4 Key Challenges in the Shift to Digital Recurring Revenue

Editor's Notes

• #2: I’d like to begin by giving you a little insight into the trends we are seeing the market that influence how Zuora thinks about the challenges faced by businesses similar to yours, and how we have designed a solution to solve for those challenges.
• #6: This shift is creating a new kind of economic force that we call the Subscription Economy, because when your customers consume your services over an extended period of time and on a recurring basis, they are in effect subscribing to your products services. As a subscription business, you establish a long term recurring relationship with your customers, and the ability to monetize this relationship forms the foundation of your business model.
• #7: A study conducted by the economic intelligence unit reveals that 4 out of 5 businesses believe their customers are switching to new consumption models. We see these new models of consumption every day, across both B2C and B2C businesses that we work with
• #8: This shift to new models of consumption may have started with SaaS ,media and telco companies, but today, this shift has gained momentum across all industries. SaaS, high Tech Cloud, education, healthcare, media, telco and even devices. In fact businesses are increasingly changing their business models to cater to a demand from consumers to consume services via a subscription service. A recent study by the EIU found that 51% of all businesses are in the process of changing the way they deliver goods and services.
• #12: Digital Business CFO observed that the impact of digital offerings has completely transformed how the media company views its decision-making on content production projects“The way we make decisions has changed. We rely on data, and you’d better convince me there is a monetization model behind it – and reach – across any channel and devices, including wearable, YouTube, games. The challenge with media in general is still the same – how do we produce as cheaply as possible? But now we can’t take out any more cost, so show us how to grow revenue by driving the reach.” “Used to be 90 percent broadcast, but today it’s over 50 percent digital products. It’s everything from pure ad revenue to content reach on online platforms we monetize, but the bigger piece is in the shift to digital downloads and other ways of distributing video-on-demand in a combination of a la carte and subscription. On channels like Hulu, Netflix, Amazon, Apple iTunes; and we are now developing content especially for digital distributors, different formats and offshoots of our core content.”
• #13: Vice President of Product Management at the major vendor in Digital Transformation recalls: “We’ve been happy with ability to deploy faster, increase the speed at which we are moving, by partnering and adopting an agile approach, keeping projects smaller not gigantic. Partnering with people who really know what they are doing.“Clearly there are new service delivery challenges, especially being a provider and having to meet SLAs, and especially with a complex solution involving multiple partners. We are dependent on our infrastructure provider, our billing provider, on our Cloud platform for scaling to meet demand and need.”
• #14: “One challenge is making sure you don’t bring non-digital baggage with you. We have a lot of policies based on a different model, how you do refunds, for example, and its just different in a digital world. Need to make sure you’re not just bringing the old stuff and adding a few things, because that introduces a lot of complexity, not beneficial to customer or to you…”VP of Product Management at a well-known vendor, talking about managing both on-premises and Cloud solutions in a business in the midst of transformation, “New systems are necessary, whether billing or revenue recognition or go-to-market, catalog, or social channels in customer care. New tools mostly but sometimes just the same tool implemented differently.”
• #15: Director of Technology Planning and Strategy at the very large enterprise in transformation noted, “We have a need to hook ERP environments into third party APIs, doing handshakes for exchanging sales keys. If it’s not automated, you can’t scale. We are leveraging new technologies for monitoring customer experience and for monetization performance. And it’s in real-time production mode today, as opposed to wrap it and mail it, the way it used to be.”
• #17: Director of Technology Planning and Strategy at an established large enterprise said about the transformation to Digital Business, “We are always surprised where innovation comes from. As we deploy new capabilities in the Cloud to make things easier for the business, it lets the business focus on innovation.”
• #19: But if you are a large established enterprise, you are faced with a unique challengeYour ERP system forms the backbone of your IT infrastructure. Gartner reports that 80% of IT budget is spent on ERP maintenance. At any time, on average, 70% of all ERP projects are at risk. But none of the of ERP systems in the market were designed to manage recurring revenue processes out of the box. They don’t support agile business model innovation.
