTAINMENT CHANNELS, BUT ALSO A LOT OF LEARNING CHANNELS AS WELL (DRAWING, YOGA, ARTS & CRAFTS). DO YOU SEE MORE OF THAT IN THE FUTURE? Yes for sure. If the internet has taught the world anything, it’s that for every niche there is a passionate and engaged audience. Our focus is on independent creators who have an existing content catalog or strong capabilities to build one. We attract creators that have an existing, devoted and

engaged following. These creators join OZ to get more control over their content, a greater understanding of their audience through engagement and analytics, and provide their audience with an ad-free viewing experience. OZ is best for creators who are interested in getting closer to their followers, engaging with them in a more meaningful way and further building their community. While some genres fit into this category better, OZ is for creators from all genres, all over the world and will always be a home for compelling creators. WHERE IS MOST OF YOUR AUDIENCE LOCATED RIGHT NOW? OZ subscribers come from all over the world, although we see the strongest numbers from the US. That said, some OZ creators have specific appeal for, say, South Americans and others for Europeans. So, the subscription base and the audience is truly global. One of the first creators to sign up for a channel was from the continent of Africa. Hollywood and Los Angeles are of course strong creator markets for us, which is why I am based out of our LA office. WHAT KIND OF FEEDBACK ARE YOU GETTING FROM YOUR CREATORS REGARDING BEING PAID ON A SUBSCRIPTION BASIS VERSUS ONE-OFF TRANSACTIONS? OZ creators like the freedom to select their own subscription pricing for their audience. It’s really about freedom in their artistic expression. Most other revenue models, whether ad-based or subscription to a platform or collection, limit the creators freedom by forcing their production and content to fit within the parameters of the platforms they are using. For example, they are locked in to what advertisers may be willing to pay for a thousand clicks or what royalties they will receive for adding their creations to a catalogue of content. OZ doesn’t want to be a barrier to creativity. Rather, we give the creators a flexible subscription business model to let the creators decide what price point make sense for them and a distribution and communication platform that better engages or attracts their audiences to their content. It’s rewarding for OZ creators to see the monthly income they have earned from their subscribers.

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IOT AND SECURITY

“There is no longer any doubt that security must join physical safety at the top of every IoT company’s primary consideration.” By Pritesh Parekh

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We are living in a Internet of Things world where every device can be connected to the Internet. Everything from your refrigerator to your lights and cars can communicate. IoT’s glitter is often dimmed by legitimate security concerns. Just as the power of this new technology can make our lives easier and immensely more delightful, in the wrong hands it could lead to very undesirable results. Pritesh Parekh Vice President, Chief Security Officer at Zuora. He has over 15 years of experience in building and managing enterprise security programs, and with the last 10 years leading security for Cloud platforms. Prior to joining Zuora, he was leading world-wide security and compliance for ServiceNow. A subject matter expert in BITS Shared Assessment & Cloud Development, Parekh is a nominee for the 2015 Information Security Executive (ISE) North America award.

Consider how car break-ins are done in the past and in the future. In an unconnected car, this usually means the car’s physical security is at risk and customers may bear the loss of a music system or personal valuables. With a connected car, we are talking about a systemic cybersecurity threat and the result could be as severe as a remote car hijacking with you still in the driver’s seat. This is one example of where a lack of security poses life-threatening dangers. As more and more devices around us are connected to the Internet, we become more susceptible to these types of threats. Recent incidents such as the Chrysler Jeep Cherokee hack pose a threat to customer confidence in connected cars. Chrysler had to physically recall 1.4 million vehicles due to security vulnerabilities. If it had happened to Tesla, however, they would have simply sent out a remote software patch overnight. Securing the realm of IoT requires applying two basic principles of information security: strong authentication and secure communication. The current leading solution to apply these principles has existed for decades in the form of Public Key Infrastructure (PKI). PKI is a foundation of trust that enables security by providing strong authentication and encryption services using digital certificates. Take the connected car from above as an example. Communications between the car and its connected services needs to have strong authentication. The car system must not accept commands from a third party without properly ensuring the commands actually came from an authorized user of the car. One way to mitigate this risk is to perform mutual authentication where the car authenticates the service, and the service authenticates the car. In addition to strong mutual authentication, devices need a secure channel to communicate with the service to ensure confidentiality and integrity of data. This can be implemented through the use of high-strength encryption protocols between the device and connected services. Digital certificate and asymmetric encryption technology enables such strong encryption when devices and services are configured to leverage them appropriately. The common

