Career & Success
Why Every Business Will Soon Be a Subscription Business.
Everything you purchase — from transportation to entertainment to groceries — will soon come with a monthly plan, says Zuora CEO Tien Tzuo.
August 17, 2018|by Jenny Luna
A woman rests while watching Netflix. Credit: iStock/wutwhanfoto
Business is no longer about ownership, says Tien Tzuo, but about access to goods and services. | iStock/wutwhanfoto.
After scrolling headlines in the New York Times, you head into the kitchen and open today’s Blue Apron box to prepare a shrimp risotto before turning on Netflix for an episode of Comedians in Cars Getting Coffee. You may not have noticed, but you’re now fully enmeshed in the subscription model.
The subscription model is a booming field. In recent years, this market has grown by more than 100% a year, increasing from $57 million in sales in 2011 to $2.6 billion in 2016.
Tien Tzuo, who earned his MBA from Stanford Graduate School of Business in 1998, says the subscription model is the way of the future.
In 2008, after nearly a decade at Salesforce, Tzuo founded Zuora, a software company built to aid organizations shifting to this model.
In his recent book, Subscribed: Why the Subscription Model Will Be Your Company’s Future — and What to Do About It, Tzuo aims to change how executives think about their products and organizational structure in the subscription economy. “If you’re not shifting to this business model now,”
Tzuo writes, “chances are that in a few years you might not have any business left to shift.”
Tien Tzuo, MBA ’98. Credit: Courtesy Zuora
Tien Tzuo, MBA ’98, evangelizing the shift to subscription-based business models, coined the phrase “subscription economy.” | Courtesy Zuora.
Here, Tzuo shares more about why it’s no longer the era of the “unknown customer,” what it means to transform a business to a subscription model, and his current views on the value of an MBA.
You write a lot about the need to change our mindset. Why is this shift difficult?
Once you get in the habit of thinking this way, it becomes easier. My colleagues and I, often over dinner and wine, would challenge each other to come up with businesses that couldn’t be turned into a subscription model. We tossed out ideas like guitars, cement.
We realized it’s not about the physical product, it’s about what the customer is trying to do. And that inversion of thinking is at the root of everything.
Using cement as an example, you realize that flooring is the actual need. There’s a whole revolution of industrial carpets now. There’s a service contract, you simply pay some monthly fee plus overages, usage, etc. So you can actually subscribe to a floor.
You call Adobe the company that provided the “textbook” to inspire others and reference how its revenue dropped drastically after the transition to subscription. How do you advise leaders to manage through that pain?
The fear is if I’m selling a guitar, instead of taking 400 bucks right now, I’m taking money over time. And so doesn’t that destroy revenue? If I just flip the switch, my revenues would plummet.
You can actually keep selling your product and sell new digital subscription services, like Fender does — its Fender Play offers access to online lessons for $19.99 a month — or, if it’s a complete switch to subscription, you can face what Thomas Lah and J.B. Wood (authors of Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business) dubbed “swallowing the fish.” Costs go up and revenue drops, but after the transformation to a subscription model is complete, costs go down and revenue comes back up.
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