I recently shared a Harvard Business Review article, “What Belongs in Your Basic Bundle,” that talked about a concept called “Biphasic Monetization Strategy.” I got a ton of responses, but also some questions, so I thought, why not go talk to the author.
Now, that author is none other than our very own Stamos Kanellakis of the Subscribed Institute, and I found him on a hilltop in Greece, surrounded by goats, enjoying a well-deserved vacation. Stamos was enjoying a nice view, which is appropriate, because it’s Stamos’ job to stand a little higher, and see a little farther, than most folks.
Tien: Stamos! Good to talk to you. Let’s start with your background — tell us about your role as the Senior Strategist for the Subscribed Institute and Subscribed Strategy Group.
Stamos: Hi Tien. It’s a great job; I get to work with and advise some of the most recognizable brands in the world on how to launch subscription services. Recently that’s included:
A top-3 US automaker launching Advanced Driver Assistance Systems (ADAS)
A leading US consumer robot manufacturer transforming to a Product-Repackaged-to-Recurring (PRR) business model that increases loyalty and retention
A leading provider of digital immersion and training services for aviation, defense and security launching a Product-Extended-by-Services (PES) that creates more sustainable and predictable revenue streams
And there’s a lot of pressure involved. While many of these companies are relatively new to this model, they’ve still set aggressive financial goals.
These brands know they need to pivot to services and recurring revenue models. They realize that this is the way the market is headed. But then again, much of this is relatively new to them — often the people I work with have job descriptions that didn’t even exist a few years ago.
Tien: And that’s where you come in! Now, in that context, what exactly is a biphasic subscription monetization strategy? It sure is a mouthful.
The biphasic subscription monetization strategy is a two-step approach to rolling out subscription-based services, in which: 1) businesses roll out novel services as standalone offerings and quickly monetize them by targeting enthusiastic consumers, before 2) adding those services to pre-existing bundles combined with more mature services and monetizing them over time with the broader consumer base.
Tien: Can you give me an example?
Think of the way streaming services are monetizing big new movie releases. Marvel’s The Avengers from 2012 is included in the basic Amazon Prime membership (it costs nothing as a Prime member). But the most recent installment in the series, Avengers: Endgame from 2019, will cost you $3.99 to rent. Similarly, Disney+ monetizes the Cruella premiere for $30 (an acquisition tool), and after a window of time, it lives in happy perpetuity in the archive (a retention tool). Tesla rolls out its new self-driving service as a standalone subscription for $199 a month, after which it will no doubt become commoditized and absorbed into the vehicle itself or a broader bundle of car-connected services.
Tien: Got it, so this is a way of monetizing new innovations for your subscription services. If a company doesn’t have a subscription service yet, or is just launching for the first time, when and how would they start thinking about a biphasic strategy?
Companies actually can and should start executing a biphasic monetization strategy right from the get-go, simply because it requires a constant and systematic flow of innovation. One key point is that it helps to think in binary terms when designing a new subscription offering. Ideally, you launch with a compelling, novel service that commands a standalone price, along with a standard bundle of basic services. That hot, new service will eventually wind up embedded into the basic bundle, only to be replaced by the next hot, new service, and on and on. You need to set up this innovation cycle right from the beginning if your objective is to generate recurring revenue streams, which is at the core of the subscription-based business model.
For new ventures that lack data to inform the ideal bundling strategy, a qualitative exercise rationalizing key features and how they should be packaged can serve as a directional second-best solution.
Tien: This sounds like it requires specific expertise to get started. How would a company implement this?
You are right. This is not easy and only those with a relentless desire to succeed pull it off. I recommend taking these three steps.
First, companies need to prove the benefits of this biphasic monetization strategy by qualifying new services against 13 attributes that make up what I call the Unified Subscription Adoption Model (USAM). I developed the USAM as the first hybrid framework for assessing the end-to-end potential of subscription offerings, combining two widely recognized technology and product adoption models, but adjusting their core attributes to better match the idiosyncrasies of subscription-based offerings.
At the same time, companies need to take a hard look at their service portfolios and resist “going all in” by bundling everything together. More services in the bundle doesn’t necessarily justify a higher fee or guarantee additional subscribers. Instead, the approach should be outcome-based — services should be bundled together based on the outcome they help subscribers achieve.
For instance, an automaker could bundle safety-related services such as remote theft alerting, remote passenger monitoring, collision prevention and collision mitigation, since all four services drive a common outcome: driver and car safety.
Tien: Right, so in this case, the outcome would be safety, so you wouldn’t want to bundle in, say, performance features like “Insane Mode.”
Right! Finally, you should identify that novel service with enough intrinsic value to stand on its own. How about an in-car, voice-enabled digital assistant? Now, you have the whole package to execute the biphasic monetization strategy.
Tien: A lot of the companies you work with are entering an existing marketplace. Any advice there?
The importance of both the USAM and the biphasic monetization strategy becomes even more apparent when entering mature markets.
First, USAM is absolutely required because the model’s output will help you assess the market maturity and likely adoption potential, in addition to the quality of the service itself. So it will decrease the risk of launching a novel service in a market not yet ready for it, or trying to monetize a mature service without enough intrinsic value to justify a subscription fee. Both scenarios can be detrimental to a new subscription launch.
Second, having a biphasic monetization strategy means not putting all your eggs in one basket. Provided you are considerate about which service to launch as a standalone offering and which services should be bundled together, the risk of catastrophic failure is significantly reduced. Simply, the strategy gives you more levers to work with.
Quibi is a prime example of a service that failed to live up to subscribers’ expectations for many of these reasons. Although numerous factors played into the streaming startup’s fast ending, from a subscription standpoint, the service could have reached a different trajectory if the initial offering was assessed against USAM. Low scores tied to functionality, usefulness and desirability could have served as early signals that more work was needed to guarantee a successful launch. A biphasic monetization strategy also could have provided more flexibility to adjust after receiving negative feedback from the market.
Tien: So, given the focus on revenue, would you say this is primarily a financial tool?
The biphasic approach makes sense beyond financial reasons (helping you avoid leaving money on the table and generating multiple revenue streams). It also bakes innovation into your offering. To avoid losing that secondary revenue stream generated by the novel standalone service, it forces you to think smarter and farther than your competitors, and keep coming up with cool new services. The strategy also has many positive side effects.
For example, launching a novel subscription service to a narrow segment of your overall customer base (e.g. enthusiasts with higher purchasing power) gives you an opportunity to obtain direct feedback and make improvements before you offer it to your wider customer base. It can also provide you with a quick win to strengthen the business case for change, especially if you are pivoting from a product-centric to a service-centric business model.
Tien: You mentioned that not everyone can pull this off. What are the absolute prerequisites?
That’s right. For biphasic monetization strategies to succeed, companies must:
Create and maintain a constant flow of innovation
Study their subscribers, starting with their journeys
Identify and track KPIs, both leading and lagging
Analyze subscriber acquisition and retention drivers
Track the perceived and actual value of their services
Then there is one more thing, possibly the most important of all.
Tien: What’s that?
As you know better than me, transformation is a journey, and at Zuora, we call it the “Journey to Usership.” As we say in Greek, you need to have an “orama,” a vision that will inspire you to keep going and overcome any obstacles. Just like the one I am having from this hilltop in Greece!