In a world where the consumer wants very specific things and wants them instantaneously, keeping a customer base happy is more difficult than ever before.
As such, flexible, customisable subscription services are spreading across different sectors like wildfire as businesses strive to meet the high expectations of customers and clients.
We spoke to Tien Tzuo, the founder of subscription software provider Zuora, to find out why his firm are becoming increasingly busy.
TechRadar Pro: There have been a lot of discussions lately whether companies should be adopting subscription business models or not, for example around the BBC license fee. Why?
Tien Tzuo: It makes perfect sense for all companies to adopt the subscription business model. Why? Well, in the modern world our needs are being fulfilled by services, rather than one-off purchases.
Once customers taste streaming video rather than buying physical DVDs, using Zipcar rather than buying your own or storing business files in Box as opposed to on your own server, they want all their lives to work as simply as that. This is what we call the Subscription Economy.
A recent survey of 293 business executives in the US, UK and Australia, commissioned by Zuora and conducted by the Economist Intelligence Unit, found that four out of every five businesses surveyed are currently seeing changes in how their customers prefer to access their services.
It's a trend that is impacting every industry, which is why the BBC license fee is an anachronism. It's not about granting someone a "license" to access the content, it's about crafting bundles and subscriptions that cater to each individual's preferences.
The BBC is supposed to be an information service, but needs to evolve in order to fulfil this promise in the modern age.
TRP: How are organisations reacting to this trend?
TT: Businesses have become very aware of this trend and are reacting by reinventing themselves and launching new services. 51 per cent are integrating new pricing and delivery models such as subscriptions, sharing and rental goods and services.
Of those, subscription-based models have emerged as the primary means to do so, and 40 per cent of these companies have implemented subscription services as part of their core business.
You can look at almost any industry to find lots of great examples. You want access to millions of songs from any device without purchasing and downloading them? Then stream your music with Spotify. You only want to read – and pay – for your favourite newspaper columns? Then become a News Corp member and compile your very individual Times newsfeed.
Or you want healthy snacks each day but can't be asked to go out and buy them? Let graze deliver them to your doorstep.
TRP: Which benefits bring subscription services to customers/businesses?
TT: For customers, it's about accessing the services they want, how they want it. Every customer is unique and has different, ever-changing needs, so businesses that still try to sell one-size-fits-all packages that lock customers into long-term contracts will be left in the cold.
Customers appreciate the flexibility with which they can tap in and out of their services when required, and the associated convenience of such an "I-get-it-now" lifestyle.
For businesses, it's about customer relationships. Why? Because subscription services provide businesses with the opportunity to better understand their customers and develop longer-lasting and more meaningful relationships.
Long relationships in return drive new, more predictable revenue streams, a sharper competitive edge and a stronger business foundation.
12 per cent of organisations say subscription models already represent more than half of their revenue, a number that is expected to grow rapidly, as 84 per cent anticipate that this share of revenue will increase over the next two years.
TRP: What role does technology play in this transformation?
TT: Technology is what makes this transformation possible. Show me any business that has not got cloud on their agenda. Or any employee that doesn't use their phone or tablet to drive business processes from anywhere. And because networks are always on, we can connect, consume and drive 24/7.
This technology is what's transforming everything into a service, from software to digital media to the internet of things, making it available at our fingertips at any time.
TRP: What are the IT pitfalls you need to avoid?
TT: One of the greatest challenges is centred on the legacy systems businesses once ran on. These must be re-thought. ERP was built to track products that can be put on a pallet - rather than services which are consumed over time.
In the new Subscription Economy, where services are being consumed on a pay-as-you-go basis, the ERP model is dead.
What you need instead from your IT systems is total flexibility – in how you charge for your services (for example by usage or per-month), who you sell to (from individuals to very large enterprises), and how you track your financials (ensuring that bookings, billings, cash flow, and revenue are all sitting in the same system).
Companies such as Salesforce and Box have been so successful because they've been able to be absolutely flexible in how they go to market.
However, this brings significant new complexities for the CIO. Legacy ERP systems such as SAP and Oracle are not flexible enough for this new economy, and there is a significant challenge to integrate new technology to separate systems of record (ERP) from systems of innovation.
Mastering this challenge is what's going to drive their future. Young companies don't have this issue, they just can forget ERP, never go to SAP and Oracle in the first instance, and be innovative right from the start.
TRP: Where do you see the future of subscription business models going?
TT: Music, video and food were just the beginning. Subscription business models are spreading from industry to industry and eventually all companies will embrace them.
However, this shift requires new models of thinking, and new flexible systems which allow you to understand your customers and tailor and price your services to them specifically.
This change won't be easy but, as Charles Darwin once said, it's those that are most responsive to change that survive. In today's constantly transforming business climate, success depends on it.
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