Zuora Media Edition

I have been writing for a while about the tough times in the publishing industry, especially newspapers though the pain extends to magazine publishing too.  The nub of the situation is that the boring but predictable revenue streams that papers and journals get from advertising is quickly drying up.  Add to that the challenge that younger readers gravitate to on-line (read “free”) information sources and you have an industry with transition pain.  Though newspapers still distribute plenty of copies daily many analysts, myself included, have concluded that printing is a sunset technology for much of information transmission.

The road out of this conundrum is for papers to sell electronic subscriptions profitably but the infrastructure doesn’t really exist and the papers have shown little interest in building it.  Sometimes it’s like watching a drowning man refusing help.

Since buying a newspaper can safely be characterized as a micro purchase, some mechanism that is efficient and very low cost must be found to make it all work.  But even a completely frictionless transaction will not provide a paper with a revenue stream that compensates for the dwindling ad revenue and there’s the rub.

Since most big papers are owned by an even bigger public corporation, the idea of losing money or even making less of it for a time — while a new paradigm gets established — is anathema.  Rather than continuing with an increasingly out of date paradigm, a smart paper might want to consider planning a transition from print to electronic distribution and with it an on-demand billing and payment system.

As you can see there are many competing needs for any solution that will rescue the newspaper business and for once, a government bailout will not do much to fix these structural problems.  No doubt about it, this is a tough nut to crack but today at Demo in San Diego, Zuora announced a new product that might be the missing link to the eventual solution.

Zuora Media Edition is a billing and payments solution that can provide as close to frictionless product billing as possible and it delivers its solution from an on-demand system in the cloud.  Most importantly Zuora Media Edition has capabilities that can enable a newspaper to better configure its products for individual customers.  Here’s how I envision it working (and no one at Zuora told me I was wrong).

A paper has multiple brandable components.  Traditionally the way a paper makes money is to sell ads and content to its subscriber base in a physical geography and papers can also sell their components through syndication to other papers.  Editorialists and cartoon creators are the two most recognizable kinds of syndicated content providers that come to mind.  But what if your sports section is in high demand in other cities because ex-patriots follow the team or because they’re in the playoffs?  Or what if your book review section (we’re talking about you, New York Times) was highly regarded in its own right?  Often the only way to get that section is to buy the whole paper if you can get it.

With electronic distribution though, and a billing system that can manage high-volume small transactions, a paper could think about selling single section subscriptions.  Depending on the section the revenue might be enough to replace some of that advertising revenue that went south.

But wait, there’s no reason that a paper with a streamlined billing and payments system can’t compete for the ad business again.  People went to online job ads, personals and classifieds not because they hated papers but because those sites were better than conventional printing.  There is a reasonable chance that, if a paper could be competitive with other advertising media, that it could win back some of the advertising it lost.

You can make a similar argument for magazines though many are still selling many, many pages of advertising.  Just look at Vogue, for example.  But all magazines are not as fortunate as Vogue.  What’s the cost of sending out multiple renewal reminders for a twelve-dollar subscription to a monthly magazine?  And does anyone else see the irony in asking the customer to mail in a credit card number to complete the transaction?

As I see it, there are two keys to a “print” renaissance.  First, the publishing companies need to get into the current century and adopt a business model that makes and distributes content rather than one that processes paper and ink and distributes from trucks.  But they can’t do that without a business model supported by modern technology.  That’s where electronic billing and payments come in and that’s why I think Zuora makes so much sense.  But what do I know?  I’m just an analyst.

Zuora–Billing is now a CRM issue

 

Last Monday at Demo, Zuora CEO and co-founder Tien Tzuo introduced Z-Commerce for Facebook—a significant announcement that might be looked back on as a turning point in the evolution of on-demand technology.

Zuora, if you don’t know, provides an on-demand billing and payments suite for companies that sell software as a service.  You might think that these companies don’t need specialized billing systems but you would meet many objections from the companies involved.  Selling SaaS is intricate and difficult to do.  It requires perfection throughout the customer life-cycle because the customer base votes on retaining you with every billing cycle.  Screw up and your customers could easily migrate to someone else.  That is both the beauty and the terror of on-demand business.

Forgive me if you have read this far and said the equivalent of, so?  Hang on, there’s a little more to so about.

