Building Innovative Subscription-based Businesses: Lecture 1


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This is the first lecture in a course on the subscription billing model

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Building Innovative Subscription-based Businesses: Lecture 1

  1. 1. Building Innovative Subscription-based Businesses BUS-185Lecture 1: Background and Introductions Martin Westhead
  2. 2. Administrative Stuff Timing:  Start promptly at 7pm.  Please let me know in advance if you will be late  Finish before 9pm Tools:  Community ChargeThru. com Grading  Attendance  Contributions to ChargeThru  Participation in class exercise Class register
  3. 3. Online community for Subscription Billing and Payments Encourage participation  Write articles  Participate in discussions  Share links and external information Special area for class  Discussions for exercise
  4. 4. Grading Attendance Participation in the class exercise Participation on Charge Thru
  5. 5. Introductions: Me Martin Westhead  Engineer and entrepreneur  2 internet startups  Executive Director of Ning Engineering at Glam Media  Using and developing web technology since 1993  Subscription Billing for 3 years  Excited about this course
  6. 6. My Story Ning  Social Network product  Used to be free July 2010 Ning became fully subscribed  Painful transition  Had to adapt fast and learn  Already had good customer relations Learned  Importance of understanding Churn  Managing payment failures  Pricing – showing value, aligning with customer success Subscription Billing solutions  Integration with industry leading service  Built a subscription management solution from scratch Subscriptions are changing the business world  Want to help with the transition
  7. 7. Introductions: Y’all Introductions  Name  Background  Why you’re here  What you expect from the class  One non-class related fact about yourself
  8. 8. What to Expect Introduction to a new trend in business  New model  Need to think about doing business differently Who is it for?  Subscription start-ups  Existing non-subscription companiescreating subscription products  Interested bystanders Understanding of subscription basics Practical overview of tools and techniques
  9. 9. Course Overview1. Background and Introductions (April 4th), New Trend, Customer Relationship, Beyond Subscriptions2. The Subscription Business Model (April 11th) Finance, Metrics3. Pricing for a Subscription Business (April 18th), Pricing models, Principles, Price Changes4. Class exercise part 1 (April 25th) Business to analyze5. Subscription Management Tools (May 2nd), Vendors and capabilities6. Payments how they work and what to do when they don’t (May 9th)7. Class exercise part 2 (May 16th) improving the business
  10. 10. Guest LecturersJeremy CrawfordChief Operations Officer, MLS Listings Inc. Andy Woods Product Manager, Zuora Doug Caviness Head of SaaS solutions, Cleverbridge
  11. 11. Class ExerciseFrancAhn, Andrew (Junghoon) RupeeAurich, Sara Theresa Florean, AndreiBhurji, Bobby Javed, OsmanChidambaram, Karthik Jones, WendyTrang Huynh, Remi Lau, William Murphy, Keoni Anthony Sujansky, Walter Yen Peers, Tanguy Thiyagarajan, Sreedevi Peso Tseng, Joann Costa, Rodrigo Fernandes Vaughn, James Anthony Herman, Vanessa Trang Huynh, Remi Lee, Debra Lee, Kathy Mulugu, Ravi Powell, Jackson
  12. 12. Exercise 1: Choose a business Discussion Forum on ChargeThru Choose a subscription business:  A start up or established  Digital or non-digital product  Real or speculative  Innovative use of subscription Presentation to the class on:  Outline of the business model  Why did you choose it (what’s innovative)  Details about their use of subscription
  13. 13. Exercise 2: Innovate Your team has been hired as Innovation Consultants Innovation strategy, e.g.:  Pricing / Pricing Model changes  Promotions  New products Outline a financial model for your changes Present to the board (i.e. class) Prize for the best
  14. 14. What is Subscription Billing And why should I care?
  15. 15. What is Subscription Billing? Business model Recurring payments (Monthly, Annual etc) Emphasizes the customer relationship  In core financial/business metrics Generalized to include related models  Usage based billing  Virtual currencies Difficult to manage subscriptions  Impossible to do manually at scale  Need new tools, conventional ERP insufficient
  16. 16. Three Categories of Subscription1. Fixed goods or services  E.g. each issue of the Economist for a year2. Unlimited use of a service  E.g. unlimited storage $35 per year  AT&T unlimited data plan3. Limited use plus usage based charges  Telephone service plus long distance charges  If limited offer is free =>Freemium Razorblade model (Bait and switch)  Approximation subscription model no contract
