Why Spotify, Netflix and HBO nailed business model of the future

By Aneri Pattani in CNBC

Selling products is a thing of the past as consumers increasingly opt for subscription services. Americans spent $420 billion on subscriptions in 2015, up from $215 billion in 2000. People want services over products. “This is clearly the business model of the future,” said Zuora CEO Tien Tzuo.

The “subscription economy,” a term coined by Tzuo, refers to businesses that charge for services rather than physical products. This business model emphasizes long-term relationships with customers. Since an unhappy customer can simply unsubscribe at any point, companies must invest in real customer service and listen to client feedback. If they do it right, they can profit from recurring revenue and a loyal customer base.

It’s not just companies like Netflix, Time Warner’s HBO or Spotify in the streaming media space. Drivers increasingly opt for ZipCar or Uber instead of making regular payments on a car, gas and auto insurance.

An economic slowdown won’t alter the consumer course shift. Instead of leading to a bout of “subscription fatigue,” Tzuo said a recession would help propel the subscription boom.

“In periods of economic downturn, people prefer subscription businesses,” Tzuo told CNBC. “Why spend all this money upfront to buy a product when you can simply pay a service to get what you need and then turn it off and on when you need to?”

Tzuo founded Zuora in 2007 to take advantage of this trend. The Foster City, California-based business sells software to help companies with a subscription model by providing billing, finance and analytics services. It helps clients like Zillow and Box figure out how much customers are willing to pay for certain services, when they want more and when they are at risk for unsubscribing.

The market for subscription economy tools is expected to reach more than $100 billion through 2020.

Zuora is valued at $1 billion based on $250 million in venture funding from investors including BlackRock and Marc Benioff, Salesforce CEO. Tzuo was an early employee at Salesforce.com, where he later rose to chief marketing officer and chief strategy officer before starting Zuora.

Check out how Zuora helps companies across industries succeed in the Subscription Economy!

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