The Always-On Relationship: Q&A with Tien Tzuo, CEO, Zuora

A subscription is not a product, it’s a relationship. It’s a membership to an experience or service that delivers an outcome that meets a need or fulfills an aspirational desire.

Tien Tzuo

Chief Executive Officer, Zuora & Author of "The Subscription Economy"

Tien Tzuo is a firm believer in the Subscription Economy. In fact, he invented the term. “Most companies realize that this is the business model of the future,” Tzuo says. Many large, established companies, Tzuo explains, are in the early stages of transitioning to subscription models. They are turning existing products into subscriptions. The next stage is designing the subscription — and the entire business — around the customer.

This interview has been lightly edited and condensed for clarity.

What is the subscription economy?

A subscription is not a product, it’s a relationship. It’s a membership to an experience or service that delivers an outcome that meets a need or fulfills an aspirational desire.

You and I, we’re buying less stuff. We’re moving beyond product and toward service. We simply tap into services to really meet our needs, whether those needs are we want some entertainment, we want to do some work, or we want to get from point A to point B.

I think once customers really experience a subscription-based business model, there’s no going back. Once you’ve used Uber or Lyft, your desire to own a car has lessened. Look at services like Netflix or Amazon Prime. For $20 a month, you can get access to any movie ever made. So, why would you continue to buy DVDs? Consider a service like Zipcar. In a city like New York, people sign up for a Zipcar membership instead of owning the vehicle. These subscribers drive around, but they’re only paying for the number of miles and number of hours they’re using the product. And you can see this future.

How is the subscription economy changing the business landscape?

The old world was all about coming up with a product and selling as many units of that hit product as possible. It could be movie tickets, it could be newspapers, it could be cars, or pans, or laptops. As a producer, you tried to get into as many channels as you could — because whoever sells the most units, at a lower marginal cost, they’d be the ones that won. But the new business model is completely different. It starts with the customer.

In the new world, you have to ask: ‘What does the customer really want?’ They’re not really after a movie; they want entertainment. They’re not really after a song, they want music.

People subscribe to Spotify not because they want to own every album ever made, but because they want to be able to listen to the music they want, whenever they want, and experiment with new music at no extra cost. For consumers, the subscription is liberating.

A lot of the big players in the subscription economy are tech brands. How can traditional product-based companies keep up?

I think what companies struggle with is ‘How do I transform if I’m a product-based company today?’ Here’s the secret: this is not about renting your product. This is about rethinking your entire business model based on the customer.

This changes how companies build products. It changes how they market products. And it changes the culture of a company; it’s not a hit product culture any more, but a customer centric culture. We’re seeing plenty of examples of that…

Take Fender. Fender is a product-based business – they make guitars. That’s the product. Guitar owners don’t just want to own guitars… They want to be rock stars. And at Fender they asked: ‘What happens when we flip the script? What happens when we start with the customer?’ In doing so, Fender have realized that it’s not just about the guitar — it’s about the guitar player.

Here’s the thing: becoming a rock star is hard. How many first-time guitar buyers get frustrated trying to learn? How many quit after three months? How many one-time purchase guitars end up on the shelf or in the cupboard?

Fender have flipped their business model, so that it’s not just about selling guitars. They pivoted their whole business around this thing called Fender Play. Now you get a whole set of applications that teach you how to play the guitar. They try to make sure the experience of learning how to play the guitar is the best experience possible. They help customers fall in love with that guitar.

There’s a good chance that if someone is still playing a guitar after 12 months, they’ll play for life. And Fender know that means they’ll buy a lot more guitars, a lot more picks, a lot more amps. And there’s a good chance they’ll have a stronger emotional connection with the Fender brand, too.

How is this “always-on” approach changing the relationships we have with consumers?

One of the big lessons or advantages in this new business model is that you have a two-way relationship with your customers. Subscriptions enable greater customer understanding. All subscribers have a unique ID, so companies can gather lots of data about them. That makes it easier to iterate and know what’s working and what’s not. When you have access to this kind of data, your whole mindset shifts. It doesn’t take two years of market research to launch a product that is (or isn’t) exactly right. We can learn. We can launch a beta product and iterate and improve with customer insight all of the time.

A subscription’s success depends on the ongoing strength of its value proposition, not persuasion. The experience a customer has with a subscription service is itself the brand and its product. Growth happens when you understand subscribers and use what you know to improve and evolve the service for them, continuously — whether that’s more personalization, greater flexibility, or something else. The relationship grows stronger over time.

 
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