technology that enables strong authentication and secure communications leverages PKI. When you use a computer to connect to an internet service such as your email, you would typically use a username, password and some cases a token as authentication. Because most IoT devices have a small form factor, they do not possess interfaces such as a keyboard. This is where PKI comes in. With PKI, a device can have a digital certificate installed and managed by a secure service that allows the device to mutually authenticate without further human interaction. PKI has a number of use cases beyond IoTs, including mutual authentication for APIs, endpoint authentication, and secure remote access to production systems. We at Zuora have built a PKI for secure distribution of digital certificates to endpoints and allow endpoints to securely authenticate and communicate with internal systems. And we go to great lengths to test it for security. We proactively validate security of our systems with industry testing leaders like IOActive. This is the same security consultancy that discovered the Jeep Cherokee hack. Although PKI has the potential to solve all of the above considerations, it brings about its own unique challenges. The Internet of Things is a constantly growing and evolving field. The potential volume of devices poses challenges to digital certificate provisioning and validation at a scale that PKI has never encountered. There is no longer any doubt that security must join physical safety at the top of every IoT company’s primary consideration. The Jeep hack wasn’t just a wake-up call for the automobile industry — it was also a lesson for all companies with devices that connect to the Internet.

Securing the realm of IoT requires applying two basic principles of information security: strong authentication and secure communication.

PAYMENTS. KNOWLEDGE. GROWTH. √ Offer the local payment products your customers want √ Process in over 170 countries √ Retain your business with increased conversion √ Tokenize your recurring transactions √ Reconciliation – create visibility into the payment lifecycle √ Managed fraud services √ Elevate Business Intelligence tool monitors your performance

Subscribe to GlobalCollect today. Visit www.globalcollect.com

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THE BIG FIVE OF CUSTOMER CHURN It’s a no-brainer that subscription economy success depends not just on acquiring customers but keeping them. And most companies have caught on to the basics of customer retention - smooth onboarding, analytics, customer check-ins, etc. But, how do you take that to the next level? And then the more interesting challenge - How do you do it in a way that’s scalable across different types of customers? Here’s how. By Nick Mehta

Nick Mehta CEO of Gainsight, a leading customer success management company. An experienced SaaS industry leader, prior to Gainsight Mehta was the CEO of LiveOffice through its acquisition by Symantec.

MONITOR SPONSOR CHANGES

DISSATISFACTION

STICKY USAGE

ROOT CAUSE ANALYSIS

Central to business relationships is the connection between the buyer and seller. But, what happens when the person you sold to leaves the company? Even in B to B, the truth is that you really sell to an individual who believes in your promise of the product or service. Job changes are one of the biggest sources of churn in B2B technology and probably all of B2B in general.

The key is to notice dissatisfaction ahead of time. The obvious one is to notice people who aren’t using your product or service. But, what about subtle indicators that indicate dissatisfaction which builds up over time? This is the passive dissatisfaction of people who aren’t saying’ you’re horrible’ or ‘you’re excellent’ but kind of living somewhere in between.

Most companies have a simplistic way to look at customer retention i.e. people not using my service are probably at risk. While this is very true, the converse is not true. Just because they’re using your service doesn’t mean they are necessarily happy with it. Find out what’s sticky about what you do.

Companies often run away from churn. It’s over, they move on. But, it’s important to embrace it and say “Look, this is a learning opportunity for us.”

It’s critical to figure a way to track your buyers both at the executive level (decision makers) and at the level of the power user (whoever uses your system day to day). Use this information wisely and it can dramatically reduce churn. It may also lead you to new customers as you follow your buyer to his/her next company. Sponsor tracking is a universal requirement in B2B because at it’s core, it is a human sale.

