Subscription economy software leader Zuora’s annual conference emphasized customer relationships and retention.
At the Subscribed 2018 conference hosted by Zuora (NYSE: ZUO) in San Francisco last month, Zuora co-founder and chief executive Tien Tzuo spoke about a continuing shift among global customers: away from ownership, and to what he calls "usership." That shift, which is taking place across industries, is driving the growth of what Zuora calls the subscription economy.
Tzuo even wrote a book, Subscribed: Why the Subscription Model Will Be Your Company's Future— and What to Do About It, to help companies succeed in this new era.
The event featured speakers who were industry leaders in banking, software, automotive manufacturing and a wide range of other sectors. They shared the same emphasis—building a satisfied base of recurring, subscription-based customers.
That’s a message close to the heart of Zuora, which offers customizable back-end enterprise software to allow companies to move to a subscription basis, or just to offer subscription-based options. This year’s event included the unveiling of Zuora Orders, a software suite aimed at driving subscription renewals.
"Seventy percent of revenue comes from upsells, cross-sells and renewals," noted Dr. Carl Gold, Zuora’s chief data scientist. He went on to explain that the subscription-economy business model places more stress on sophisticated service experiences and outcomes, which is where dedicated software can make a big difference.
Zuora has been building subscription software for a decade. In that time, growth in the subscription economy — for everything from media streaming services to home deliveries of consumer goods and prepared meals — has come through customer acquisition. But acquiring customers is expensive. Now, Tzuo explained, new growth will come from expansion among existing customers.
But customers are changing, as most attendees agreed. One thing that customers expect is to be able to access their subscription services from any platform, and any location. And whether they’re seeking a car rental, a song, a movie or a document, consumers want a unified experience across devices, said Gold.
Customers also demand security. In recent years, hacks on major retailers and other institutions have made customers increasingly wary about who has their data and how it’s managed, said Tyler Heun, vice president of global enterprise solutions merchant services at JPMorgan Chase & Co (NYSE: JPM).
"Consumers are skeptical about who they do business with because of data breaches," Heun explained. He pointed to things like simplifying payments and streamlining order-changing processes as methods for building trust over the course of a customer relationship.
Technology stalwart Dell Technologies has adopted a “pay as you grow” plan for clients who are scaling up their business. For a hardware giant like Dell, offering more payment options has helped as it offers more services, and it serves as an example of a legacy business shifting to the subscription economy model.
"We still ship hardware and send people on site to support customers," Thomas Austin, vice president, global finance at Dell, told the crowd. "But now we’re able to offer more flexible options."
One reason that subscription pricing is gaining momentum in the B2B realm is that it offers much-needed predictability for companies — both startups and long-established players. Nick Robin, the director of strategic planning & analysis at Box Inc. (NYSE: BOX), explained how his company’s business model has shifted since Box’s 2015 IPO.
When it started out, the company relied on multi-year agreements to funnel cash into the business. But that led to lumpy year-over-year growth and had to be reconfigured before the company could transition to a publicly traded firm. Like other companies that have turned to the reliability of recurring subscription-style payments, Box can better focus on offering consumers a superior product throughout their relationship, Robin explained.
Offering standard subscription payments doesn’t necessarily mean static pricing, noted Kyle Poyar, senior director of market strategy at OpenView Venture Partners, who added that "pricing needs to evolve as the company evolves."
As the subscription economy matures, certain best practices are emerging. One thing that everyone at Subscribed agreed on is that companies need to offer frictionless payment processing to subscribers. Another is that customers now expect more pricing options. Consumers will simply select another merchant rather than deal with limited payment options, explained Chase’s Heun.
"Globally, we see three trends: cost, complexity and changing consumer behavior," Heun explained. In order to stay competitive and retain loyal customers, he said, companies must embrace an evolving payment landscape.
He also noted the importance of pursuing revenue internationally, as most Fortune 100 companies already do. Globally, wire transfers are a common, secure way to move funds. But as the U.S. market has been slow to adopt similar options, he urged payment processors to move clients to automated clearinghouse, or ACH, payments whenever possible, especially on big-ticket items.
The Internet of Things (IoT) was also a topic at Subscribed as an innovation with a role to play in the subscription economy, as more devices are wired and configured to make payments.
In a fast-paced breakout session, participants looked ahead at 2020, when analysts predict that 5 billion people will be online and 25 billion devices and machines will be using the Internet.
They agreed that if even a fraction of those devices had payments capability, that would double or triple the market for devices to make payments. And as more of those digital transactions move to a subscription basis, that points to still more growth for the subscription economy.