Subscriber Management

Goodbye, Ownership. Hello, Usership!

Goodbye, Ownership. Hello, Usership!

This story original published in WWD and written by Tien Tzuo, chief executive officer and cofounder of Zuora and the author of “SUBSCRIBED: Why the Subscription Model Will be Your Company’s Future — and What to Do About It.”

The signs are everywhere — ownership is on the outs. From Spotify’s IPO to Amazon Prime hitting a hundred million memberships to Lyft’s new monthly pass, more and more people are opting for fluid services rather than static products. In fact, our physical world seems to be rapidly diminishing all around us. Companies aren’t buying buildings, they’re renting from WeWork or Servorp. Teenagers aren’t saving up to buy cheap cars, they’re catching rides with their phones. Even the malls are disappearing. The world is switching from capex to opex.

Our physical world seems to be rapidly diminishing all around us. Why is this happening now? Many people point to the shifting consumption patterns of Millennials, but at this point, we should probably give the poor Millennials a break. They’ve suffered enough analysis. This is an increasingly cross-generational shift. If you’re not interested in care and upkeep, preferring access to ownership is just basic common sense. The bigger picture here is that the dominant economic model of the last 150 years is coming to a close, and it’s about damn time.

Since the rise of industrial production, we’ve operated under a straightforward asset transfer model. Companies built and sold physical products. The fundamental goal was to create a hit. Once that was achieved, then a company could spread its fixed costs over as many units as possible, so it could compete on the all-powerful margin. At least that’s what I was taught in business school back in the Nineties (it was really bad advice, even back then).

Of course, this entire system was predicated on planned obsolescence. The revenue model depended on us repurchasing products that were specifically engineered to expire after a fixed period of time. Back in the days of Thomas Edison, lightbulb companies actually competed on how many hours their lightbulbs could last (no doubt some MBAs soon corrected them). We were expected to fill up our lives with disposable stuff on a regular basis. Is it any wonder that people are starting to get tired of this approach?

Our new “subscription economy” is far better for everyone for all sorts of reasons. For starters, the explosion of all these digital platforms has enabled consumers and businesses to effortlessly extract the services that sit behind the products we use on a daily basis: music from records, mobility from cars, software from servers. Sweden’s Husqvarna, for example, runs a network of automated storage units that allow people to rent garden tools by the hour. We get to experience the value without bothering with the expense and hassle of maintenance. We get to enjoy the milk without having a cow.

Secondly, in this new model, sustainability and environmental responsibility change from a “nice to have” to an actual economic imperative. In service models, the manufacturer handles the logistics and the equipment (General Electric famously pioneered this concept by offering their jet engines on a “power by the hour” basis). If they don’t make sure that their equipment lasts as long as possible, and that the materials used to build that equipment are recycled or repurposed effectively, they will lose out to their competitors. It’s that simple. When companies become more efficient, the planet benefits.

Third, when companies work smarter at offering the best services possible, all sorts of opportunities open up. There’s more discovery on the consumer side — we get to uncover new music to play, new meals to cook, and new clothes to wear, without throwing more junk into landfills. On the enterprise and manufacturing side, new analytic services are enabling companies to work smarter and “unlock” billions of dollars of unrealized value. The global economy has been desperately searching high and low for growth for years — as it turns out, we’ve been sitting on top of it the entire time! All these remarkable new acronyms we’re hearing about (AI, IoT) are turning into utilities like power or water, that companies can access at the flip of a switch. Services turn economic potential into kinetic commercial activity.

Which leads me to my final point — services bring growth. And not just growth, but sustainable growth. Today’s economy is rife with all sorts of foment and arbitrage. Take a look at taxi medallions, or Gillette stock. Product companies based on discrete, anonymous transactions are particularly susceptible to the whims of the market. Companies that have direct relationships with their customers avoid boom and bust product cycles and greater macroeconomic havoc. A happy subscriber base is the ultimate economic moat.

There will always be conspicuous consumption. Large numbers of people will always try to define themselves by what they own, as opposed to how they act. And how can you blame them? That’s how the old model worked. But a new economic model built around access and services is catching fire across every industry on the planet, because of access, sustainability, discovery and growth. And that’s why this new model is here to stay.