Passive issues grow over time and all the annoying little things add up to the big decision to churn. Watch for long support cases, non-responsiveness, late payments and other subtle signs of dissatisfaction. These are usually the lost data points in most companies. Figure a way to track those and then have a standard, consistent response for your customers.

Then, color code your customers. Red is obvious - they’re not using your service. That’s clearly that. But what about the ones that are using it? The default should be yellow i.e. they are at risk. A lot of companies default to the green because it’s mentally easier to process. But, you’ve got to be a little bit paranoid about your customers in the subscription economy. So, default to yellow and really think that every customer is at risk. And then, of course, work to get those yellows to greens.

Begin with defining churn codes clearly so they don’t overlap each other. If they overlap, you won’t be able to identify the root cause. And make it hierarchical so you can narrow down the root cause. Another aspect of this is that many companies only look at the final action and miss the early actions. Remember, the little things add up to the final decision. Analyse the entire timeline to find out what happened. I’m a huge fan of third-party interviews. You can do it for a sample of your customers, or if you’re a B2B, do it for your high value relationships. It’s unbelievable what people will tell you when they’re not talking to you!

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FOCUS ON THE POSITIVE In churn reduction, we focus so much on the negative but for a lot of businesses, the most ROI you can get is from upsells. And the simple model there is to up-sell and get advocacy. Measure your team not just in terms of churn loss but also on advocacy and upsells. Give your customer success team incentives to not just to avoid the negative but to do the positive. Advocacy drives customer success - your advocates begin to feel like they’re an extended part of your company and often get their team to use your product or service more. So, advocacy drives customer success, it’s not just the other way around. And when you get there, celebrate the good times.

I N

C U S T O M E R

S U C C E S S

SEGMENTATION Customer Success is not the same thing when you have a million dollar customer relationship vs a thousand dollar customer relationship. It means different things when you have a high-touch business model or low touch or a tech-touch business where its more about touching customers through technology. In reality, not every customer needs or wants the same customer success approach and not every business model merits the same customer success approach. AUTOMATION Innovative Customer Success teams are applying a marketing like approach to their smaller customers with more automated one-to-many activities. It’s trying to move a cohort of customers right through a phase of the customer lifecycle versus thinking every customer requires a phone call and a meeting or an email individually. If your marketing team is focused on new business, get somebody on your team who can think like a marketer and apply a one-to-many approach to your customer base.

OPERATION Customer Success is its own proper operation function. Gainsight’s Customer Success Index found that 40% of customers already has a Customer Operations person. You’ve got to have a Customer Success Manager but then you have to have an Operations person to help those customer success managers be more effective. HIRING The workforce needs more Customer Success professionals. There is a strong need to grow the profession and train people. We get a lot of interest in helping to shape this job category. REVENUE AND CUSTOMER SUCCESS Connect the two so it’s easy to understand why investing in Customer Success is important. It’s not just about the revenue from renewals but it’s also about the revenue from upsells and advocacy. The connection to revenue is much stronger than people give it credit for.

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Lukasz Weber Product Manager – Payments at Zuora

THE 3 MOST IMPORTANT GLOBAL PAYMENT METHODS FOR SUBSCRIPTION BUSINESSES

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There have never been more ways to pay someone. Mastercard is working on a new system that confirms transactions with selfies using facial scanning technology. Apply Pay is set to launch in the UK in July, joining a crowded European global payments ecosystem. Bitcoin is getting more attention as a result of the Greek crisis.

Lukasz Weber Product Manager in charge of Payments at Zuora. He was previously a Senior Consultant at Arcadia Solutions, a healthcare software company. He holds Bachelor’s and Master’s Degrees from MIT

These new technologies will join the roughly 200 different types of electronic payment methods that currently permeate our world. With so many options and use cases, it can be daunting for any global business to select the right payment methods. It’s more complicated for subscription businesses which have to manage more sophisticated payment processes than traditional, one-time sale business models. In such a scenario, how can these companies find the right global payments for their business? For starters, the most important criteria to assess global payment methods are push versus pull, and one-time versus recurring.

