Payments

‘When you start, you don’t know people will pay’: Zuora is shifting ecommerce from products to subscriptions

  • New data shows that subscription-based companies are growing nine times faster than those in the S&P 500.
  • Zuora enables firms to transition their businesses away from products to subscription services.
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‘When you start, you don’t know people will pay’: Zuora is shifting ecommerce from products to subscriptions

When publishing platform Medium announced it was shutting down its advertising sales group as it pursues direct payments from readers, it wasn’t solely about the brokenness of ad-supported media. Something bigger is going on that speaks to all of ecommerce. The results point to a massive shift to subscription payments. New data shows that subscription-based companies are growing nine times faster than those in the S&P 500.

From owning products to subscribing to services

Customers no longer need to own products in order to use them. The sharing economy, popularized by firms like transportation-on-demand platform, Uber, is dramatically changing the definition of what companies do and how they provide value to their customers. Examples abound: GM, arguably one of the flag bearers of this old-school product-centric focus, no longer defines itself as a car company. The GM of the future is all about personal mobility.

The company launched Maven in 2016, which organizes its activity in ride and car sharing programs, including in-house technology development, the firm’s $500 million in Lyft, and its partnership with Uber. Users of the firm’s Maven app can personalize their transportation experience by accessing their music and maps in Maven cars via an integration with Apple’s CarPlay and Android Auto.

“Maven provides on-demand access, choice and ease of use. The right vehicle and right mobility service for the right trip at the right time,” said Julia Steyn, GM vice president, Urban Mobility Programs. “With more than 25 million customers around the world projected to use some form of shared mobility by 2020, Maven is a key element of our strategy to changing ownership models in the automotive industry.”

Putting customers in the middle of the business model

Subscription companies growing faster
subscription companies growing 9x the S&P: Zuora

Powering payments for companies making the transition from products to subscriptions is Zuora. The 10 year old company services three types of enterprise customers, including technology players, media and entertainment firms, and companies undergoing big, transformational moves to subscriptions. Zuora works with multinational manufacturing firms like Schneider Electric, NCR, and Arrow.

For media firms like Medium, moving to subscription commerce isn’t as simple as ripping out ads or replacing buy now buttons with recurring payments. The entire focus of the business changes, and it begins by treating users as more than just a set of eyeballs.

“We don’t define subscriptions as just charging a monthly fee. It all begins by putting the customer at the center of your business model,” said Tyler Sloat, Zuora’s chief financial officer. “Then you have to figure out how to acquire customers, engage them, and after earning the right, to monetize them.”

Designing the offering and optimizing pricing

One of the major challenges in moving to subscription commerce is determining the optimal product and pricing mix. Its early work with large firms transitioning to this new model gave Zuora insight into just how hard it can be to get a subscription offering right. “When a company launches a subscription for the first time, you can’t be sure that people will pay,” said Sloat. “Until you start charging a customer, you really don’t know the assignment of value he places on what you’re selling.”

To begin the transition to subscriptions, product-centric firms need a whole new set of metrics. Late in 2016, the payments company launched its Insights product. By crunching financial, behavioral and demographic data, Zuora can now help clients develop a deeper understanding of their customers, using metrics like usage intensity trends, user similarities, engagement level, churn probability, and user personas. Companies can then begin testing how this information impacts growth of new subscription products until they ultimately find what works best.

Subscription in the media industry

Medium’s move away from ad-supported content was really more a statement about its entire business model. Putting readers at the center is certainly a departure for media firms that have had to employ sensational headlines and annoying page breaks to juice pageviews. For media firms reliant on ad revenue, the tradeoff  had always been choosing just how far to sacrifice the customer experience to keep advertisers happy.

Not everyone thinks that media firms will be able to successfully wean themselves off advertising and cross the payment chasm. “Medium’s move from ad-supported to subscription supported is just out of the frying pan and into the fire,” said Wheeler Winston Dixon, a professor of film studies at the University of Nebraska, Lincoln. “With so much free content available on the web, I think people will resist the idea of paying any subscription fee at all for content, especially when Google News offers more than 90% free content, supported by ads. People just get AdBlocker, and view it for free.”

For now, Zuora is doing more than just processing recurring payments for subscription businesses — it’s helping businesses experiment with the model. Sloat thinks Medium and other firms will find that it’s not one-size-fits-all and that the attrition that comes with putting up a paywall can be mitigated by making multiple offers.

“Medium can look to Adobe’s launch of its own subscription product,” he said. “The company saw the writing on the wall and that the business was moving away from buying software. But it rolled out its subscription product, including some products in the subscription and excluding others, as it gradually migrated users away from licenses and upgrades.”

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