by Tricia Reilly
Back in August 2008, we blogged about Cengage Learning, an innovative subscription business that offers digital textbooks as a service to college students. Now, another company is making headlines with a new spin on an old problem – the high cost of college textbooks and the difficulty with which they are resold at the end of a given semester or term. I personally recall the hassle trying to sell my massive Economics textbooks while the entire Cal campus was busy celebrating at the Bear’s Lair. But I digress…
In a recent NYTimes article, Miguel Helft describes how Chegg.com, named for a “chicken-egg” question, has built a multi-million dollar company by renting textbooks to college students. Inspired by Netflix, the founders have essentially exploited inefficiencies in the college textbook marketplace.
I see a few key lessons in this bootstrapped startup success story:
- Test, measure, refine. The chegg.com team initially launched with a ‘college campus craigslist-like offering’ but a review of their website traffic revealed that the bulk of their visitors went to used textbook listings. These insights sent them back to the drawing board. I recently heard about a company that creates fake landing pages to test the market’s appetite for products and features at various price points. The orders fail at the point of credit card authorization and consumers are none the wiser, however the vendor is gathering valuable data about what the market will actually pay for. I don’t necessarily endorse this approach but the concept of testing and monitoring trends holds true.
- The ability to experiment and iterate pricing and packaging options in a timely manner is critical to survival. Chegg.com’s initial idea didn’t really take off as expected, and their ability to transform their business based upon data and metrics enabled them to grow dramatically. We at Zuora believe that the same holds true with pricing and packaging. What this means is that if you’re going to be successful, you’ll need a subscription management service that enables you to launch new products quickly, and change pricing and packaging on the fly.
- Subscriptions are challenging the status quo in traditional markets. We’ve seen a ton of traditional companies – from Hallmark cards to United Airlines and Starbucks – embracing the subscription revenue model. Expect to see a lot more bricks and mortar industries embrace the subscription model to drive new and improved ways of doing business – for the consumer and the vendor.
Noticed any traditional markets where subscription businesses are exploiting inefficiencies in an old model? Drop us a line and let us know.