PUSH VERSUS PULL If you’re a merchant, push means that your customer has to actively send you the money. Cash, wire transfer, checks, coupon payment methods like Boleto in Brazil or BVR in Switzerland are good examples. These are well suited for one-time payments. Pull payment methods are better suited for subscription businesses since they allow the merchant to actively withdraw the money themselves. Agreements need to be put in place first, but a merchant has all the information and agency needed to withdraw the money from a customer’s account. There are several pull payment methods that work well for subscription businesses. While many are regional — they’re popular in one country but not another, a few are global in nature. Let’s take a look at the leading pull payment methods for subscription businesses:

CREDIT CARDS When you look at the most popular global payment methods today (particularly in e-commerce), credit cards are at the top. A pull payment method, credit cards are excellent for recurring payments for two reasons. First, payments made against a credit card are guaranteed up-front, eliminating settlement issues. Second, once a customer agrees to have you use their credit card number, you can keep pulling from that card on a recurring basis. There are a couple of downsides however, especially fees, fraud, and chargebacks, but these are relatively minor given the convenience to customers and benefits listed earlier.

BANK TRANSFERS Bank transfers are another popular recurring pull payment method where the customer gives you their bank account information, and you’re able to pull money directly from their account through a secure network connection. Most of these direct debit methods allow you to pull payments on a recurring basis. The key benefits of bank transfers are lower fees and popularity of this type of payment method around the globe. The biggest caveat with bank transfers is that there are many different flavors and how payments are processed will vary by country. A few that come to mind are ACH (Automated Clearing House) in the U.S., PAD

(Pre-Authorized Debits) in Canada, SEPA (Single Euro Payments Area) in Europe and UK Direct Debit in the UK. The complexity of handling SEPA bank transfer is much greater than processing an ACH payment. As a merchant who supports bank transfers, you have to carefully manage which countries and types you’ll support. And in some cases, you simply must have the ones that are commonly used in your core markets even if they are used only in one country, for example iDEAL in the Netherlands.

EWALLETS The third most most important global payment method to consider is an electronic wallet, or eWal-

let, which is a third-party payment method funded by a variety of means. There’s always another payment method that sits behind it (such as a credit card or a bank transfer), but the company providing the eWallet handles all the complexity, security, and process of the payment transaction. PayPal is by far the most popular global eWallet today. While their eCommerce reach rarely exceeds twenty percent of any given local market, they’re essentially in every country and have a proven track record. Other rising contenders include Google Wallet, Amazon Payments, and Apple Pay, which are all expanding their eCommerce reach and adding recurring payments support as well.

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As more and more people embrace subscriptions for services or products that are one-time purchases today, we’ll see most spending transpire with regular vendors on a recurring basis. Broadly speaking, this means:

G L O B A L

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PAY M E N T

1 Recurring, pull payment methods will continue to gain market share. 2 Simpler, consistent user experience will win over fragmented and regional methods. Credit Cards will continue to remain very popular and major eWallets will gain ground. Bank Transfers will continue to rule in certain regions, but global standards around authentication and guarantees will need to emerge for this payment method to gain more acceptance. 3 In the long term, we’ll likely see an eWallet payment method gain significant market share, just like Alipay has in China. The simplicity for merchants, and the flexibility for customers to fund the wallet by a variety of methods seems to combine the best of both worlds. The key will be to figure out the fees and security aspects, so there’s confidence in the market to use it. Subscription businesses will do well to carefully analyze and assess payment options to determine what’s best for them and their customers. Because as my colleague Iain Hassal rightfully points out “Nailing down the right payment strategy is not only critical to doing business globally, but it’s also one of the easiest things you can do to grow your business.”

F R O M

W O R L D PAY

Worldpay is a global leader in payment processing technology and solutions for online businesses. They are a pioneer in multi-currency processing of online cards and alternative payment methods, leading the way in expanding global reach, data analytics and optimization, and the emerging field of integrated payments. On a typical day, they process 31 million mobile, online and in-store transactions. Worldpay has recently surfaced some fascinating data on global digital content payment trends via their payments microsite. We encourage you to visit the site at https://alternativepayments.worldpay.com/digital-payment-trends. Here are a few highlights:

1 Americans are most likely to use a credit card on a PC (43%) compared to 34% globally. 2 Just 15% of Russians paid for software online with a subscription compared to a global average of 21%. 3 South Koreans are more likely to charge smartphone purchases to their phone bill (31%) than any other country in the survey (average 11%).

