Select excerpts from Subscribed Podcast with Tien Tzuo
Zuora founder and CEO Tien Tzuo is the foremost authority on the Subscription Economy, a term he coined to explain the global shift to recurring revenue business models. Tien founded Zuora in 2007. Prior to that, he was one of the ‘original forces’ at salesforce.com, joining as employee number 11 and serving in a variety of executive roles including Chief Marketing Officer and Chief Strategy Officer. Tien has also served on the Board of Directors for Network for Good since 2006.
We talk to Tien about his new book Subscribed: Why the Subscription Model Will Be Your Company’s Future, the end of ownership, subscription pricing, and lots more!
Tell us about your book – Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It. What made you write it?
I had a co-author, Gabe Weisert working with me on the book. The reason we wrote the book was simple – We have so many stories from our customer community of companies transforming themselves, transforming the industry, and creating some amazing innovations all around. And we said, “Look, we need to take these collections of stories and share them because this is what people are really are hungry for.”
There are probably 10,000 people that come to our events around the world every single year. But there are hundreds of thousands of people out there that don’t have an opportunity to come to our event. They need these stories to understand what this big shift is about.
So in June 2017, after we wrapped up our Subscribed conference in San Francisco, we set out to write it. And a year later, we were able to launch the book.
You’ve been talking lately, both in the book and also at our Subscribed conferences about “the end of ownership”. Do you really see it going that far? Will ownership be a thing of the past?
We absolutely do. You don’t need to own products anymore. You can get everything you need from services. f you think about it, it’s playing out today. You probably don’t own DVDs. You don’t own CDs. You don’t necessarily even need to own individual songs if you subscribe to services like Spotify, Pandora, or Apple Music. You can get any music that you want. Same thing with any movie that you want. You probably haven’t owned software in over a decade. And your life has gone on fine. You gotta imagine that this is not about owning the physical asset. This is about getting what you want. Do you really need a cow in order to get the milk?
With more innovations out there, more services that you can subscribe to, we really do believe that in just a relatively much shorter amount of time, three years, five years, ten years, you’re really not gonna have to own just about anything at all.
Multiple people tell us that when they’ve looked over the table of contents, they felt compelled to dive in first to a chapter that you titled ‘That WTF moment’. Everyone wants to know what it is. So at the risk of a little spoiler alert here about the book, can you tell us what is that WTF moment? And how can companies that are in the process of transforming to a subscription model get past that moment?
Well, the two halves of the book really mirror the type of conversations we have with companies. The first half is to understand, well, what exactly is a subscription business model? And we try to help people really take the leap that says, “This is not taking the same old product and saying pay me $10 a month versus a few hundred dollars up front.” That’s not really transformative. This is really going beyond the product and wrapping it with a service, or reinventing it as a service, to actually deliver the outcome that people are looking for beyond just buying the simple product.
Once we get them bought into this concept, there’s a “WTF moment.” It describes that moment when a company realizes, “Oh wow. This means we have to fundamentally change how we operate. This changes how we design our products, how we go to market, how we sell. Even how we look at our financial structures or our IT systems.” It is the start of a journey of transformation inside the company.
In the book, you say that “the lever that’s the most important to experiment and get right is how to use pricing as a growth strategy.” Why is pricing the critical capability for subscription companies? And what would you want them to keep in mind?
Pricing is the core transformation. It has multiple dimensions.
Pricing in the old product world was relatively straightforward. I know it costs me $1.25 to make this unit of product, and I think I’m gonna sell it to you at $2. Because I need enough margin to really fund the R&D that I did, the retailers, distributors, the salespeople, etc. And that feels like a fair price.
But when you’re pricing a service, it’s an outcome that you’re selling. Well, how do you value the outcome? It’s complicated. Different people might have put different value points on the outcome. When I get started, or if I’m using your service less, the outcome that I get is different than if I’m using your service more. So pricing needs to have a sliding scale that’s actually relative to the value that I’m experiencing.
So pricing, as your ultimate expression of your service winds up being pretty complex and iterative. You pursue different customer segments, different customer bases and they might want to express value in completely different ways.
When you look at growth, the old way of growing is to sell more units. But the new way of growing is to actually add more subscribers, manage churn, find ways of increasing the revenue you get per subscriber, etc. And no matter what you do, it all comes back to how you price, and how you package your services. So, pricing winds up being the thing that you think about the most when you’re running a subscription service.
For more on all things subscriptions, check out previous episodes of the Subscribed Podcast here