• #20: A business built on recurring relationships requires a complete new approach. A new approach to revenue growth.Instead of growing by shipping more units, your growth model is based maximizing recurring revenueA new approach to pricing. Instead of fixed, SKU based pricing models, your pricing needs to be flexible, plan based pricing.A new approach to commerce. Instead of acommerce that consists of a discrete one time transactions, your commerce model is now a series of recurring interlinked transactionsA new approach to finance. Instead of financial metrics that are backwards looking and focused on past performance, your financial model is heavily reliant on forward looking metrics that give insight into future recurring revenue.It requires your to innovate in a number of areas of your business
• #21: Innovation in one area of your business causes complexity in other areasBusiness model innovation typically begins with pricing and packaging. When you change your pricing and packaging, it leads to complexity in commerce and order management. Different order types such as renewals, upgrades, downgrades lead to complexity in billing and payments. And this in turn leads to complexity in how your measure the health of your business. And often, based on how your business is performing, you might make adjustments to how you price your services and the cycle continues. Without a system to manage this complexity in a holistic way, business model innovation is hard.
• #22: You need Relationship Business Management
• #23: Your ERP system that was built to monetize products is great as a system of record. Relationship Business Management or RBM is a system that supports all the necessary elements of business model innovation that are required for monetizing relationships. let me take a few minutes to explain:
• #24: - Relationship business management delivers a plan based pricing catalog designed to monetize recurring relationships so that your customers can buy in their own way. - RBM delivers a billing engine capable of automating billing and payment transactions at scale. - RBM systems also includes a finance engine capable of understanding the financial impacts of recurring revenue - A relationship business management system is built on a subscription data model that is capable of delivering the metrics you need to measure long term recurring relationships.When you choose a relationship business management solution to run a business that is based on long term recurring customer relationships, you get the benefits of a system that understands the complexity of relationship commerce, recurring billing and payments, and recurring revenue management. Other systems focus narrowly on a few of these areas, but as you can see from this table, Zuora is the only company that is taking a holistic approach to helping business that want to monetize long term relationships with customers.
• #25: And finally,A relationship business management system MUST integrate with your existing enterprise ecosystemYou already have systems for customer engagement like your CRM systems and your websiteAnd you already have systems for back office operations like your ERP system and your financial applications.A relationship business management system MUST integrate with these core pieces of your enterprise IT infrastructure.
• #26: NCR is a $6Bn business that was losing market share in the small business sector to Square. NCR needed to launch an innovative new service, in a short span of time, with flexible pricing models and an easy, intuitive customer experience to complete with Square. This was NCRs most strategic project in 2012. NCR chose Zuora’s relationship business management system to manage commerce, billing and finance for NCR Silver. The service was launched in 2 months with self service sign up, integration to salesforce for customer care and assisted sales, and journal entry updates to Oracle.
• #27: TCS is the AAA of Switzerland and counts half the population of Switzerland amongst its customer base. TCS had been running its operations on a AS/400 mainframe computer for over 20 years. And this system was preventing TCS from remaining relevant in a market where new competitors were cropping up, offering services that in the past were only offered by TCS. In addition, TCS was losing the younger, more digitally engaged demographic. TCS rebuilt it’s IT infrastructure with 6 cloud native apps, and at the heart of this infrastructure are Salesforce and Zuora. Zuora is used for subscription management, billing, payments for almost 3 million subscriptions. Zuora is also integrated with SAP for consolidated financial management.Challenge they had was competition coming into market offering things they used to exclusively offer e.g roadside assistance - they were also losing market share among younger demographic who had preference for digital world - you had to go in person to post office and pay
• #28: Partnered with Zuora when they launched AOS"Audience Operating System" - rolled out a year ago ad Adweek in New York - revenue will ramp up in 3-5 years - ”true subscription product”Axciom profile / Core offerings - marketing services and data targeting F100 clients (60%) - "MS&D" - IT outsourcing group (20%) - Email marketing (10%) - ad hoc services