4 In China, e-wallets are the most popular way to pay on smartphones (45%) and PCs (54%). 5 Very few Indians (2%) use e-wallets on their smartphones, preferring debit cards (29%). 6 Half of Brazilians (51%) use credit cards to pay for digital content and video games on their PC, while only 14% use a debit card.

7 Top payment frustrations by market? India dislikes payment pages timing out (39%), Americans dislike having to remember usernames and passwords (34%), Russians don’t like being unable to use their preferred payment method (31%), 4 in 10 South Koreans don’t like the way that websites seem to know so much about them, and 97% of Brazilians find online payments frustrating in some way, more than any other country.

Want to learn more? The Zuora and Worldpay joint whitepaper on the future of recurring payments will be published soon. Additionally, Worldpay is soon to launch additional research on the wider digital content landscape. You can be first to receive it by opting-in here: offers.worldpayglobal.com/subscribe

SUBSCRIPTIONS ARE MAGIC IN THE AVIATION INDUSTRY

Surf Airâ&#x20AC;&#x2122;s launch in 2013 took the skies by storm. The all-you-can-fly membership airline has continued to lead the change in aviation and now has a waitlist for membership. We spoke with Mac Kern, Vice President of Commercial Planning at Surf Air about their unique subscription business model.

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WHY IS THE SUBSCRIPTION BUSINESS MODEL PIVOTAL TO SURF AIR? From a business perspective, we all know that airlines have struggled for years. It’s a very capital intensive business, not to mention commodity-based. Prices get driven downward. It’s very competitive. Mac Kern Vice President of Commercial Planning at Surf Air. He focuses on the company’s revenue and network development efforts preparing for he company’s expansion. Prior to Surf Air, Kern was with Virgin America.

Based in Santa Monica, CA, Surf Air is America’s first private air travel club, offering unlimited monthly flights. A monthly membership for $1750 gives you unlimited flights to 12 destinations. Forbes named Surf Air one of America’s 100 Most Promising Companies’ in 2015.

The subscription model gives us predictive revenue — that’s something that no commercial carriers have. They don’t know if a flight is going to be profitable until the door on the airplane closes (and they still have to fly at that point!). Because of subscriptions, we know exactly how much revenue we’re going to generate at the beginning of every month. So we can scale our operation effectively, because we know exactly how much flying we’re able to execute. That kind of insight is basically magic in the aviation industry. No one has been able to do that before. We’re taking the industry to the next level, and it’s really all due to subscriptions. IN YOUR OPINION, HOW ARE SUBSCRIBERS DIFFERENT FROM CUSTOMERS?

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about their families, their jobs, and we can integrate that knowledge into their Surf Air experience. That’s all due to the power of subscriptions. WHAT DO YOUR CUSTOMERS SAY ABOUT YOUR SERVICE? We definitely get a lot of customer feedback. We know that our customers love the simplicity that Surf Air gives to their lives. The ability to book a flight in 30 seconds and not have to enter your credit card information or your birth date every single time, or worry about booking the wrong flight because your schedule changes and not being able to cancel it — all of those hassles are really just wiped off the map. The members get in a cadence of understanding how their lifestyle integrates with us as a travel company, and they know that if anything goes wrong they have a dedicated Member Care manager or Concierge they can call. They’re also very connected to our headquarters. We love it when members come by and visit. We want them to feel like they have a true degree of ownership and a real relationship with the company. I think that’s what changes their travel experience more than anything else. HOW DOES SURF AIR MEASURE SUCCESS?

At Surf Air, we don’t have guests that ride and leave. We have members who we welcome as part of a community, and who feel like they have some ownership in our service. That sense of ownership definitely stems from the fact that they’re helping us get this started from the ground up! But they also fly with us often, so they get to know the pilots. They get to know our concierges. They get to know one another, because they’re constantly on flights together, so the community element really comes naturally as part of membership. It’s a unique, high-touch experience.

