This document discusses supporting the transition to subscription business models. It begins by outlining industry trends showing growing subscription revenue for software companies. It then discusses how subscription models require a shift in focus from products to customer relationships. The document provides best practices for subscription businesses, emphasizing the importance of fine-tuning pricing and packaging strategies, as well as monitoring key subscription metrics like retention rates, recurring profit margins, and growth efficiency.

1. Supporting the Transition to
Subscription
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2. Moderator Featured Guests:
Joe Andrews Brian Bell Amy Konary
Sr. Director, Product Marketing Chief Marketing Officer VP of Research
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3. Table of Contents
1 Industry Trends
Expansion of the Subscription Economy
2 Subscription Business Model
Shift Focus from Products to Relationships
3 Best Practices
Pricing and Packaging Secrets, Key Metrics
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4. Subscription Highlights
 57% of the top 100 software vendors
worldwide by revenue had subscription
revenue in 2012.
 For 16% of the top 100 software vendors
worldwide, subscription represents greater
than 50% of total software revenue.
 For the top 25 software companies (with
subscription), subscription revenue grew an
average of 17% from 2010 to 2011
Source: IDC, 2012
© 2012 IDC Mar-13 4

5. Businesses Can Consumers Can
Subscribe To Anything Subscribe To Anything
ServCorp Google Apps Salesforce Test Tube Wonder Sitter Spotify
Virtual Office Apps CRM Beauty Samples Baby Sitting Music
Zendesk Amazon RingCentral Rent the Babbaco Mystery Tackle
Runway Box
Helpdesk Infrastructure Phone System Women’s Kids Fishing
Dresses Toys/Activities
Dollar Shave Bespoke Spice
Workday Intacct Concur Post
Club Guides
HR GL Travel/Expense Razors Luxury Items Date Idea
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6. This is the
Subscription Economy
BUY NOW SUBSCRIBE
1999 Today
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7. Moving to Subscription
Requires a Change of Focus
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8. Focus on Relationships
SUBSCRIPTION  Features and functions are
only part of the experience
 Key: Build Substantive
Relationships; Monetize the
Relationship
 Transparency and
Communication
 Commitment to doing what is
right for the customer, even if
it means a smaller deal size
Relationship Status: “It’s Complicated”
© 2012 IDC Mar-13 8

9. The Foundational Elements Necessary To
Support The Subscription Business Model
Pricing Agility Subscription
Metrics
B2Any Subscription Order Back Office
Commerce Management Scalability
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10. But Your Existing Systems Don’t Support
The Subscription Business Model
Pricing Agility Subscription
Metrics
B2Any Subscription Order Back Office
Commerce Management Scalability
Simple E-Comm ERP Homegrown Systems
10 1
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11. Relationship Business Management:
Built to Support The Subscription Business Model
Pricing Agility Subscription
Metrics
B2Any Subscription Order Back Office
Commerce Management Scalability
“Companies that are looking to move beyond spreadsheets, and position
their subscription businesses for future growth and flexibility, should
consider solutions such as those provided by Zuora”
Amy Konary, VP of Research, IDC
11 1
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12. Best Practice:
Fine Tune your Pricing and
Packaging Strategies
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13. Focus on Pricing and Packaging
 As business strategy changes,
pricing strategy should also
 Usage, Freemium, Trials,
Promotions
 Transparency! Don’t hide your
pricing page, or require a
conversation with the prospect
to explain your framework
 It can’t take “forever” to get
pricing done
© 2012 IDC Mar-13 13

14. Pricing and Packaging
What are you trying to do?
DEFINE “2 months free for new
customers”
ITERATE IMPLEMENT
Analyze Product Plans
 “Huge bubble of Entitlements
new accounts, but Marketing
significant increase
in churn.” MEASURE
”It’s all about putting a number
Conversion
on the wall and your setting Churn Rate
goals and checking back on it.” Revenue
© 2012 IDC Mar-13 14

15. Strategy #1: Multiple Edition Strategy
Multiple editions
for different
audiences.
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16. Strategy #2: Promotional Strategies
Start with a
free trial.
Offer:
2-months
free
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17. Strategy #3: Freemium Strategy
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18. Best Practice:
Key Subscription Metrics
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19. Traditional Income Statements are One-
timed Focused (Product Sale) Focused
Traditional income statements do not differentiate
19 one-time from recurring revenue or expenses.

20. Subscription Economy
Income Statement
ARR $100
Churn (10) Retention Rate
Net ARR 90
COGS (20)
G&A (10)
R&D (20)
Recurring Profit 40 Recurring Profit Margin
Growth (40) Growth
Net New ARR 40 Efficiency Index
Ending ARR $130
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21. When looking at a Subscription Economy
company, only these 3 metrics matter
Retention Recurring Growth
Rate Profit Margin Efficiency
How much of ARR less Churn How much does
your ARR you less Non-Growth it cost you to
keep every year. Spend acquire $1 of
ACV
The metrics for Cloud computing is fairly
different from traditional enterprise software.
Top 10 Laws for Cloud Computing
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22. Pay Attention To
1. 2.
3.
© 2012 IDC Mar-13 22

23. (1) Focus on sustaining high Retention Rates
1 Make Renewals Really Easy
Auto-Renewals, Early Bird Renewal Incentives
2 Enable Your CSRs to Renew Customers
Churn defense, ARR preservation
3 Prevent Churn with New Price Plans
Monthly vs. Annual, Discounted, Lower Tiers
“How much ARR you keep every year”
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24. (2) Maximize your Recurring Profit Margins
1 Automate Quote-to-Cash-to-Renewals
Seamless, eliminate manual errors
Take Credit Card Payments
2 No touch, bring cash in the door immediately
3 Drive Multi-Year Commitments
Multi-Year Pricing Tiers, Term Discounts
“How do you cost effectively service the base”
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25. (3) Optimize your business for Growth Efficiency
1 Tune Your Pricing Strategies Freemium,
Editions, Pay-as-you-Go, Tiers
2 Increase Total Customer Value
Upsells, Cross-Sells, Add-ons
3 Make Doing Business Simple
Self-Service, Promotions, Free Trials
“How much does it cost you to acquire a $ of ACV”
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26. q&a
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27. Thank You!
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