A Guide to Understanding GDPR Implications For Subscription Businesses

By Catherine Moore, President and Managing Director for J.P. Morgan Merchant Services Europe and William Long, Partner and head of the European Data Protection Practice at Sidley Austin LLP.

In the Subscription Economy, millions of people work, shop and play online every day, leaving behind volumes of data that can include sensitive information. A study by IDC estimates that by 2020 there will be 5,200GB of data for every consumer on earth. In total, that works out at 40 zettabytes, or 57 times more than every grain of sand on every beach.

Regulators have increasingly become concerned with how companies capture, manage and protect the swathes of data they hold on their customers. Within the European Union (EU), these concerns have resulted in the General Data Protection Regulation (GDPR), a new regulation which aims to give consumers greater rights and security over how their data is used.

GDPR is the most comprehensive framework of its kind in the world and will have profound implications not just for businesses operating in the EU, but any that hold data on EU citizens. Companies in breach of GDPR could face severe fines, and with an implementation date of 25 May 2018, time is running out to ensure compliance.

Subscription businesses, which frequently come into contact with sensitive customer information like payment details, will have to be especially ready.

WHAT IS GDPR?

GDPR will effectively replace the EU Data Directive, which was established in 1995, during the early days of the internet, but is now considered inadequate to deal with current challenges. This is understandable considering the average smartphone today has 10x more processing power than a PC in 1995, while eCommerce sales are over €500 billion a year in Europe alone.

The new legislation establishes guidelines on how companies should handle customer privacy, store data securely, and respond to security breaches. It also attempts to offer a unified standard of operating across Europe so that companies do not have to deal with several regulatory environments.

For the first time, obligations will be placed on data controllers and data processors. In other words, GDPR will affect not just an organisation (the controller) but also its outsourcing provider (e.g., a cloud computing company, or a third-party payment provider). Previous legislation placed responsibility solely on the controller.

GDPR also addresses the export of personal data outside the EU. The legislation makes it clear that it does not just apply for European companies, but any business processing the data of EU citizens, even if not based in the EU.

DATA MANAGEMENT, PORTABILITY AND CUSTOMER RIGHTS

At the heart of GDPR are a number of changes to the way that customer data is handled. Under the legislation, customers will have to give explicit permission for companies to hold data about them. But that’s not all, companies must also provide evidence that this consent has been given. One potential implication is that companies may have to alter their auto-renewal and subscription payment processes.

Companies can no longer store a customer’s personal data simply because it may prove useful in the future, or so they can pass it on to another provider. From now on, the responsibility will be on businesses to justify why they’re retaining customer information, otherwise it may have to be erased.

Subscription businesses will particularly be impacted by this since they store a variety of data that helps them gain insights into customer behaviour such as usage, profile, etc.

GDPR: KEY IMPLICATIONS FOR SUBSCRIPTION BUSINESSES

  • Consent: Companies will have to actively get consent to store a customer’s personal data.
  • Customer profiling: New restrictions on using data for customer profiling
  • Security and data breaches Data breaches have to be reported within 72 hours of discovery.
  • Data portability: Consumer has right to request transfer of personal data in certain circumstances.
  • Data transfer: Prohibitions on transferring data to non-EEA* countries without adequate safeguards.* The EEA includes EU countries and also Iceland, Liechtenstein and Norway. It allows them to be part of the EU’s single market.
  • Right to be forgotten: A business must erase an individual’s personal data in certain circumstances.
  • Security: Businesses must have security systems that are appropriate to the level of risk.

Businesses will need to implement new policies on data retention and deletion, particularly when customers do not give them permission to store data about them. The “right to be forgotten” is a particular challenge for organisations because of the rich web of information that’s held in databases. Whereas companies may have previously been concerned about how to store and archive information, now the focus is turning to what information is held and how they can access it. For example, a merchant may have to remove someone’s personal information from all of their payment transaction record histories; if they so request.

It’s also important to realise that data does not just mean information held on a database. GDPR makes no distinction between physical and digital data: it could be customer details held on paper, or in old files at a warehouse, for example. This would now have to be made available in the event of a consumer request.