We look at lots of different metrics. We’re flying metal airplanes around all the time, so naturally we’re looking at important operational factors like timeliness, cancellations, etc. We also pay very close attention to the member acquisition numbers. Are the products that we’re putting out there selling? What is the value of the new route or network we’ve developed? Is it receiving the kind of support that we predicted it would?

HOW DOES THE SUBSCRIPTION MODEL IMPACT YOUR CUSTOMER SERVICE?

Then there’s member retention. Are members staying with us? Are we delivering on the promise that we originally gave them when they signed up? Are they remaining loyal to us?

From the consumer perspective, a subscription model really allows us to get in touch with our members, and allows us to deliver an experience that’s far and above what we know other aviation competitors are able to offer. We have a very dedicated Member Care team and Concierge Team that are all focused on that member experience element.

I’m lucky to say at this point our churn rate is incredibly low, so that’s really helped us grow the business. We’re moving forward, as opposed to constantly treading water and to make up for lost members.

Because our members use us on a recurring basis, we can give them really robust user profiles. They share details

We also keep a pulse on our employees: are they excited about our plans? Do they feel empowered in their positions? We want to make sure that everyone has the same

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level of passion for Surf Air across the board. Ultimately, that’s going to lead to our overall success. HOW DO YOU MEASURE CUSTOMER SUCCESS? The main thing is to really make sure that we’re delivering on the experience that members are expecting. Because at the end of the day, Surf Air is a membership club. We truly want to develop a community that members are enthusiastic about and love being a part of whenever they fly with us. We have a lot of transparency with them, to make sure that we can collect information on things that are going very well, and things that aren’t going so well, so we can adjust and iterate accordingly.

WHAT DOES SURF AIR HAVE PLANNED FOR THE FUTURE? We are helping consumers fundamentally rethink aviation — not just in terms of one-time ticket sales, but how it can change their lives on a recurring basis. We truly believe that we’re creating a brand and a sector of aviation that will not only apply in California, but nationwide and then across the globe. The Surf Air brand will be something that you will see much more of in the next few years.

Napa

Oakland/SF Bay Area

San Carlos/SF Bay Area

Monterey

Santa Barbara

We know that our customers love the simplicity that Surf Air gives to their lives. The ability to book a flight in 30 seconds and not have to enter your credit card information or your birth date every single time, or worry about booking the wrong flight because your schedule changes and not being able to cancel it — all of those hassles are really just wiped off the map.

Burbank/LA Metro Hawthorne/LA Metro Carlsbad

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Las Vegas*

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How do Silicon Valley’s new, disruptive businesses get to Wall Street? Here are some pointers from those who’ve been through the journey! As heard at Subscribed 2015, San Francisco ON HOW TO PREPARE AND ENSURE YOU’RE READY

Dylan Smith Co-Founder and CFO of Box

John Kinzer CFO of HubSpot. He previously served as CFO of Blackboard, Inc.

Alan Black SVP and CFO of Zendesk. He was previously CEO of Intelliden, Inc.

“One of the really helpful things we did was about 18 months before, we put together this framework that we called the IPO scorecard. It was essentially used to track our progress, communicate both internally with our employees as well as with our board and manage expectations. We looked at 4 strategic buckets - what are the big things we want to accomplish? The process involved looking at 4-6 key things in each of those areas and assessing ourselves on a quarterly basis. At the quarterly board meetings and all hands meetings with our employees, we showed how we’re doing in those 4 buckets and held ourselves accountable that way. It was really when we felt good that we would be at that point within a couple of quarters is when we really started to ramp up along that path.” - Dylan Smith, CFO at Box ON THE CLASSIC ROAD SHOW QUESTION - WHEN ARE YOU GOING TO ENTERPRISE? “Everyone starts in the mid-market and then moves up. Hubspot made a strategic decision several years ago to decide to go wide versus go up. Investors scratched their head on that one and constantly said “No, no... you’ll go up to the Enterprise”. Well, so far we haven’t. The reason we haven’t is the real value and the real secret sauce of our product is the all-in-one ease of use. What we didn’t want to happen was, you sign that one customer who is 10X your average and they begin to ask for new features. Then, all of a sudden they’ve hijacked your roadmap. For us, that would ruin what we were. We’ve been pretty sure that it’s got to be the right use case and the sales person better be telling people this is the way we’re going to do it and we’re not going to change it.” - John Kinzer, CFO at HubSpot ON THE CHANGE FOR A CFO FROM PRIVATE TO PUBLIC “I don’t think there’s that big a difference before and after in terms of work. Sure, there’s the quarterly close cycle and reporting cycle and all that goes into that, and the earnings

