|B/OSS Insider Blog|
Reinvent Your Business With Subscription Commerce
By Tom Dibble
When you think of subscription-based businesses, popular consumer-service companies like Netflix and Hulu likely come to mind. However, more traditional companies like Walmart are also turning to this approach to reinvent their business models, launching online offerings for a new generation of customers and generating predictable revenue streams for their investors and shareholders. According to a recent Incyte Group report, nearly half of all businesses in the United States currently have, are in the process of developing, or are investigating, recurring revenue offerings.
Financially speaking, subscription-based businesses make sense. They transition a company’s customer base from one-time purchasers to longer-term, repeat customers, which in turn generates predictable, recurring revenue. In recent years, investors have experienced many “feast or famine" days during corporate earnings cycles, which in turn led companies to question how they could better predict their ongoing revenue to secure dependable streams of cash. With the economy on the rise, investors are now placing a higher premium on the valuation of companies with recurring revenue business models. CBS investors, for instance, were undoubtedly happy with recent news about new revenue from syndication, online streaming services and subscription fees that helped the company report an 80 percent increase in profits.
Customers – whether they are consumers or business users – are increasingly favoring businesses that allow them to “subscribe" to products or services. The subscription commerce model enables them to try items before buying, to determine what value they deliver. And when ready, buyers want to pay for products and services as they realize the value based on their own personalized consumption, as opposed to paying up front for a “one size fits all" offering and (hopefully) realizing the value later. As this model also gives companies more real-time information about their customers at faster rates – providing deeper insight into their preferences – buyers expect companies to instantly tailor their offerings to the customers’ needs, no matter how unique or complex, or they will take their business elsewhere.
From a pure business perspective, competitive differentiation is also a key growth driver for subscription-based business models. If your competitors are opening up new revenue streams by leveraging subscription models, they will be significantly more agile in rolling out new initiatives or expanding to new markets. Smaller, more nimble competitors are also likely to leverage modern technology platforms like cloud computing to quickly launch their subscription management strategies. This helps to ensure faster time-to-market for new services as well as controlled costs, while also mitigating fears of cannibalizing traditional, non-subscription models.
Established companies are taking note. Increasingly, these companies are betting on SaaS-based subscription management to be their competitive enabler. Walmart, the world’s largest retailer, recently announced plans to implement a subscription-based sampling program. The “Goodies" program will allow Walmart to monitor the popularity of new artisan goods by tracking the subscription service’s reorder activity. Depending on the traction of the program, it’s possible that marketers may be willing to pay to include their products in future baskets – raising revenues even further.
When implementing a subscription strategy, companies naturally focus on their offering and how to acquire new customers. Just as important, though, is the technology infrastructure needed to support billing and collections, up/cross-sell and overall customer retention to ensure optimal monetization. Underestimating the complexity of doing this right can be a costly mistake. Traditional IT systems are not optimized for these new types of recurring revenue models. Integration with existing enterprise systems such as financials and customer support applications like CRM are critical to making recurring revenue systems work effectively. Additionally, this integration provides a positive user experience by leveraging data about customers across the organization. As such, companies are increasingly turning to cloud-based solutions to seamlessly integrate with other, existing systems and scale as needed, rather than build complex internal systems or try to retrofit legacy billing systems.
Subscription models are cost-effective. When considering a subscription-based business, you might think it implies higher support and customer care costs because of the ongoing relationships with customers, versus only touching them at point of sale. However, automating various customer touch points and offering customer self-service options enable higher customer satisfaction, while also allowing you to realize lower costs.
Although the Internet has permanently changed the rules of commerce, many companies – especially well-established companies – are just beginning to understand the potential of this on-demand world and what it means to how they package, price, promote and support their products and services. If you haven’t already, consider a subscription-based strategy for your business. It will not only please both customers and investors alike, but will also help maintain a competitive edge in your field, including the chance to reinvent your business and the markets you are targeting.
Tom Dibble is president and CEO of Aria Systems, a provider of cloud billing and subscription management solutions. Tom has more than 20 years of enterprise experience, including serving as vice president of worldwide channels and alliances for Oracle and vice president of worldwide channels and alliances at BEA Systems. He holds a degree in economics with honors from Syracuse University. Follow Tom on Twitter: @AriaSystemsInc