TIMESCALE

Given that GDPR becomes law in May 2018, businesses should already be looking at how GDPR will have an impact on their procedures. Under the regulation, firms can face fines of €20 million or 4 percent of global revenues, whichever is greater. And that’s just for ‘serious breaches’. Such things as failing to keep proper breach logs, or failing to report a breach within a set timescale, will carry fines of up to €10 million or 2 percent of global revenue.

GDPR also allows individuals to make a claim for damages for non-financial loss. Companies, and third party payment providers, who may unknowingly store credit card details, are frequent targets for attacks by cyber-criminals so they will have to ensure especially tight protocols in this regard. Payment providers may also start offering value-added data protection services as a means of reducing the investment required by businesses, and helping them win more business.

One area that will also be changing is the credit card authentication standard PCI DSS. Although this is unconnected to GDPR, a new standard, PCI DSS 3.2 is set to become operational in February 2018. Companies who implement this standard will be some way to becoming GDPR compliant, at least as far as payments are concerned. For example, multi-factor authentication (MFA) becomes mandatory in PCI DSS 3.2, offering retailers a way of protecting customer personal details.

CONCLUSION

Companies are going to have to radically rethink the way they do business. There are obvious ways in which organisations will have to change, e.g., in obtaining customer consent and shifting data retention policies. But there are more subtle changes too: there will need to be a shift in company thinking, to ensure that customer concerns are at the heart of company policy.

GDPR could entail huge volumes of work: from amending contracts to make them compliant, changing privacy policies and notices, and altering company procedures to deal with data subject rights.

The organisational changes will mean greater transparency and will also offer more security for customers. Companies that act quickly and robustly in implementing these changes may also find they will benefit from a greater degree of trust from their customers.

In short, implementing GDPR may mean major changes but it should benefit businesses and customers alike. Don’t delay, however, the time for action is now: companies who haven’t started thinking about it, may find it’s already too late.

Torstar to move to a subscription model, charge readers for online news

Excerpts from the article by Emily Jackson on Financial Post

Torstar to move to a subscription model, charge readers for online news

Torstar Corp. plans to charge readers for online news once more in its latest strategy to recover after the internet disrupted the newspaper industry.

Chief executive John Boynton announced Wednesday that the media company, owner of the Toronto Star and dozens of other publications, will move to a digital subscription business model, emulating recurring revenue models in industries such as music and entertainment.

“In some cases, it turned around entire industries,” Boynton said at the annual general meeting in Toronto, pointing to Spotify and Netflix as success stories.

Boynton did not reveal details on the subscription model, including when it will launch or how much it will cost, but said it will apply to the Toronto Star and StarMetro brands. The Globe and Mail and the National Post already use online subscription models.

This marks the Star’s second foray into charging for access to online content. In August 2013, it launched a paywall that asked readers to subscribe for $9.99 per month. It dumped the paywall less than two years later because it couldn’t get enough people to sign up. It subsequently launched subscriptions for Star Touch, a tablet app, but axed that product after sinking $23 million into the experiment.

But Boynton, who was hired last spring to help the company transition to digital, is convinced it will work this time thanks to better technology, shifting attitudes and leadership changes.

Read the full article on Financial Post

Stripe launches a new billing tool to tap demand from online businesses

Excerpts from the article by Matthew Lynley on TechCrunch

Stripe launches a new billing tool to tap demand from online businesses

As more and more spending moves online — whether that’s shopping or subscribing to services like Netflix and Spotify — there’s increasing demand for tools that allow those companies, especially smaller ones, to start getting paid.

Stripe  has made its name by providing developers with a simpler way to start charging customers and handling transactions, but today they hope to take another step by launching a billing product for online businesses. That’ll allow them to handle subscription recurring revenue, as well as invoicing, within the Stripe platform and get everything all in the same place. The goal was to replace a previously hand-built setup, whether using analog methods for invoicing or painstakingly putting together a set of subscription tools, and make that experience as seamless as charging for products on Stripe.

