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“Who Are Your Subscribers?” And 4 Other Questions Your IT Team Better Be Able to Answer

Excerpt from Subscribed: Why Your Company’s Future Is the Subscription Model and What To Do About It

Tien Tzuo
Co-Founder and CEO, Zuora

Everybody loves to complain about their IT department.

IT is a drag, a bottleneck, etc. Of course that’s all nonsense. When you really think about it, the last twenty years of IT has been pretty amazing. If the overall goal of an IT department is to increase a company’s efficiency by standardizing its business systems, then most IT departments have been remarkably successful at that effort. Back in the Nineties, they installed big ERP systems that finally gave their companies legitimate systems of record: Oracle, SAP, JDE, Peoplesoft, etc. Everyone was happy (well mostly everyone).

All of the sudden, IT got cool. Then this thing called “The Cloud” happened — suddenly, there’s an explosion of new plug-and-play SaaS business applications everywhere. At first, IT departments eyed this stuff warily, since the idea of businesses buying all these applications right off the shelf felt sketchy. But once their security issues got resolved, they realized that all these SaaS applications made them much more responsive. Need an easy to use expense management app? I’ll whip up one of those right away with Concur. Need a marketing automation tool? Marketo has you covered. Want to share and secure files more easily? Box to the rescue. Can you believe it? IT got even cooler! But lately, I grieve to report, there have been some bumps in the road. IT is starting to drag again.

Businesses are starting to ask questions that IT can’t answer.

Why? Because they’re based on stock-keeping units, not subscribers.

Here are 5 of the most common questions:

#1. Who are my subscribers?

Try asking SAP or Oracle how many active subscribers you have at any one time, and they’ll be stumped. The concept simply doesn’t exist in their universe. Systems of record for orders, accounts, and products? Sure. But ask your ERP how much upsell business you’ve done, or how many customers have renewed in the past year – and you’ll get a blank stare. ERP is simply not built around customer-centric transactions. And unless you can monetize customer relationships over time, you’re dead in the water.

#2. Can I price this service the way I want to?

A few years ago I was speaking with the digital lead at a large, respected newspaper, one of the first to establish a successful paywall. She told me they have offered only two pricing plans over the last ten years: standard and premium, both annual plans. They knew they could do better: what about a day pass for casual browsers, who only want to read a few articles? Sounded like a good idea. So they spent six months and lots of effort with the IT team to launch this capability, to huge fanfare. And what happened? Turns out it didn’t work. Which is fine in theory — it’s always good to experiment, but not if it takes that long. That’s when they realized that the only way to figure out the right pricing was to constantly try new ideas, and that six months to try an idea simply wasn’t acceptable. It’s really hard to experiment and try new things when all those experiments cost so much in terms of time and effort. Subscription services run the gamut from simple monthly recurring charges, to usage-based charges, to one-time charges, to “all of the above.” Meanwhile, a single price change in an ERP system can take months to implement. In the old world, if you wanted raise a monthly price from ten bucks to eleven bucks, for example, you’re going to have to wait a long time to find out if that was a good idea or not. That’s no longer viable. It’s imperative that subscription companies have the ability to conduct rapid A-B price testing when trying to gauge appetite for a new offering.

#3. Where’s the “Renew” button?

At their core, ERP systems only give you a “Buy” button for tracking transactions. The only problem is that subscriptions are constantly changing, as customers sign-up, upgrade, add-on, and renew their service. Unfortunately, ERP systems force companies to resort to hokey workarounds to get their pricing right, like creating a different SKU or entry in the product catalog for every month of the year, just so you can process monthly renewals. They’re missing the critical tools you need to process a subscription lifecycle over time. Let’s say you’re a language learning app that wants to introduce a new subscription service for executives who travel a lot. What would your ERP call this new service? Probably something like “February Service SKU.” Painful.

#4. Why can’t I sell to everyone?

Let’s say you’re a manufacturing company that successfully launches an IoT analytic service targeting big enterprises. So far, so great. But now that you’re selling digital services, you should be able to sell to small businesses and consumers as well, right? Not if your ERP system charges you $400 every time you need to send out a bill! Subscription Economy companies like and Box have found success by selling their services to everyone from individual users up through very large enterprises. They need tools for managing things like high volume recurring payments in the B2C world, as well as tools for managing high-complexity invoices and contracts in the B2B world. And those tools need to manage customers that may come through different channels such as web self-service, mobile devices, direct or channel sales or Facebook. Legacy enterprise technology makes you choose one or the other, when what you really need is the ability to sell B2Any.

#5. What’s going on with my financials?

Here’s another true story: a friend of mine took over as CEO of a SaaS company. He decided to run a little experiment, and asked both his finance team and his sales team for the company’s latest Monthly Recurring Revenue numbers. He got two wildly different numbers. And as it turns out, the sales team numbers were more accurate! Subscription businesses live or die by their ability to measure the ways that bookings, billings, cash flow, and revenue are interrelated. Unfortunately, this data lives in different software silos. Bookings fall into CRM, billings and cashflow lives in your GL or ERP system, and revenue is too often calculated in a series of complex spreadsheets. Good luck stringing all of that together. The list of unmet needs goes on and on. All of a sudden, IT is falling behind again.

After decades of focusing on standardization and helping their company scale up product businesses, IT is waking up to realize that those same systems are now too restrictive for the dynamic nature of the new subscriber centric business models.

So what’s the solution? IT organizations are realizing that they need to evolve their architectures to meet the new needs of their organizations. And what should the new architecture look like? Well, it should look like something that puts Subscriber IDs at the center of your architecture. Subscriptions are an ongoing dynamic cycle of actions: renew, suspend, upgrade, downgrade. So the subscriber actions need to inform the business systems for a subscriber-centric experience. The old daisy-chained systems just don’t make sense anymore.

Today, IT is where you compete. It’s where you spin up new services, new experiences. It’s where you set up test beds and experiments. It’s where you iterate and scale. It’s where you find the freedom to grow. And more and more business systems are enabling this kinds of freedom because they’re based on subscribers, not SKUs.

Excerpted from Subscribed: Why Your Company’s Future Is the Subscription Model and What To Do About It, by Tien Tzuo with permission of Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright Tien Tzuo, 2018.

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