The reason why Through the subscription model, where a customer must pay a certain price to have access to the product/service, businesses can regularly gain recurring income with the option to upsell at will. Zuora is one such firm that enables subscription commerce and billing. Real Business talks to Zuora users Bryan Tookey, COO of Brandwatch, and CentraStage CEO Christian Nagele about the impact of the subscription model.
Tookey explains that Brandwatch was always set to become a subscription-based business and there are four reasons why. It makes our planning and operations easier, as well as offering a flexible price range. We have three to four different pricing models and various sized packages that work with different types of companies. Our short-term contract is one of the reasons why we’ve attracted so many customers. Clients know that they don’t have to worry about renewing a contract if it’s been cancelled, and we end up with a reliable source of income.
For Brandwatch, the benefits of the subscription model is that we don’t have to worry about updating versions as everyone has the same version. So, the headache of operational costs to maintain ten different versions vanished for us. It’s also all about financial security. We know what amount of money is coming in every month because our monthly recurring revenue is stable. The ability to showcase this safety net has allowed us to gain investment on more than one occasion.
But although the benefits and advantages of taking a start-up subscription route are significant, there are an equal amount of challenges when compared to the traditional billing models. A subscription economy business takes 2.8 more capital to break-even,” states Nagele. So, it does put you under a lot of pressure, but it fundamentally underpins your ability to try new markets.
In the early days we always had the commercial subscription model monthly, quarterly or annual billing but we just developed the engine in-house to cope with that. It soon became apparent that the development resources outside would probably be as great as they were to develop our own technology. We decided we needed to find someone who could do the billing side better than we could and, more importantly, enable us to take the business where we needed to take it.
But what are the biggest benefits of the subscription model Tookey suggests that it’s the ability to know what’s going on. When you have a traditional non-subscription-based system in place, you spend a lot of your time trying to work out what is the true revenue this month, which parts of the business are growing quickly , which parts are struggling and whether or not there is a problem with churn. You can figure all these questions out through other systems, but it takes so long that by the time it’s happened, you haven’t been able to react.
Fundamentally,” Nagele explains, the subscription model and the underlying engine behind it allows us to do what we do. A massive part of our differentiator hinges on the commercial model. Our technology isn’t patented or highly disruptive in its proposition, it just perfectly meets the needs of our target customers. In a lot of the markets that we deal with, some of the other technologies might have worked technically, but were commercially just out of reach. CentraStage has transformed the delivery of IT services into the education market in the UK. If we hadn’t brought the subscription model to that market, then they would have struggle without an end-point management technology. That’s the environment we found when we first went into that market.
But in terms of the biggest impact the model has had, the key tipping point for CentraStage was a Microsoft report, stating that only 40 per cent of devices in the western economy’s corporate mid-market have any credible management systems. The reason for this is because most of the products out there are technically too complex and cumbersome, as well as too expensive. By using SaaS, however, CentraStage solved the technical conundrum. The subscription model enabled us to address the biggest stumbling block, which was cost benefit analysis.