“These large enterprise companies have the resources to build internal recurring billing in house,” Tara Seshan, PM on the billing product, said. “Even then they would tell us what challenge it would be. What we did was took a step back and think about, how should this work, how can we make billing tools that are only available to enterprises be available to everyone. That meant something really flexible and really easy to implement. If you’re [running a small operation], you should have the same subscription tools as Spotify. What we have here is a set of building blocks so you get the speed and flexibility you need.”

Indeed, a lot of the Internet has slowly but surely shifted to a subscription model. There’s even a good chance that even the phone you have in your pocket is paid for in an annual subscription to amortize the big ticket price of that product over the course of several months. Larger companies have had these tools in place, but it’s a traditional very startup-y problem to just not have the resources to build them even by cobbling together online payments tools in order to get these running. Startups often have a long list of priorities, and they need to start generating revenue immediately if they want to continue growing.

This launch is, in part, a response to customers demanding a billing product that gets all these invoices and subscription expenses into a single spot. Stripe at its heart is an enterprise company, which means it has to keep close tabs on the needs of its customers while still balancing the needs to continue creating new products that small businesses didn’t realize would actually solve those problems in an elegant way. That’s especially true when it comes to Internet-oriented businesses, which are often changing their business models over time, Seshan said.

“Unlike something like Instagram or Facebook, where you’re doing analytics A/B testing voodoo to figure out what you should build, with Stripe, our businesses know what they want,” Seshan said. “They have clear requests, so we’re much more inclined to listen to our users as opposed to sitting in an ivory tower coming up with a strategy. As they look to add new products, that applies to the startup selling fast and iterating to the large tech companies about to launch a new subscription line or about to add a “for work” side of their product. What we saw often was that billing was the limiting factor to getting a product to market.”

In addition to all this, Stripe looks to apply the machine learning tools it’s created for things like fraud prevention into a new area of expertise. One example of this is figuring out when to intelligently retry a recurring billing charge, which may fail for any number of reasons. Stripe tries to get around problems like lost credit cards or anything along those lines to try to keep the experience as seamless as possible. Seshan said Stripe businesses that implement billing see a 10% increase in revenue — which, for flipping a switch, is pretty substantial.

As companies get bigger and bigger, they will also likely graduate beyond just a simple subscription. An enterprise software company, for example, will probably have to start targeting larger customers that have a salesforce and a different approach for implementing new technology. That means getting invoice-level revenue, which has different implementation requirements than just normal subscription billing. In that case, it’s not like the CIO of a Fortune 100 company can just put a credit card number into a billing service, as those require more robust research and a partnership in place.

While this is a tool that’s a natural fit for something like Stripe, it’s certainly one that’s created a substantial business opportunity. Last month, Zuora — an enterprise subscription services company — filed to go public amid a fresh wave of enterprise IPOs that included Dropbox and Zscaler (and also, to a certain extent, Salesforce’s big acquisition of Mulesoft). Zuora’s subscription services revenue continues to grow, showing that Stripe will certainly have competition here, but also that there’s a large market opportunity.

Read the full article on TechCrunch

Why subscription sports sites have scored early wins

Excerpts from the article by Max Willens on Digiday

As publishers cast about for reader revenue in a tough digital ad market, many are finding that local sports coverage, which attracts especially passionate, engaged readers, is a good game to be in. For that reason, sports has emerged as a critical test case for the proposition the future of digital news lies in reader revenue rather than advertising.

The most prominent player in the space is $48-a-year subscription-based outlet The Athletic, which claims 100,000 subscribers and just closed a $20 million funding round led by Evolution Media, bringing the total amount of capital it’s raised to $30 million. Elsewhere, there’s DK Pittsburgh Sports and the 7-month-old Boston Sports Journal, which charge up to $35 for a year’s subscription. Hook ‘Em, a paywalled sports product that the Austin American-Statesman launched in 2015, claimed 16,000 digital subscribers in the third quarter of last year, costing $3.99 a week in a bundle with its parent paper.

Their growth is also an encouraging sign for publishers who hope to focus on consumer revenue rather than advertising.

“One thing that’s abundantly clear in our industry is that free is not a business model,” said Todd Dybas, one of the co-founders of The Sports Capitol, a Washington, D.C.-focused subscription site that launched this March.

Read the full article on Digiday