Why the Subscription Model is the Perfect Business of the 21st Century

By Erika Malzberg July 5, 2016

by David Gee, CMO for Zuora.

Fortune recently posted a very interesting article in which they “imagine a 21st-century corporation designed to capitalize on connected systems, data, and employees who take a more expansive view of work.” It’s an interesting jumping off point, but Fortune doesn’t jump far enough…

Their position is simply that today’s companies aren’t like yesterday’s. In this world “where everything and everyone is connected at little extra cost,” Fortune imagines a new breed of business that is bigger, faster, and more agile.

They provide a snapshot of what a successful organization looks like today — or should look like — focusing on topics such as telecommuting, real-time operational intelligence, next gen performance reviews for next gen millennials, biometric security practices, CTOs leading the charge in digital transformation, attractive employee perks, the need for redesigned organizations, efficiencies in the cloud, automated workforces, technology as a sales enablement tool, and the digital supply chain.

But in all their imagining of the perfect prototypical company in this digital age, they are missing the key.

While they cite leaders from companies like LinkedIn and Salesforce — discussing how they use data to get closer to their customers and better understand what customers need — for some reason, they neglect to make the obvious point: These companies operate under a subscription model, are based on recurring revenue, and that’s how they put customers at the center of their business.

So what’s the perfect business of the 21st century look like?

It’s a business that…

  • Recognizes that consumers have changed and, as a result, business has to as well.
  • Understands that customers are opting for outcomes and experiences over assets.
  • Is focused on building and monetizing recurring customer relationships – not building and shipping units for discrete one-time transactions.
  • Uses forward-looking metrics to measure financial health based on predictable recurring revenue — not on how much was earned in a past period.
  • Cares about recurring profit, not operating profit.
  • Uses analytics to understand and improve the user experience and drive engagement (and increase retention).
  • Is capitalizing on the global $102 billion opportunity for these new business models.

In short, what’s the perfect business of the 21st century? A subscription business.

Learn more about the subscription model and how to build a successful contemporary business in our free guide: 9 Keys to Building a Successful Subscription Business.