Tag: Tien Tzuo

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.
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