Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It - Hardcover

Über die Autorin bzw. den Autor

Tien Tzuo is the CEO and cofounder of Zuora, the leading subscription SaaS provider, with more than 1,000 customers worldwide. Zuora, which is foundational to companies in the growing Subscription Economy, was born out of Tzuo's experiences at Salesforce, a pioneer of the subscription model, where he was formerly CMO and Chief Strategy Officer. Headquartered in Silicon Valley, Zuora also operates offices in Atlanta, Boston, Denver, San Francisco, London, Paris, Beijing, Sydney and Tokyo.

Gabe Weisert is the managing editor of Zuora's Subscribed magazine. He has previous written for Yahoo!, Forbes.com, and Andrew Harper's Hideaway Report.

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Chapter 1

The End of an Era

What does digital transformation look like? Well, for starters, let's acknowledge that "digital transformation" is a really vague term. It's the kind of smart-sounding phrase that gets thrown around a lot in conferences and McKinsey reports and Harvard Business Review articles. The kind of expression that lots of people instinctively nod their head at, whether they know what it means or not. It could mean everything, it could mean nothing.

Let me tell you what I think it means. You've probably seen the statistic-more than half of the companies that appeared on the Fortune 500 list in the year 2000 are now gone. Poof. Vanished off the list as a result of mergers, acquisitions, bankruptcies. The life expectancy of a Fortune 500 company in 1975 was seventy-five years-today you have fifteen years to enjoy your time on the list before it's lights out. Why is this happening? Instead of dwelling on failure and looking at all the companies that went away, let's look at the companies that have stayed.

Notice how big manufacturing companies like GE and IBM that were on the first list in 1955-and are still on it today-don't talk as much about their mainframes and refrigerators and washing machines anymore? They talk about "providing digital solutions," which is an admittedly jargony way of saying that the hardware is just a means to an end. In other words, these companies now focus  on achieving outcomes for their clients, rather than just selling them equipment.

GE was #4 on the first Fortune 500 list in 1955, and it's #13 on the list as I write this book in the fall of 2017. GE was incorporated as the Edison General Electric Company in 1889. It made and sold lightbulbs, electrical fixtures, and dynamos. Today GE generates most of its revenue from services, not products. GE ran commercials during the Oscars with the tagline "The digital company. That's also an industrial company." Notice the switch there. This transformation is what allows GE to survive and remain on the Fortune 500 list.

IBM was #61 on the Fortune 500 list in 1955, and it's #32 on the list today. IBM originally sold commercial scales and punch card tabulators. Today it sells IT and quantum computing services. It has completely transformed from a product manufacturer into a business services giant. IBM is now working on Watson-a technology platform that uses natural language processing and machine learning to reveal insights from large amounts of unstructured data. It has Bob Dylan chatting with an artificial intelligence system in its advertisements. It is now in the business of cognitive services-a pretty exciting departure from where the company started.

In fact, 12 percent of the companies on the 1955 Fortune 500 list are still on it today, and most of them have similarly transformed. Xerox has moved from manufacturing photographic paper and equipment to information services. McGraw-Hill has moved from printing textbooks and magazines with titles like American Journal of Railway Appliances to offering financial services and adaptive learning systems. NCR went from selling cash registers to saloons during the days of the Wild West to creating digital payment services that compete with companies like Square. They don't really sell stuff anymore.

Okay, what about some of the more recent entrants on the Fortune 500 list? The "new establishment" companies like Amazon, Google, Facebook, Apple, Netflix. The companies that instantly feel very familiar to us but are actually relatively new to the Fortune 500 list. They've rocketed to the top of the list and show no signs of going anywhere. They never thought of themselves as product companies-no transformation was needed. From the start, these companies were relentlessly focused on building direct digital relationships with their customers. And established enterprises are taking note.

Let's take a look at one big company we're all quite familiar with-Disney. Its CEO, Bob Iger, said recently, "It's one thing to be as fortunate as we are to have Disney, ABC, ESPN, Pixar, Marvel, Star Wars and Lucasfilm, but in today's world, it's almost not enough to have all that stuff unless you have access to your consumer." Right now, outside of its theme park attendees, Disney doesn't have much in the way of individual customer insight. Someone who buys a Spirited Away doll at a Walmart is a Walmart customer, not a Disney customer. Someone who goes to see a Star Wars movie at an AMC Theater is an AMC Theater customer, not a Disney customer. For Disney, it sounds like that's all about to change very soon.

Finally, how about the up-and-comers, the companies that may soon top the Fortune 500 list, new disrupters like Uber, Spotify, and Box? These companies came in and took everyone by storm. They haven't just gone beyond selling products, they've invented completely new markets, new services, new business models, and new technology platforms, leaving many established companies trying to play catch-up. As consumers, we love these brands, we love these services, and we love the value they provide us-a value that goes way beyond what a single product could ever offer.

What are the common threads among these three groups of companies? Whether it's GE, Amazon, or Uber, they are all succeeding because they recognized that we now live in a digital world, and in this new world, customers are different. The way people buy has changed for good. We have new expectations as consumers. We prefer outcomes over ownership. We prefer customization, not standardization. And we want constant improvement, not planned obsolescence. We want a new way to engage with business. We want services, not products. The one-size-fits-all approach isn't going to cut it anymore. And to succeed in this new digital world, companies have to transform.

The Product Era and the Tyranny of the Margin

For the past 120 or so years, we've been living in a product economy. Companies designed, built, sold, and shipped physical things under an asset transfer model. Business was about inventory, shelving, and cost-plus pricing. The relationship between seller and buyer was based on discrete, often anonymous transactions. The sign by the cash register summed it up: "All Sales Final." Early retail pioneers like Sears and Macy's changed the way mass society consumed things, but they had minimal insight into who was actually buying their products or how they were using them.

When Henry Ford's first moving assembly line went into operation in 1913, it was really just an extension of manufacturing principles first put in place during the Industrial Revolution of the 1800s. The assembly line wasn't just about maximizing efficiency through discrete repetitive tasks, it was a metaphor for how a company's product can dictate its supply chains, manufacturing processes, distribution channels, and management layer.

The product was the only governing principle-it organized everything across a perfectly straight line. The actual people involved in making, buying, and selling the product were entirely disposable. Henry Ford's customers could famously pick any Model T color they wanted, as long as it was black. The result of all this relentless efficiency was that Henry Ford's cost per unit dropped precipitously, allowing him to flood the market with cheap but durably made cars. Model Ts came only in black because with one automobile coming off the line every three minutes, that was the only color that would dry fast enough.

Then once these big companies established market share, the thinking went, they could start to gently raise their prices and make money off the difference, or margin....