  17. 17. Subscription Nomenclature Account => Customer Product => The thing a customer buys Plan => The way a customer pays for a product (e.g. recurring price and period) Subscription => Contract linking a customer to a plan
  18. 18. Subscription Management vs. Recurring Payments Subscription Recurring Bank/CC Management Payments providerSubscription Management Recurring Payments Understands catalog  E.g. Paypal, WePay, Stripe Plan changes / cancels  Multiple charges over time against the same account Invoices and proration  Used by Subscription Triggers payments Management Reports and Analytics
  19. 19. Subscriptions are not newsubscribe (v.)Early 15c., "to sign at the bottom of a document," from Latin subscribere "write underneath, sign ones name," from sub "underneath" (see sub-) + scribere "write" (see script).The meaning "give ones consent" first recorded 1540s; that of "contribute money to" 1630s; and that of "become a regular buyer of a publication" 1711, all originally literal. Early meaning associated with Insurance (underwrite) Source: Online Etymological Dictionary
  20. 20. Why is itexciting? Billing is dull Subscriptions are not new So what’s innovative here?
  21. 21. Disrupting the business world SubscriptionSaaS BillingVendors like: Solutions like Created a Created an market for opportunity for Innovative Subscription Businesses like
  22. 22. Subscriptions are everywhere
  23. 23. New World Coffee Fine Tea Fruits and Veggies Crafts and Books Kids Clothing Beauty Fitness Baby sitting Music Hosiery Men’s accessories Handbags Dresses Kids Toys Fishing gear Soaps Shirts Underwear Condoms Luxury Items
  24. 24. Old World
  25. 25. In the press “As Web businesses embrace subscription business models, the benefits are clear: reduced customer acquisition costs and steady cash flow”“The realities of our increasingly mobileeconomy make it more likely that thistransition from an Ownership Society to whatmight be called a Rentership Society, farfrom being a drag, will unleash a wave ofeconomic efficiency that could fuel thenext boom”
  26. 26. …and there’s more“C.E.O.’s are beginning to appreciate the valueof recurring revenue in a way never seen before… [T]he software industry adopted it, whichcaught people’s attention. Now you’re seeingcompanies in just about every kind of industryembracing it.”
  27. 27. Analysts take“By 2015, more than 40% ofmedia and digital-productscompanies around the world willuse subscription services for theirfulfillment, billing and renewals”
  28. 28. What does it mean for customers and vendors?
  29. 29. What does it mean for customers? Good news  Predictable costs  Low upfront cost  Costs are spread  Seller is motivated to listen Bad news  Tracking many subscriptions can be costly  Danger of paying for things you don’t use
  30. 30. Vendor benefits Cash flow Predictable  Stable Revenue  Predictable fulfillment, stock, purchases, contracts Incremental sales  Each new customer adds to revenue stream Customer retention  If you meet their needs they’ll stay with you Customer tracking => business insights
  31. 31. Market Valuations
  32. 32. Funding growth Jimdo  Online Website Builder  Bootstrapped Prepay subscriptions  Predictable cash flow  In advance Funds growth without investment
  33. 33. Ecological benefits The average car is idle 92% of the time (Time) Renting => sharing => fewer cars
  34. 34. Vendor Challenges New and dynamic business model  Need to really measure  Need to really understand the metrics Need to focus on customer relationships  Doesn’t come for free Exposed to payment failures
  35. 35. Change in the way we think about a business One off purchase Ongoing customer relationship
  36. 36. Business Shift Sell Units Monetize Customer Relationships Price Per Unit Ongoing payment plansBuy Now One-Time Orders Ongoing orders Simple Financial Metrics Complex interrelated bookings, billings and revenue
  37. 37. Product BusinessDesign Make SellProduct Product Product
  38. 38. Subscription Business ABC Boost Revenue Per CustomerAcquire New Customers Reduce Churn
  39. 39. Beyond Subscription Billing
  40. 40. Subscription Billing is only the Start Subscription fatigue  Cost of subscription management for customer  Unused subscriptions Usage / Activity Billing Virtual Currencies Customer subscription tools
  41. 41. Next Week The Subscription Business Model  Financial model of subscription businesses  Key subscription metrics and gotchas  Churn rate and the subscription plateau Guest Lecturer Jeremy Crawford Chief Operations Officer, MLS Listings Inc.