Tien Tzuo on Jim Cramer’s “Mad Money”

July 2, 2018

“There’s no reason you should have to buy anything.” CEO of software play Zuora talks enabling subscription services on CNBC.

Zuora CEO Tien Tzuo was recently on Jim Cramer’s “Mad Money” discussing his new book, “Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It.”

Watch the video or read on for the full transcript.

Jim Cramer: It’s understandable if you’re afraid of what rising interest rates and trade rules are doing to the economy — I mean everyone’s worried about tariffs. Come on. But some stocks are going to keep working regardless. I’m talking about secular growth stories that have very little economic sensitivity.

Consider the case of Zuora: Z.U.O. It’s a fresh-faced IPO, and it’s one of the best performers in the class of 2018. It’s up one hundred and twenty four percent since April, including a fifty seven percent trade launch on the first day. There’s a good reason for this.

Zuora is a cloud based software company that’s a pure play on the Subscription Economy. All those companies that are trying to sell their products as a subscription service? Zuora helps them launch, manage, and grow their businesses! It’s kinda brilliant, right? Apple, Amazon, Netflix, Spotify,  — this is where all the money is. Even the auto-makers are trying to sell people cars as a subscription services — in the old days you called that a lease.

Zuora is a fabulous enabler of these subscription-based businesses. I know that for a fact because at The Street we have a bunch of subscription services, and we use Zuora to optimize those businesses, and they do a great job.

Now the numbers here are phenomenal. When the company reported two weeks ago it posted a sixty percent revenue growth, but if you really wanna understand the enthusiasm let’s take a closer look with Tien Tzuo. He’s the founder and CEO of Zuora. Mr. Tzuo, welcome to Mad Money. Good to see you, sir.

Tien Tzuo: Thanks, Jim.

Jim Cramer:Thank you, have a seat. The number eleven employee of Salesforce, who understood subscription and software as a service from day one. Explain to people how we’re not about products anymore, we’re about services.

Tien Tzuo: Well I think companies are realizing that the subscription-based business model is the business model of the future. The reason for that is their customers. If you just think about you, think about myself, every day that passes we have to buy less and less stuff. We talked about that two years ago but it’s exploding. We used to have Netflix, we used to have Spotify, but now we’re paying for exercise bikes as a subscription, we’re paying for travel as a subscription, even companies are paying for things like tractors as a subscription. This is what we call the subscription-based economy.

Jim Cramer: Well I was thinking much too small — I was thinking about how someone puts in their name and whether they’re able to get through the web and enter their subscription or not, but you’re talking about the end of ownership.

Tien Tzuo: That’s right. Yeah.

Jim Cramer: What a concept.

Tien Tzuo: Yeah, well, two years ago when we were talking about this, the whole subscription business model was new. Now people are just extrapolating out. There’s no reason you should have to buy anything. If you’re not buying DVDs, if you’re not buying CDs, if you’re not buying software, why should you have to buy houses? Why should you have to buy cars? You just want to simply take out your phone, point to a service, to get the need that you want, and just tap into a subscription service and this what we’re starting to see today.

Jim Cramer:There’s a moment in your book that I just love, and it’s called Subscribed. I urge you people to buy this because it is the manifesto for this particular era. We talk about the New York Times as a unicorn. If they literally were to just start today, we would just pay so much more for it, because it’s an old subscription business now.

Tien Tzuo: Yeah. That’s right. You look at companies that are saying, we have a million, two million, three million subscribers, and they’re based in Silicon Valley — they’re getting these multi-billion dollar valuations. The New York Times was talking about getting to a million subscribers just a few years ago and now they just eclipsed three million subscribers and it’s a really powerful story. People need to start thinking about these business in a very different way.

Jim Cramer: Yeah, they really do. When you talk about WeWork, we had Adobe on earlier. These are companies that we didn’t initially understand. In the book, you talk about the day that Adobe decided to go to subscription. It had seemed like that it was a courageous thing but in retrospect it was a necessity.

Tien Tzuo: Well actually you looked at that day — revenue was down, earnings were down. But this was because instead of trying to get two hundred dollars off of a single purchase, they were going to keep a customer for life. If we can do that, we’re gonna be a much stronger company.

Jim Cramer: But there are companies that haven’t done it. Those are the ones that are being left behind, right?

Tien Tzuo: Yeah. I think that’s why we wrote the book. A lot of companies are saying, “We see a subscription-based business model is the future, but how do we transform?” Because this requires an entirely different way of doing business. You got to build products differently, you got to sell differently, you got to market differently.

Jim Cramer: Yeah we’re starting to see it. Today happened to be a great day to have you, I mean, Dropbox is up very big today, Netflix is up very big today. People are starting to realize, wait a second, I should look at deferred revenue, I shouldn’t  look at the snapshot right now. It’s harder for a lot of people to understand this because many people, even managers have not gotten their heads around what a balance sheet looks like and what an income statement looks like versus what it should look like in this new economy.

Tien Tzuo: We have a whole chapter around financial model, how you have to see it differently. You know, I was at Salesforce when we went public in 2004 and for years and years, Wall Street just didn’t understand it. But if you look at the success of the IPOs like Pluralsight and DocuSign, this past year Wall Street is starting to embrace the subscription based model. And in fact, when they look at us, what they really like about us given our customer base, and that half of our customers are outside of the tech industry, is that an investment in us is an investment in the entire Subscription Economy.

Jim Cramer: You’re like a pure play, instead of an ETF.

Tien Tzuo: Think of us as an index.

Jim Cramer: No I do! I actually do that. I think that there was also a great chapter where you talk about the IT guys don’t get it. That’s a revolution, a revolutionary kind of seditious thought.

Tien Tzuo: Well the IT infrastructure for the last thirty, forty years has been all built on the product economy– it was all about marginal costs, it was all about units, it was all about scale economics, and it’s not about those things anymore. It’s not about supply chain, manufacturing, inventory, it’s about turning your customers into subscribers, launching services, it’s about pricing and packaging. And so the old systems of the past, these ERP systems and Oracle from SAP, they’re simply not gonna work anymore. IT has to change along with the businesses.

Jim Cramer: I think you can change it. I think these people have to bring you in. They have to until they figure it out for themselves.

Tien Tzuo: For the last ten years we’ve built a pretty unique piece of technology and that allows any business in any industry to really launch, scale, and grow and transform into subscription businesses.

Jim Cramer: Well you should be very proud. I mean, you’ve really caught the zeitgeist but you’ve also caught the economics of the moment and the book will explain to a lot of people why these stocks deserve to be higher, that you think are too expensive! Tien Tzuo is the founder and CEO of Zuora. What a remarkable company.

Learn more about SUBSCRIBED—the book that will change the way you think about business—and order your copy now!