I was fortunate enough to attend Zuora’s Subscribed 2013 event last week that was billed as the globe’s only Subscription Economy conference. (“Subscription Economy” is about subscribing to services over buying products.) While some of the best information came at the lavish after-parties, the climax of the two-day spectacle was the reveal of Zuora’s subscription economy philosophy:
So, what did I take away from the event? I’ve distilled the information into four key lessons about the subscription economy.
1. Subscription economics is the phoenix rising from the ashes of the market crash
The decline of ownership
The global economy is still recovering from the housing bubble crash of 2008. It might not be obvious, but one of the biggest victims of the housing bubble was the concept of ownership itself. Not only do people have less money in their pocket, but they’re also skittish about large investments. Previously, the benefits of subscriptions over ownership were not feasible due to technical limitations which were not easily understood, or even easily communicated by early adopters. Many people, especially the Baby Boomers who valued possessions, struggle to understand the Millenials’ love for the subscription concept (see the article The Cheapest Generation.)
The hunger for quality products and services is still there, yet the cost of ownership is hard to swallow. Enter subscriptions economics. If you want entertainment, you can buy one DVD a month or stream thousands of them at once with Netflix for the same price. If you need transportation, are you going to sell yourself into auto debt for the better part of a decade, or get Uber to whisk you away in a hybrid car summoned by your magic phone? If you need project management software, your business can spend thousands of dollars to install an expensive, complicated product or instead, choose cloud-based software that’s affordable, collaborative and easy to use.
2. Remove barriers to entry, leave room to grow, and get sticky
Pricing, pricing, pricing
SaaS buyers are extremely price sensitive, so product pricing and management are paramount. As a business, you need to provide incentives to potential customers to try your product with as little up-front investment as possible. Freemium models, free trials, “better-than-free” deals, and so on will get your product in front of many more eyes than a slick-looking mystery box. You also want to A/B test, offer beta programs and limited-time specials in order to get it right.
After a customer is in the door, provide options and incentives to buy more with minimal effort. Most of your revenue will come from recurring subscriptions. For example, the customers who like a product for $5/month might like the same product for $50/year (a $10 savings!).
Repeat what works
And of course, when you find what features get your customers to stick around, keep hammering on those. Listen to feedback and nurture your current customer base. Ideally, your product will be so awesome no one would dream of leaving. Realistically, your product needs to be one that’s easier to stick with than to leave.
3. Your customers are fickle. You should be, too
No matter how sticky your service is, whatever can be easily adopted can just as easily be dismissed. One of the main advantages of subscribing to a service, rather than buying something, is that you can get rid of it when it’s no longer useful.
Subscription customers aren’t compelled by loyalty, they’re compelled by self-interest.
Embrace fickle – be quick on your feet
So, if customers are fickle when it comes to your service, why shouldn’t you be? Features and pricing structures that don’t drive monthly recurring revenue (MRR) and/or decrease customer acquisition cost (CAC) need to be changed or ditched. Is your personal vision of the perfect feature not selling any subscriptions?
Abandon pride, embrace fickle, and pivot to something that does. And of course, creating a quality product requires quality metrics. Dedication to research, testing, agility, and iteration will push your product (and pricing strategy) closer toward perfection – whatever perfection happens to be that day.
4. LiquidPlanner is doing it right
I may be biased, but one of my favorite revelations, based on the information presented, was that LiquidPlanner is already pretty good at this subscription economy stuff. The opportunity to work at a SaaS company with a great product, smart strategy and awesome team means I’m definitely happy to stick around for a while.
You know, unless something changes.
How are you working this Subscription Economy phenom – is it a fad, or here to stay? Share in the Comments box.