What is the subscription economy?

By Merri Mack
Tuesday, 17 July, 2012

The subscription economy has been described as perhaps the most transformational shift that the world has seen since the industrial revolution.

One of the precursors to subscription software as a service (SaaS) was Salesforce.com. To become a successful subscription company, it needed a way of managing the complex billing model. Tien Tzuo, a nine-year veteran of Salesforce.com, joined the company as employee number 11 and built the billing system for the company.

When Salesforce.com acquired Radian6, a provider of SaaS-based tools for social media monitoring and analysis, a different billing model was necessary, as customer payments were based on volume of content. Salesforce.com’s billing system did not support this so, after considering all options, Saleforce.com continues to use Radian6’s billing system that was built on the Zuora platform.

Tzuo is the CEO and founder of Zuora and is credited with coining the phrase “subscription economy” and has gone as far as trademarking it. So what is it?

Tzuo said, “The subscription economy is not about shipping products any more, it’s about content and services, so radically different business models are needed. It’s about both consumers and businesses and the need to expand relationships with customers. A lot more data is generated, which has made a new set of applications necessary for businesses to run their companies.

“ERP systems like Oracle and SAP worked for the manufacturing era but don’t work for the fast-changing sectors in technology like the media and telecommunications industries that have been shaken up by the internet.

“The herd will just go sparking a massive migration from the ERP vendors, SAP and Oracle very soon,” said Tzuo.

Zuora’s service offerings include commerce, billing and finance for the subscription economy. Zuora is a cloud company that has no IT department, except one person to run internal IT. It has no servers and runs out of two co-location data centres.

According to Zoura, organisations looking for a subscription partner need to consider: compliance and security; scalability and reliability; multiple touch points in the ecosystem with various systems and applications such as CRM, payment gateways and back office accounting systems; openness, which means APIs that are publicly available instantly when released; an innovative vendor with an experienced billing team and support system 24/7. In addition, a vendor must be a leader now and have the resources to lead into the future.

Analyst company IDC points out that while 10 years ago subscription was a novel approach in the software industry, subscription is now mainstream, with more than half of the top 100 ISVs offering a subscription approach in 2010. IDC acknowledges that it is now time to diversify and introduce new pricing models to monetise value in ways other than the per user/per month fees.

The Australian company Servcorp, which provides virtualised offices in 21 countries at more than 130 locations, has just launched a subscription-based telephone auto-attendant service called Gnee on the Zuora platform for SMBs and start-ups. Gnee has initially been launched in Australia and Japan.

Matthew Baumgartner, CIO of Servcorp, said, “We designed the out-of-the-box system in January and had an aggressive time frame with a planned launch in April so we wanted to limit coding. Looking for a subscription management platform, Zuora shone. We are not locked into a predefined model, and with Zuora’s easy-to-integrate APIs it provides great flexibility.

“The final challenge is to make Gnee a global out-of-the-box product to accommodate different currencies, different time zones and different languages. Using Zuora we have this immense flexibility which allows us to promote different services and different prices.

“When I think of new services and products I am super excited because I don’t have to use my development resources to develop a new product. Now we have Gnee running on Zuora, we will bed that down and look at the rest of the business and make our next move.”

The Zuora subscription platform enables Servcorp’s expansion efforts by implementing new revenue strategies, automating processes around subscription commerce, billing and finance and providing access to key metrics.

Zuora has established an office in Australia this year headed up by VP of ANZ John Ruthven. Other Australian Zuora users include Ninefold and Quotify.

“Ninefold is building a highly scalable public cloud business, and as Ninefold continues to grow and add new services, Zuora’s subscription billing allows us to serve more customers without increasing our overheads,” said Peter James, Chairman and co-founder of Ninefold.

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