The Subscription Economy

The Subscription Economy

Our Conversation with “Subscription Economy” Pioneer and Zuora (tkr: ZUO), Co-Founder & CEO Tien Tzuo

This article serves as a follow-up to our earlier article: “Every Company Should Consider Adopting A Subscription Revenue Model
  • We favor subscription revenue models for a variety of reasons:
    • Providing a better service: Subscription models (aka – “usage-based models” or “consumption-based models”) align value provided to the customer with customer payments. The Cloud is tailor-made for usage-based services. Consider Netflix. The company’s content recommendation engine suggests content that you are likely to enjoy based upon your viewing history and preferences. Consider any one of a number of services that make wine recommendations based on your wine consumption history and preferences. The cloud enables companies to: 1) observe customer usage 2) to refine service elements that users value most. The output is growing a better service, which leads to greater customer loyalty, predictable revenue and a stronger competitive moat.
    • Greater strategic flexibility: Subscription revenue models provide companies with superior revenue visibility and operational predictability – enabling them to take a longer-term strategic approach to capital allocation.
    • Premium valuations: Investors award valuation premiums to subscription revenue companies vs. upfront license revenue models which lack predictability and can be volatile.
    • Usage-based models are becoming the norm: In many cases customers prefer to engage with companies via consumption-based models vs. paying for everything upfront. Auto OEMs, content providers (video games, feature film, episodic television, live sports, newspapers), ride share, short-term office rental – you name it – subscriptions are where it’s at.

Subscription Economy Pioneer

Recently we hosted our TEK2day Podcast with a special guest, Tien Tzuo, co-founder and CEO of Zuora (tkr: ZUO). Zuora leads the charge for “The Subscription Economy”, a phrase coined by Tien. You may find a copy of his book “SubscribedHERE. Our TEK2day Podcast episode with Tien is below:

Zuora provides cloud-based software on a subscription basis that enables any company in any industry to successfully launch, manage, and transform into a subscription business. Prior to founding Zuora in 2007, Tien was an early employee (number 11), at SaaS pioneer (tkr: CRM). We initially met Tien at Zuora’s old offices way back in 2008 when Zuroa had only 30 employees. Today the company is publicly-traded (priced IPO April 12th 2018, $14).

source – Zuora. Non-linear order-to-cash processes in the subscription economy.

  • In fiscal Q4 (FYE Jan. 31, 2019) Zuora reported:
    • Total Revenue of $64.1 million (up 29% year-over-year).
    • Subscription Revenue of $46.7 million (up 35% year-over-year).
    • Transaction Volume of $10.8 billion (up 56% year-over-year).
    • Approximately 50% of Zuora’s customers come from outside the Technology industry.
    • In addition to the core business – the “Zuora Central” platform – we are excited for the recently announced technology investments that will occur at the infrastructure layer (see announcement), further embedding Zuora with its customers. Per Tien’s comments, Zuora is working to become the OSS/BSS for the subscription economy.

Subscription Economy Index

Zuora’s thought leadership includes the Subscription Economy Index (“SEI”) which Zuroa publishes twice per year. You may find a link to the SEI HERE.