You already know Facebook, which is in part an application development platform for small, personal applications related to social networking.  People who develop applications for Facebook do not have many options for monetizing their investment in products.  They can post ads or give their product away.  The ad model of monetizing the Web doesn’t work very well here.  You doubt that?  Have you ever read the words ‘Facebook millionaire’ in a sentence that was not about the founders?  Ok.

Let’s just say that for Facebook application developers the low revenue potential is frustrating and may be holding back innovation on the platform.  How big is the frustration or potential?  Some simple math helps here.

There are about 660,000 Facebook applications and 150 million active users, numbers that will only grow.  If ten percent of the users subscribed to an application at one dollar per month collectively there would be a revenue stream of fifteen million dollars per month or $180 million per year.  If you ratchet up the user count, monthly fee or both the numbers get big quickly.

But how do you process a bill and make money on a dollar or two per month? Tzuo and his partners are betting that this revenue stream doesn’t exist yet because there has been no way to efficiently capture it.  The premise of Zuora is that developers of small and large on-demand applications can monetize their applications better through on-demand billing than more traditional means and the evidence so far is that they are right.  The Facebook venture is an extension of that logic.

Consider what this means for a moment.  Innovation at the product level is bottlenecked by something other than the typical reasons—breakthrough technology is needed, capital requirements, lack of ideas.  Instead, the raw products exist but innovation at the secondary level—making a business model that works and charging the customer appropriately—are the barriers. 

I have thought hard about this but I cannot come up with an analog—a time or a situation where innovation was held up by operational considerations like this.  Furthermore, if Zuora had not stepped up and said there is a potential market in Facebook applications we might not have even noticed.  But they did and we have.  So what does this mean in a big picture way?

Are there other markets where subscription billing could improve business models?  The first and perhaps most natural place to look is where your mind naturally goes to think about subscriptions, publications.  Why do we renew magazine subscriptions for one or more years at a time and why through the mail?  It’s must be expensive to send out all those reminders and bills.  And why is a magazine subscription time limited?  Newspaper subscriptions aren’t.  With a modern on-demand billing infrastructure what could a traditional magazine save over its conventional billing system?

And speaking of newspapers, maybe you’ve noticed they’re in trouble in the U.S.  Newspapers are thriving in many other countries but not here.  Around the world 1.4 billion people read a daily paper according to a study published in December 2008 by Dr. Jack Miller, president of Central Connecticut State University.  Has the U.S. consumer tired of news or of the newspaper business model of hand-delivering information on squashed trees?

At first blush, none of this billing talk looks like a CRM issue at all, but it is.  When your customers abandon you because of your business model, it’s a CRM issue.  When a business fails to thrive or can’t even get started, there is a CRM component involved.  When we make our businesses easy to do business with we are engaging our customers at an operational level that is every bit as important as customer intimacy.  In some ways it is the relationship.

What is truly fascinating to me is that we are at a stage in many markets where innovation is turning from product and relationships to operations.  Zuora’s instincts about this are spot on and I think we might be witnessing a disruptive innovation with on-demand subscription billing that is every bit as important as the on-demand innovation that started the ball rolling down hill just one decade ago.

Reinventing the newspaper business model with Zuora

To say that newspapers are in trouble is a misstatement bordering on self-delusion.  Last week the Rocky Mountain News closed its doors after 150 years and papers from coast to coast are teetering on bankruptcy.  In vain efforts to stay afloat newsrooms have cut staff to the bone with some losing over half of their head count in the last ten years. 

Newspapers are not broken, they still provide a valuable function in a free society and people are willing to pay for the product.  According to a study published in December 2008 by Dr. Jack Miller, president of Central Connecticut State University, despite declines in the U.S., paid circulation and advertising are going up worldwide with more than 1.4 billion people reading a daily newspaper.

Other findings from the report: Japan’s paid circulation is three times that of the U.S., and on average, Japanese newspapers cost three times what they do in the U.S.  And the Republic of Korea, Singapore, Venezuela, Finland, Greece, the United Kingdom, Sweden and Norway all exceed U.S. newspaper circulation figures.  Circulation continues to decline in the US but consumers have not so much abandoned news as they have chosen more convenient delivery options.

Getting the business model right

The U.S. newspaper business model is a dead man walking and revival of the newspaper industry in this country will require a new approach to doing business and competing.

Newspapers have co-existed with a variety of competitors for decades including radio, TV, magazines and the Internet.  While each of these media provides information, only newspapers can consistently deliver detailed, fact-checked, local, national and international news daily. 

