The Subscription Economy is the idea that more and more customers (and therefore vendors) are moving over to being subscribers of services rather than purchasers of products. An obvious example is Spotify – the money spent by consumers on streaming services now significantly outweighs revenue from physical CDs or even digital downloads:
In 2019, more money is spent by music listeners on monthly subscriptions to music services, where customers never actually “own” anything in any real sense – a complete transformation in the industry.
Central to Tien’s book is the argument that this change in behaviour is far more widespread than the obvious examples (mostly from consumer goods, such as music or films) – and, particularly for those companies selling software products, those vendors will have to switch away from selling products (with things like “Release versions”, “Upgrades” and so on), instead moving to evergreen services, based around customer need.
Tl;dr – I like the book, and it makes some great points. But – and this is a point made explicitly by Tien part-way through the book, without any irony! – it is essentially an evangelical marketing book. So it’s very strong on selling the idea of subscriptions as a business model, but a little thin on the actual details. Still, well worth a read.
Longer
The book is in two halves – the first half providing many examples of industries where this transformation is happening, the second a more practical guide to how to make changes in your org to move over to a subscriptions business.
In the first section, he moves on quickly from the obvious examples like Netflix and Spotify, to a number of industries where the move to a subscriptions model is either happening already or “inevitable”. For example, travel, newspapers or retail. It’s the first half that I find least convincing for two reasons – firstly, where significant brands are offering subscription services, these are still pretty minor, even experimental. A good example is Fender. facing a downturn in guitar sales, Fender now offer an online teaching services (called “Fender Play”) as part of the deal – buy an axe and get a monthly learning app as part of the deal. This is great but – I struggle to believe this is a significant revenue stream for them. If anything it’s closer to the old “Upfront perpetual license + ongoing support costs” model (they certainly don’t take the guitar away if you stop playing!). There are lots more examples where the offerings provided by major brands are only bit parts. The obvious one is Apple – yes Apple Music is very successful, but nothing compared to their product revenue. Obviously I could just be taking a rather backward-looking view here. But the examples given don’t make the point strongly enough – the number of large brands that have switched to the alternate model seems small.
But maybe the future is with the disruptors? The small orgs disrupting these Goliaths with subscription models. The second reason this first section is a little unconvincing is that the examples given are still very much small fry. An example is Zipcar – a car service that you use where you just pay for what you need – hire by the day or hour. Again, an example where instead of customers owning a car, the subscription offering is far easier. Again, fine, but Zipcar is still a tiny part of the market. But at least I’ve heard of them! Many of the other examples given (e.g. for shaving or flying) are still very minor brands that I’ve never even heard of.
Of course, it’s perfectly possible these are just early signs, the innovators that will lead the way to tomorrow. And that’s very very possible – my argument is that the examples given aren’t enormously convincing of the inevitability of this transition. Later in the first half Tien talks about the move to subscriptions being necessary as companies selling non-SaaS products, tied to old revenue models plateau and start to decline. But this isn’t the case where I work (Redgate), where we’ve seen significant growth in this older revenue model. Of course we’re looking in to subscriptions as a way forward – but the start of the book is a little too evangelical for my liking. The nuance is that, for different orgs in different industries they should look at the change carefully and with a very strong strategy in place. Is it right for our customers? Will we really get new customers through this offering? How will we manage the change, the impact on profitability and value? Do we do it now, or in two years? Or 5 years?
But – what if you’ve already taken the red pill and want to know what happens next? This Tien addresses in the second half, which I found stronger. Here he goes through each part of the business – sales, marketing, IT, product, finance – and works through the impact on each area. For example, the vital importance of getting your finance reporting and infrastructure changed for the subscription business – all of the old models and KPIs change, and you have to address this upfront.
And the strongest part of this section is the discussion of culture. There’s a great chapter called “That WTF moment” – Tien describes a situation where the board announce the transition, provides flashy PowerPoints, does the internal sale and the company react with “WTF”! He then talks about the change management process needed to get everyone on board and transform to a customer-centric culture focussed on subscriptions (rather than the “sell-and-forget-the-customer” model associated with product sales). It’s really useful to see this part of the change understood and addressed.
There are weaker sections here where he talks about breaking down siloes, how Zuora doesn’t have “Sales”, “Marketing” or other departments, instead having divisions like “Position”, “Acquire”, “Deploy” – without siloes between these departments. But this is missing the point – all org structures have inter-departmental collaboration issues that need to be pro-actively handled. Just re-branding the departments, or changing the responsibilities of different areas doesn’t change that at all – you still have to do the work to get people to work together.
But that aside, I really liked the second half, maybe because our company is further down the subscriptions path already (e.g. we have some products on this model now). I particularly liked the detail under “Finance” – you really need to understand the different ways in which you financially govern a company, the metrics you look at and so on, and this is really well explained. The “Marketing” section is a little weak, but ho hum – to the outside observer most of marketing is a mystery anyway 🙂
Nevertheless, I still found the second half a little thin. I was left wanting to know more, to understand the nuances, the subtleties of these changes, and the book ran out of pages at this point. There’s a slightly surreal moment on p150, in the marketing section where Tien states:
What you are holding in your hands is the work Zuora does in Room One, which is the story of the Subscription Economy.
I.e. Tien is explicit that the book is a marketing tool to create early interest in customers! Fine, but it does slightly undermine his story – he’s explicit that the book is basically just a marketing campaign to get people interested in buying a copy of Zuora in the future. Personally I’d rather have seen a book from a third party, a contractor or thought leader. In the DevOps and Continuous Delivery space, an independent offering like Jez Humble and Dave Farley’s Continuous Delivery book is far more insightful and impactful and has had a much longer shelf-life than I think this book will have.
Tien is the CEO of Zuora, a vendor selling subscriptions licensing software. In this sense it reminds me of a very similar book from Hubspot about “Inbound Marketing” from 2009. This latter book again was pretty evangelical about how every marketing org would need to throw out all the old marketing strategies to be replaced wholly by “Inbound marketing” – a concept sold by Hubspot who sell inbound marketing software. But with hindsight that was overstating the case; and this book from Tien Tzuo feels very similar. So he makes some great points – particularly around cultural changes that you need to address, to effect the changes needed in your company – but the book only really scratches the surface of the changes you need to make, and is really targeted at people who haven’t yet made the leap to a subscriptions-based business. If you’re already a long way down this rabbit-hole, you’ll be left wanting more insight and analysis by the end.