This article was first published in Forbes
By Andrew Cave
Once upon a time, people who talked about a world in which people didn’t have to own things were called utopians and hippies.
Now such folks tend to be capitalist adherents of the sharing economy popularized by Uber and Airbnb or the subscription economy being pioneered by Netflix and Spotify.
While the sharers have garnered much of the publicity of late, the subscribers claim their own revolution is gathering pace.
I recently interviewed Tien Tzuo, chief executive of online commerce, billing and finance group Zuora, whose cloud technologies help companies build subscription business models.
He believes that the subscription economy represents a major shift in our culture and consumption habits.
According to Zuora’s research, 80% of the U.K. population now subscribes to something. “We’re moving from a product-based economy to a services economy,” he says, “and that has profound, far-reaching effects for consumers and companies.”
Five years ago when Zuora first carried out a study of this trend with the Economist, it found that the U.K. was further developed than the U.S. in its identification of a shift towards alternative consumption models.
A New Market
Now, says Tzuo, advances by the likes of Netflix, HBO, Apple Music and Spotify have seen U.S. public awareness catch up, while the Internet of things is creating a new generation of services tied to devices.
“It’s about this idea that you don’t have to own something but can just subscribe to a supply of what it offers,” says Tzuo.
“That’s creating a big market because all these companies are going to need payment systems.”
According to Zuora’s research, the market for the billing, subscriber management and payment systems that enable companies to push into the subscription economy is set to increase from $10 billion to $102 billion by 2020.
“The core,” adds Tzuo, “is the need for a billing engine that can take all these inputs and put into effect quite complex decisions, such as whether you’re billing by time, gigabytes or users or whether you’re going to offer differentiated levels of service packages.
“These type of billing systems can take all that information and turn it into a charge on someone’s account.
“That’s the engine that’s going to drive the new subscription economy business models.”
Less Expensive Systems
Of course, the telecoms industry has operated systems that can do these kinds of calculations for decades.
Tzuo, however, believes that systems that are less expensive and more flexible are required in order to encourage companies to change their business models to embrace the subscription economy.
Founded in 2006, Zuora now has 600 staff at its headquarters near San Francisco and offices across Europe, Australia and Japan.
It has raised $250 million in fundraising rounds backed by private equity firms Benchmark Capital, Redpoint Ventures and Greylock Partners, mutual fund company Wellington Management and individual investors including Salesforce.com chief executive Marc Benioff, former PeopleSoft chairman Dave Duffield and Microsoft cofounder Paul Allen.
Customers include IBM, Fox, General Notors, Symantec, the Financial Times, the Economist, British Gas and Sage Group. Zuora aims to be profitable by early 2017.
Not Just Millennials
In recent Zuora surveys, 50% of French citizens said they are moving away from the concept of ownership, 80% of German companies said they had dealt with subscription-based business models and 78% of Australian companies agreed they are experiencing changes in the way their consumers want to source goods and services.
“It not just millennials,” says Tzuo. “We’re seeing this across all demographics and age groups. And it’s not all about just providing things cheaper either.
“Subscription economy companies are about providing experiences that you can’t get in stores. Private jet leasing and top-end fashion purchasing are already going this way.”
Are there any products that it will still be so cool to own that people won’t want to just subscribe?
“No,” replies Tzuo firmly: “If that’s happening, it will only be because somebody hasn’t yet come along to transform the experience.
“If you subscribe to something, you get what you need. Once you have it, there’s really no going back to ownership. People won’t want to get stuck with ownership. They will want choice, flexibility and innovation and they will want subscription services to get better and better. People will be owning less and less.”
For more on winning in this new world , download Zuora’s 9 Keys to Building Success in the Subscription Economy!