This article was originally written and produced by Accenture’s Kevin Dobbs. To listen to the podcast featuring Kevin and Zuora CEO Tien Tzuo, visit: https://www.accenture.com/us-en/blogs/high-tech/subscription-model-trends
I thought I was a change ninja until I met Tien Tzuo, CEO of Zuora. In case you’re not familiar, Zuora is an enterprise software company that helps businesses launch and manage their subscription-based services. Zuora’s platform helps customers automate everything from recurring billing to subscription metrics.
Tien was a guest recently on the Accenture podcast I host, the XaaS Files. We talked about a lot of things, but I’d like to focus here on his advice for building a digital transformation plan and roadmap as you move your company to cloud-based subscription services.
The pandemic accelerates move to subscriptions
COVID-19 has so many companies looking at a reset because what they did in the past is probably not going to help them moving forward. Many of them are just now looking at new subscription services to restart growth. We’re seeing that companies embracing a cloud-based subscription model already have more revenue resilience during the pandemic.
Tien foresaw the move to subscriptions over 12 years ago. He explains: “When we started Zuora, we had this vision that people would no longer have to buy products. That instead of buying software, cars, DVDs—whatever it happens to be—we’d simply subscribe to services for our work or entertainment needs, our educational and transportation needs. And over the last few years, that vision has really taken hold . . . and now—in these moments of extreme change we’re living in—the trend is really accelerating.”
Accelerating indeed. I’m seeing companies on a former three-year trajectory toward a cloud-based subscription model compressing it into three months. Tien mentioned Zoom going from 10 million meeting attendees per month to 300 million. We are also seeing that companies who have deployed robust ecommerce platforms are still growing while those who were solely dependent on their brick and mortar locations are filing for bankruptcy.
I talked to him about a company’s typical digital journey, which he sees comprised of three main steps:
- The first is a realization—realizing that cloud computing, the Internet of Things (IoT), connected and mobile devices—all create an opportunity to offer what you offer as a service, rather than a just a product.
- The second leg of the journey is building a much deeper data-driven relationship with the customer. Tien talks about that step at Zuora: “That first experience we had pushing the software out there and then realizing—wow—we can actually see our customers logging in. And we began to ask: Are they using the features we thought they would use? Is our product too hard to use? It was so different from what developers were used to, which was shipping software and then not knowing how or if it was being used. When you can see in real time how it’s being used, you become obsessed with improving that connection and experience for the customer.”
- The final step is educating stakeholders that the resilience of the subscription model means your company doesn’t suffer the same issues as companies who are dependent on a less predictable transactional model. We’re seeing that now with COVID-19. As Tien put it: “Other companies are seeing 50%, 60%, 80% drops in revenue. That’s just not possible in our business model . . . most of the SaaS companies I talk to are saying ‘Yes, our growth might slow this year but we’re still growing versus non-subscription companies.’”
“Other companies are seeing 50%, 60%, 80% drops in revenue. That’s just not possible in our business model . . . most of the SaaS companies I talk to are saying ‘Yes, our growth might slow this year but we’re still growing versus non-subscription companies.’”– Tien Tzuo, Founder & CEO Zuora
Turning customers into subscribers
I couldn’t agree more. I’ve been in sales and the great thing about the subscription model is that 80% of your revenue is already booked when you start the next quarter. It’s just a question of retaining that revenue and then upselling. But that revenue has to be driven from a new mindset, which Tien described well: “A customer is just—it’s a name and address and payment method on an invoice. A subscriber is somebody you have an ongoing relationship with, a relationship you’re building over time.” He went on to talk about how this mindset means every department in a company must rethink what they do to make sure subscribers are successful or they won’t renew and the model doesn’t work.
Many large companies bemoan the competition they see from agile startups who are digital natives. But Tien sees their size as an advantage: “If the goal in this model is to build a large subscriber base, who will that be easier for? The brand new startup who has to build subscribers from scratch or the big brand, like Nike or Coke, who already is a trusted brand with a lot of customers? They may have to build the direct relationship, but the customers are already there. That is their advantage over the disruptors.”
It can be done. We’re seeing it happen. Tien mentioned the New York Times, who a few years ago just wanted to get to a million subscribers. Now they have five million—with more subscription revenues than advertising revenues. It’s completely transformed the company.
Hopefully, your company had embarked on its digital journey to a subscription model before the pandemic hit. But if it hadn’t, it’s not too late. Building resilience in can happen at any time. I’ll leave you with Tien’s take on things: “If there’s a company out there that’s not thinking of changing like this, they’re going to be left out.”
In other words, wade on into the subscription surf. The water is just fine.
To learn more about subscription models from Tien Tzuo, check out his book Subscribed.