Subscribed: Why the Subscription Model Will Be Your Company’s Future – And What to Do about It


no title has been provided for this book
Publisher: Portfolio
Published: 6/5/2018
Today's consumers prefer the advantages of access over the hassles of maintenance, from transportation (Uber, Surf Air), to clothing (Stitch Fix, Eleven James), to razor blades and makeup (Dollar Shave Club, Birchbox). Companies are similarly demanding easier, long-term solutions, trading their server rooms for cloud storage solutions like Box. Simply put, the world is shifting from products to services.

Book Summary - Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It By Tien Tzuo with Gabe Weisert

Key Insights

Eighty-eight percent of the companies on the Fortune 500 list in 1955 are no longer there today. The twelve percent who made the list in 2017 did so because they learned to adapt to the ever-changing business environment. One of the most unparalleled changes in the current market is that people are no longer looking for ownership, they simply want access. In Subscribed: Why the Subscription Model Will Be Your Company’s Future- and What to do About it, the authors Tien Tzou and Gabe Weisert provide the knowledge companies need to understand this new digitally-driven trend and advise on how to capture a share of the billions awaiting those who can make this transformation.

Key Points

Go Digital or Go Home (i.e. out of business)

The reality is that digital services in business are essential to thriving in today’s market. At its core is the subscription model. Netflix, a subscription-based service, expanded to 100 million users in a decade while Blockbuster, the antitheses of this model, went out of business. IBM, one of the 12 Fortune 500 companies to make the cut rose from being 61st on the list to 32nd, by focusing on IT and business subscription services.

Customers have moved away from wanting to own products. Surprisingly, they don’t want or even need to own cars anymore, as seen by the growth of transportation services such as Uber. Today, demand is access. People would rather pay for access to music than buy music C.D.s; they prefer live streaming from Netflix, Amazon Prime, or HBO than to own or even rent movies. For today’s consumers, the music or movies matter more than the silver disc they are recorded on.

Tzou wrote an article in 2015 for Fortune magazine which asserted that people shouldn’t bother with business school anymore. The reason, he claimed, is that they only teach the students to make a hit product and sell lots of it. The rise of the subscription-based model proves his thesis correct. If a company wants to compete, or even survive, in today’s market, it needs to go digital, and the real profit is in the subscription model.

It’s Still About The Customer

A well-known mantra in many businesses has been, “The Customer is Always Right!” and that is still true. By paying attention to what the customers want, businesses can determine what direction to take their services in the digital market. The key is to slightly change the mantra to say, “The Subscriber is Always Right” and learn what it is customers will sign up for that will bring both profitability and longevity. One example is Fender guitars. Most of their guitars are sold to first-time users (We’ll call them “aspiring musicians.”), but the abandonment rate is extremely high. Fender determined that they could reduce the attrition rate by 10% and double their market size, creating life-long customers, by developing an online service teaching guitar lessons via video.

Another unique approach to the subscription model comes from Hyundai who now sells cars on plans which are reflective of cell phone subscriptions. For $275 a month, someone can pick up their Ioniq at the dealership, having previously selected its features and ordered it online. According to Tsou and Weisert, the physical product is just an enabler. “Your value lies in your IP, the usage data from your customer base and your ability to trade information across multiple markets.”

Subscriptions Models That Work are Always in Beta

Because technology is always improving, in order to provide the best service to customers, the subscriptions offered should also be ever-improving. In a very real sense, this means that a company’s subscription service is in perpetual beta mode. A UK subscription service called Graze sends snacks on a monthly basis to its customers. The customers have the ability to indicate if they like it or not and the system will then self-correct to please each subscriber.

Another example of continually evolving services is seen in the subscribers of Kanye West’s music. When he released The Life of Pablo, Kanye continued to improve it and his subscribers loved witnessing his new iterations.

Changing to a Subscription Model Will Be Challenging at First

Changing from traditional product sales, such as Adobe selling their functionalities on a compact disc, to SAAS (service as a software) does come with obstacles. During the transition, businesses can expect their revenue to dip. Adobe’s stock dropped 35% when they first announced they were going to become a subscription service. But the dip was well worth it as their revenue grows substantially every year.

The authors warn that businesses will likely have internal resistance when introducing a subscription model. It requires overhauling the marketing department, sales department, development, and business systems, as well as beefing up the IT department. Revenues will reflect that process, so it is a challenge to know about and accept in order to stay the course.

On the Upside, User Experience will Become Your Best Advertisement

An important concept from the book is that “Underneath all the hype of technological disruption is actually a very simple but powerful idea: Companies are finally starting to understand their customers.” The short of it is that when a company gets the pricing right, customer growth is easy. There are a number of proven approaches which include providing a trial period of free service with ads, or adjusting the price based on how much the customer uses the service.

The end-users experience has proven to be the most powerful advertising as word of mouth testimonials and recommendation through social media has demonstrated to have more impact than traditional marketing.

Subscription Services have Changed the Way People Shop, and the Way Businesses Compete

The internet and new mode of file sharing kicked off this revolutionary “e-commerce” we are seeing today. It began with companies like Napster. Initially, big film companies and music labels attempted to shut down their competition with legal attacks. In this effort, at first, they missed seeing the potential of this new ability for their own profitability.

However, start-up companies recognized that technology could allow them the opportunity to compete with large, established corporations. Netflix stepped on the scene and went from zero to 100 million subscribers in just a decade. Spotify went from zero to 500 million subscribers in nine years and makes up 20% of the global music industry revenue. Shopping online is continually growing. Amazon has over 90 million U.S. Prime Memberships, which is just under half of all U.S. households!

Manufacturing is Next

Technology companies initiated this new commerce, and manufacturing will be next. Thousands of manufacturers have been investing in connecting their products to the internet. They install connectivity features and sensors which are accessed online. This is referred to as the “Internet of Things” or IoT.

The authors of Subscribed predicted that by 2020, there will be a wide array of smart cars, smartwatches, and digitally connected products such as clothing, all of which provide feedback. This data will help the manufacturer better anticipate and understand the preferences of its customers. The result is that they will continually be improving, updating, and selling subscription services connected to their manufacturer’s IoT products.

The Main Takeaway

Consumers are moving away from purchasing products in favor of accessing services. With this shift, the subscription model is rising as the most important change a business can make. Although it will come with challenges in the transition, the end results will be well worth it.

About the Author

Tien Tzuo is a prominent leader in the software-as-a-service industry. He founded Zuora in 2007 and built one of the fastest-growing SaaS companies. He is the primary promoter of subscription-based business models and coined the phrase “Subscription Economy.”

Gabe Weisert is the managing editor of Zuora, a publicly-traded company in the New York Stock Exchange focused on creating software for subscription-based businesses. He started his career as a content marketer, writing for the Wall Street Journal, San Francisco Chronicle, New York Post, Forbes.Com, Huffington Post, Daily Beast, and Yahoo! Travel.

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