release and such, which you don’t do as a private company. Really it’s not a significant change, or it shouldn’t be. You should be thinking about how for 12 to 24 months before you just get into that normal cadence of what it would be like and run the business and test yourself as to whether or not you can close for example and be in a position to be able to report your results in a time-frame where a public market would expect you to. Maybe the one thing that’s obviously different is the amount of time you spend related to investor relations, investor conferences, call, bus tours, and such. That just is a commitment that you’ve got to make if you want to have investors understand the opportunity.” - Alan Black, SVP and CFO at ZenDesk

Hubspot made a strategic decision several years ago to decide to go wide versus go up. Investors scratched their head on that one and constantly said ‘No, no... you’ll go up to the Enterprise.’ Well, so far we haven’t. The reason we haven’t is he real value and the secret sauce of our product is the all-in-one ease of use.” – John Kinzer, CFO at HubSpot

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YOUR REQUIRED READING LIST FOR

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1 SUBSCRIPTION MARKETING

2 THE INTERNET OF THINGS

3 DISRUPTING DIGITAL BUSINESS

by Anne H. Janzer

by Samuel Greengard From a brief history to our current use to what the future might look like, Greengard gives a comprehensive insight into the Internet of Things. The book gives a solid introductory level of understanding and serves as a good base for further research. With examples, Greengard makes it easy for readers to understand how connected devices affect our lives and also realize that we have all, at one point, contributed to the development of IoT.

Ray takes readers on an excellent journey through the foundational challenges faced by businesses today. Wang uses a mix of story-telling, descriptive ideas and frameworks about digital business. He includes elements of marketing, communication, transformational leadership, and disruptive innovation concepts to show how companies can transform to become leaders in today’s digital business landscape.

A well structured, clear, and concise read, Janzer’s book is a helpful guide to the subscription economy. Broken into three parts, the book starts with the overall subscription economy landscape and funnels down to provide actionable strategies on increasing customer value. Through the use of relevant examples, Janzer provides readers with a simple yet thorough understanding of what it takes to build a successful recurring revenue business.

by R “Ray” Wang

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4 THE AUTOMATIC CUSTOMER

5 THE MEMBERSHIP ECONOMY

6 SOLVE FOR THE CUSTOMER

by John Warrillow

by Robbie Kellman Baxter

Perfect for entrepreneurs, Warrillow’s book provides essential insights on the new emerging subscription economy. The author notes nine specific models and approaches to creating a business and implementing a successful business model. Warrillow explains several topics such as financial rewards, how to market, manage, and grow a subscription business. Written in a story-telling style, the book is engaging and offers valuable insights.

In the beginning, Baxter promises, “I wrote this book for you” and explains how it will benefit people in varied roles in the subscription economy. Not only does Baxter explain why many well-known companies are shifting to a membership business but goes a step further and shows you how. The book will be helpful to transition your company from a customer-centric to a member-centric mindset.

How many results come up when you Google the name of your company followed by the word “suck”? That’s your “suck score”, says Denis Pombriant. The book talks about the impact of social media on customer empowerment and how customer relationships vary from company to company. With analogies and actionable solutions, Pombriant concisely explains the importance of empathizing and changing with customers, and shows us what those changes might look like.

by Denis Pombriant

fall 2015

7 DESIGNING CONNECTED PRODUCTS

by Claire Rowland Elizabeth Goodman, Martin Charlier, Ann Light, and Alfred Lui There are a lot of components to consider when building a connected product. This book is perfect for anyone contemplating to build an IoT device. From providing a common framework of UX for IoT to introducing the inherent challenges of designing to suggesting how we can consciously prevent the complexities of IoT from overwhelming us, the book grounds designers, entrepreneurs, and technologists in what matters.