Zuora is touting a new idea called the subscription economy. It’s not radical and others might have had the idea before but I was not aware of it. The subscription economy is just what it sounds like and it reiterates the reality we see all around us. Today, the company announced the release of its flagship product, Z-Commerce for the Cloud, at GigaOM’s Structure 2010 event in San Francisco.
Z-Commerce for the Cloud targets the growing market for all things delivered by subscription rather than through the common ownership model. For decades we’ve been moving to a subscription economy starting at least with leasing cars and getting our cell phones and services in monthly increments. The trend accelerated ten years ago with on-demand and later SaaS and Cloud Computing.
When you lease a car the overhead incurred by the vendor in setting up the lease and billing you monthly is not great and hardly differs from a conventional loan. But as subscriptions penetrate the market and support smaller and smaller transactions, it becomes difficult to justify the cost of billing and the reality that customers can change their minds regarding the subscription. Often. Get a monthly bill wrong and the best you can hope for is losing money, the worst is having an unhappy customer.
SaaS seems to be the tipping point for conventional billing. In other words, a SaaS company can afford to bill conventionally but the balance sheet would be better if it didn’t. Smaller transactions can’t even be considered with conventional billing. You might say that newspapers and magazines run on a conventional subscription and billing model but that would be a bad example. Publishers are losing their shirts these days largely because ad revenues are eroding and those revenues once supported the conventional back office. No more.
The billing tipping point should mean that there are as yet unexploited niches for small dollar subscriptions that could not be contemplated according to the old billing model. What they are is a mystery at this point but I am sure the marketplace will take advantage of this new capability.
So, long story short, clean transactions and fast and efficient maintenance are necessary to push the subscription economy ahead and that’s the significance of Zuora’s announcement today. If you want to confine subscriptions to the tech sector, that’s $3.4 trillion and if you reasonably ask if it applies to the rest of the $16 or so trillion US economy you see the importance of getting the billing question answered before we proceed further into this century.
I am not going to reiterate the press release, you can find it easy enough, The analysis of this announcement’s significance is all I am after and I think you’d agree that it really is significant.