Subscriptions in the Mirror Are Closer Than They Appear

by Tien Tzuo

VentureBeat recently asked me to provide a C-level briefing on the shift to the Subscription Economy which was just posted today.

It was great working with VentureBeat because they just get it. We had some great creative conversations to challenge some long held conventions at the heart of this transition and just what that means to old-school product businesses that will need to adapt to new subscription models.

While drafting the article, it was truly inspiring to think about just how far we’ve come in such a short period of time. Something big is happening and it’s as big as the “no software” vision we evangelized at salesforce.com. Just look at what’s happening:

• ZipCar’s market is expected to grow to $3.3 billion by 2016, leading the company to file for an IPO.
• Cloud computing’s pay-for-what-you-use model is disrupting the 1.4 trillion technology industry.
• Newspapers and magazines are rejecting the doom-sayers and moving to online subscription and billing models.
• Software-as-a-Service is beginning to dominate the entire software industry.
• Consumers are shifting to “membership” models of music and entertainment such as Pandora and Netflix.
• Emerging telco’s such as Vonage and Open Range are changing the face of home phone services.

At salesforce.com, we had a saying that people overestimate how much change can happen in a year, and underestimate the change that can happen in ten years. The subscription economy is upon us, and before you know it, everything will have changed, again.

Zuora’s June '10 Release: Major new functionality allows Z-Customers to accurately track payment operations and improves

by Clement Wang

Once again, like clockwork, we’re pushing out our monthly release. We’re especially proud of our June 2010 release as it is the culmination of a couple of major features that we’ve been working hard on for a while now. Two of these features (our Z-Force 360 Improvements and our Payment Operations functionality) have been in preview with our lead customers who have been providing direct feedback about the features before we make them generally available. Highlights below:

Payment Operations (Refunds): Refunds and credits are a necessary part of doing business in a subscription economy. The ability to handle refunds and credits accurately and promptly are key tools for improving customer satisfaction and reducing churn. Of course, managing these properly is important, which is why our refunds functionality includes the following:

• Maintain control and financial auditability
  • Allow only authorized users to issue refunds
  • Issue and track both electronic refunds on credit card payments as well as non-electronic payments
• Respond quickly to Customers
  • Refund credit card payments directly to your customer’s credit card through a payment gateway like PayPal, or Authorize.net
• Prevent Errors
  • Intuitive user interface ensures that users know exactly what refunds they are applying
  • Internal users can view all transactions that impact an invoice including payments, refunds, and adjustments
  • Refunds can be applied across multiple payments simultaneously
• Clearly communicate to your end-customers
  • All payments, refunds, and credits that impact their balance can be made visible to end customers on their invoices
  • Refunds are fully-supported by our Z-Commerce API to allow easy access via a web-based portal.

Zuora customer TLC Innovations rolled out refunds during our preview several months ago, and had this to say: “With Zuora, we now have visibility not only into our subscriptions and income, but also into our refund requests,” said Tess March, CFO at TLC Innovations. “This helps us flag potential issues and reduce churn.”

Z-Force 360 Enhancements: Z-Force 360, our Salesforce.com integration built 100% natively on Force.com, is one of our most popular modules. Our customers use it to make sure that their front-office folks and executives who use Salesforce.com (SFDC) have a full view into their customers’ subscriptions, renewals, products, invoice status, and other important information.

With this release, we are improving our native SFDC integration to support:

• Scheduled Sync: Automatically synchronize the latest data between Zuora and SFDC to ensure users see up-to-date information
• Performance Improvements: We have greatly improved the performance of our synchronization so that customers with large amounts of data can synchronize their data in a fraction of the time that it used to take

As Willie Wang, VP of Products at Codesion stated, “Our customer teams live in Salesforce.com, so being able more easily ensure that the data they are seeing is always up to date really helps improve our responsiveness to customers.”

Invoicing Improvements: Based on customer feedback and our larger payment operations feature, we’re making more data available on our invoices to allow greater flexibility in presenting information to end-customers. For Zuora customers like Suzann Sylvester at TopCon, who have complex bills with many charge items, it is especially important to be able to control the way their billing information is presented to their customers to avoid questions and reduce errors. Among the improvements we’re introducing is a unified transactions table which shows all transactions (including payments and refunds) that have been applied to an invoice, allowing our customers to present an “at a glance” view of the exact status of the invoice. In addition, we’ve improved the sorting of charges on the invoice to make it easy for recipients to understand what they are being billed for.

For more information on these new features, check out our New Feature page:
http://www.zuora.com/company/subscription-management-new-features.html

Learn more about these features and others in our new release at our Live Monthly Release Webinar on Thursday, June 10 at Noon PST. Click on the link below to sign up:
http://info.zuora.com/FY11Q2-JuneCustomerWebinar-NewFeatures.html

Congratulations to ZipCar: Another Billion Dollar Subscription Economy in the Making

by Tien Tzuo

Our regular blog readers know we are a big fan of Zipcar. Why? Because we believe they are a poster child for the Subscription Economy. Tens of thousands of people all over North America have realized that they no longer need to buy cars -- or have to pay for gas, parking, insurance, oil changes, and get stuck with the same old car. Instead, they subscribe to Zipcar and get access to a fleet of tens of thousands of cars in all the major cities in North America. Talk about the power of rethinking your business around the service you provide, versus the product that you sell.

Well, a big congratulations to Zipcar for a major milestone -- filing an S-1 to go public.

What caught our eye, though, is the following stat. The car sharing market is expected to hit $3.3 billion by 2016. $3.3 billion. That's a lot of revenue to be siphoning away from GM, Toyota, and Volkswagen. But after we reported that we shifted over $1 billion in our first quarter to the subscription economy, we can't say we're really surprised.

Zipcar's announcement also got us thinking: could the $3.3 billion estimate actually be too small? Could a big auto manufacturer reinvent itself as a major player in the car subscription market? We don't think that idea is too farfetched. Just look at BMW. Whether they realize it or not, BMW already has one foot in the subscription economy. In 2008, over 60% of BMW's revenues came from its leasing business. When you lease a BMW, you pay a one-time set up fee, and then a monthly fee over the life of the contract, the amount changing depending on how many miles you commit to driving each month. Oil changes and maintenance are included in that price. That sure sounds like a subscription business.

But when you compare BMW to Zipcar, it just doesn't match up. With Zipcar, I might drive a Toyota Matrix one day and a Mazda the next. If I'm a BMW lease customer, why can't I switch from a 3 Series to an X5 for two months, and just pay the difference? If I'm out of town, why couldn't I pick up a BMW for a few days from the local dealer? And why do I have to commit to driving 36,000 miles over the 3 years, and get hit with enormous overage charges if it turns out I drove too much?

These differences highlight the big challenge that some old-economy companies will face as they move to a subscription model. It’s not about slapping a new pricing label on your offering. Sometimes, it takes a fundamental rethinking of your business. Could BMW shift their entire sales model to the subscription economy? Or what if BMW bought Avis? Now that would be interesting...