The Subscription Economy Heats Up
It was a big week for the Subscription Economy. Subscription billing pioneer Zuora raised an amazing $115M in late stage funding. The transformation from transactional to subscription pricing is reshaping the relationship between businesses and customers. This week we check in on the state of the Subscription Economy.
If you are in the Southern Ontario area, you won’t want to miss the upcoming Customer Success Meetup on April 14th. The theme is “Customer Success = Startup Success”.
The Subscription Economy
Tien Tzuo, the CEO of Zuora, lays out his vision for the Subscription Economy.
A New Type of Customer
To thrive in the subscription economy, it’s not enough to slap a low monthly price on a product and call it a service. What you deliver and how you deliver it has to be completely rethought. And not in the boardroom or a conference room, and not just with product managers and the finance team.
Instead, it has to be rethought from the perspective of the relationship to subscribers, because the shift to the subscription economy is being driven by subscribers, not vendors. According to a 2014 report by The Economist Intelligence Unit, 80 percent of customers are demanding new consumption models including subscribing, sharing, and leasing — anything except actually buying a product outright.
Customers today, especially millennials, see less separation between their business and personal selves and expect their business relationships to be more personalized. They also expect a real-time experience with immediate fulfillment. By definition, subscribers can easily switch service providers, so vendors wanting to earn the loyalty of their subscribers must present on-going value and memorable services that get better and better. To provide this, they must be able to sell, market and deliver based on a clear understanding of subscriber behavior, and they must nurture every subscriber relationship.
The Internet of Things should be a large part of The Subscription Economy
Zuora rival, Aria Systems, thinks the Internet of Things should have it’s own subscription business model. However, not too many businesses are there yet.
Two companies that get it right
Now let’s take a look at a couple of IoT offers that do work from a recurring revenue standpoint. One key they share is that they each employ IoT data to create services that customers can comfortably afford by way of subscriptions, usage, or a combination of the two.
With Farmobile, farmers can harvest rich data from their farm equipment to increase crop yields and profits. The data is valuable enough for them to pay the $1250 annual fee. So valuable in fact, that they can actually sell their data to farm equipment manufacturers that covet it.
Euclid monitors the presence of shoppers’ cell phones in brick and mortar stores to give retailers a vivid portrait of foot traffic and buyer loyalty. Basic insights are free, and more advanced reporting and analytics are available in two subscription tiers.
The Genius of Kuerig: Subscriptions aren’t the only recurring revenue model.
Recurring revenue models have been around for a long time. Gilette’s ‘Razor and Blades’ strategy is a famous example. Seed stage investor Ben Einstien discuss how Kuering reinvented this type of recurring revenue model and what it means for hardware companies today.
Recurring revenue matters, because it fundamentally changes your business. There are good reasons investors are averse to hardware but love software. One of the leading reasons revolves around future revenue. Investors pay huge premiums to own stock in companies betting on the likelihood that future revenue will be drastically larger than current revenue. If you’re in a traditional hardware business, future revenue is confined to cyclic product sales. This roughly means you get one shot at revenue with each customer per product development cycle: each sale must be painfully acquired by building a new product every 18 months or so.
The Keurig model combines the best of both worlds: hardware-like customer acquisition and software-like recurring revenue.
Super SaaS Fundings
Looker – Visual Business Intelligence vendor raised a$30 M Series ‘B’ on March 11, 2015.
Agilence – Exception Reporting for Retail vendor raised $4.3 Million Venture Round on March 11, 2015.
Elastica – Security Ops Center vendor raised $30 Million Series ‘B’ on March 11, 2015.
Lotame – Data Management Platfor vendor raised $5 Million Series ‘A’ on March 3, 2015.
Newest SaaS Services from Product Hunt
Treeline – Build a backend without writing code.
Tether – Lock and Unlock your Mac from your iPhone.
Mailburn – All the tools you need for PR in one place.
Canopy Labs – Track and Optimize your Customer’s Journey.
Infographic of the Week
Other Great Weekend Reads
A great list of the top influences in SaaS, Top SaaS Influencers in 2015.
Brian Whalley talks about a new key metric for SaaS companies: The SaaS Quick Ratio.
What is the Next Generation Internet?. Author Don Tapscott thinks it is Bitcoin’s Blockchain.
Implementing Customer Success? The Guide to Developing a Business Case for Customer Success will help you achieve your customer success mandate.
Want something added to the SaaS 2.0 Tattler – let us know! And let us know your take on the SaaS 2.0 Tattler in general – we’d love your feedback.
Curated by the team at Amity using the outstanding tools provided by Product Hunt, BetaList and CrunchBase. We encourage sharing and subscribing!
#SaaS Tattler - The #Subscription Economy Heats Up w/ articles by @tientzuo @AriaSystemsInc and more!
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