Imagine a world where nobody owns anything. You rent, lease, borrow and subscribe, but you don’t actually own anything. I admit this is a slight exaggeration of what life could be like in the future, but some form of this is not only in our future. It’s happening now.
Many people still think that the concept of a subscription is confined to newspapers and magazines. But today, almost any business can create a subscription model. Everything from automobiles to Xerox copiers and everything in between – including razor blades, wine, dog food, dishwashing detergent and more – can be turned into a subscription.
I had the chance to interview Tien Tzuo, the author of Subscribed: Why the Subscription Model Wil Be Your Company’s Future – and What to Do About It. We discussed the advantages of a subscription model for both the customer and the company.
First, a little background. Tzuo was employee No. 11 at Salesforce.com, helping to build its billing system and holding a variety of executive positions including chief marketing officer and chief strategy officer. He is currently the CEO of Zuora and has been a major proponent of the movement toward businesses creating subscription models. At Salesforce, Tzuo helped create the subscription model in which customers paid monthly for access to their software. The ongoing payment meant the company would provide ongoing support and updates, ensuring the customer was always using the latest version of Salesforce. Tzuo is a smart guy, and my conversation with him was fascinating.
The subscription model is a win/win for customers and businesses. For businesses, it scales better, is easier to run and guarantees recurring revenue. For the customer, it offers convenience and is sometimes even less expensive.
Years ago, I remember buying a software package for $400. A little over a year later, the company came out with a new version and wanted me to buy the upgrade, which was about half of the original price. I was happy with how the software worked, so I didn’t upgrade. Three versions later I finally acquiesced and upgraded. That same company today allows me to subscribe to its software at $20/month. I’ve been a subscriber for several years and enjoy the luxury of the latest and greatest upgrades without having to make a decision about it.
The subscription model has made it to the automotive industry. You no longer have to buy or lease a car. You can subscribe to a car … or to a car company. Multiple brands now allow customers to subscribe to their vehicle of choice. You may ask what’s the difference between subscribing and leasing. With a lease, you’re locked in for a long period. You’re typically responsible for insurance and maintenance. With a subscription, you’re not tied up for an extended period. You don’t own the car, so you don’t have to insure the car. And, some brands’ programs allow you to switch to different models. The Porsche Passport program allows unlimited vehicle swaps. Imagine driving a two-seater for a few weeks and then deciding you want the Porsche Cayenne SUV. No problem.
One of my favorite subscription models is the Dollar Shave Club. For four dollars a month you can receive a package of four razor blades, which means you switch to a fresh, new blade every week. When compared to what it costs for new blades from the store, it’s a bargain. And, you don’t have to ever go to the store to buy the blades. They just show up in the mail.
Tzuo says that to get into the subscription economy you look at the customer first, then the product. Begin with a view of what your customers are doing and track all the usage and interactions. This allows you to understand your customers’ habits and helps you create a meaningful relationship. In the process of bringing on your subscribers, you start to create loyalty. People get used to using your products. It also helps thwart competition. Anyone can copy your product, but now your competitive advantage goes beyond the product because you are convenient and easy to do business with. The subscription model ensures that you are in a stronger position to maintain customers.
Tzuo says, “Once consumers taste a subscription service, they’ll start asking, why can’t everything be like Netflix or Salesforce?” So, is a subscription model in your company’s future? If not, why? The advantages are too great to ignore.