Most newspapers have tried to cut costs but, ironically, they have cut in a place that cheapens their product, the newsroom.  Cheapening the product is not a recipe for revival.  Newspaper fixed overhead is high.  Trucks, fuel, newsprint, ink, pressroom labor—everything that goes into printing a paper has been squeezed.  But if you are going to print a paper you need a press, paper, ink and people to make the product.  Eliminating these costs in a digital age is both possible and necessary which means the newspaper business model needs to be reinvented. 

Going digital

Digital delivery could solve multiple problems and the challenge is not as hard as it seems.  Despite the fact that papers have been loath to charge for their on-line editions, conditions are now right for them to do so.  People are accustomed to receiving at least some of their news on-line and there are many options from cell phones to computers, laptops and special readers like the Kindle device from Amazon.com.

The difficulty of converting to digital newspaper delivery resembles the climb software providers made from free-ware to licensed products.  At the beginning of the PC era, software was largely thought of as communal property and it was a young entrepreneur named Bill Gates who said, no, actually this is our work product and you need to pay for it.  Demand did not shrink as a result and the rest is history.

Newspapers somehow became suspicious of charging for their on-line content at the beginning of the digital revolution for reasons that are obscure.  But most likely, it had something to do with having the computer infrastructure to deliver the product and manage subscription billing.  The problem also has an element of what to do with pressroom employees if the paper doesn’t print a paper.

Three part solution

There are three issues with going digital—delivery, billing and legacy labor issues.  Delivery has two sides, publication and reception, which are mostly solved.  Think of it as basic infrastructure.  Most big-city papers already have on-line editions, which is the publication part.  Subscribers have various devices for reading content too, though many may lack an appropriate screen for serious reading. 

It’s one thing to read a short article on a cell phone but another to make that your standard.  Computers are ubiquitous but they may need to be supplemented by specialized reading devices for issues like battery life and transportability.  Papers would, perhaps, need to make it easy for their subscribers to acquire such devices.  For instance, a future subscription model could include use of a reader the same way a cell phone service provider offers phones with a subscription.

That leaves legacy labor and billing.  Labor is a tough nut to crack.  People who have dedicated their careers to getting the paper out would find themselves out of work and some provision for them must be made.  But as a percentage of jobs in newspapers today, their number is not large and a solution, most likely a buyout, could be worked out.

Billing is the heart of the new business model and the solution.  People already buy subscriptions and pay for them through a variety of electronic payment systems such as credit cards.  But electronic billing for a subscription to a physical product like a paper is not the billing model needed for digital news delivery.  A subscription to an on-line paper must be capable of being shared among the people in a household, simultaneously and on multiple devices.  Newspapers need a digital business model whose heart is a digital subscription billing model. 

Elements of a solution

The elements of a revamped newspaper business model already exist, however they have not been brought together in a credible way in a single situation.  Ground zero for integrating the elements the new model should be the San Francisco Chronicle. 

Going digital may be a tough sell but if it cannot be done in San Francisco, with all of the technical and business expertise nearby in Silicon Valley, then it cannot be done.  The Chronicle is in tough shape anyhow and makes an ideal case study to boot.

The big unknown in all this is subscription billing.  As already noted billing for a digital subscription is not the same as billing for home delivery.  As luck would have it though, there is at least one company, Zuora, conveniently located in San Francisco, that has already worked out most of the details. 

Zuora produces a subscription billing system that meets virtually all of the needs of newspapers.  The billing system was originally developed for software companies that deliver their applications as services on the Internet rather than as licenses for individual computers.

In the last ten years, software as a service, or SaaS, has come to dominate the industry and Zuora co-founder and CEO Tien Tzuo was one of the first to understand the needs of vendors who sell subscriptions to their products over the Internet.  Zuora’s billing system, or something like it, is the missing element for developing a viable twenty-first century newspaper business model.

Transition

No doubt, spinning up the new business model will take time.  The paper will need to continue printing for months or years, but as customers become accustomed to receiving their papers on-line, subscription revenue—and most important, profit—will exceed print versions and papers will be able to dedicate more resources to making a quality product rather than driving newspapers around town.

Newspapers are vital to a city and a region’s civic health.  They provide a product and service that other media cannot afford to do or may not even attempt.  At their best, papers provide a level of depth and analysis that is often lacking in radio or TV network journalism.  Newspapers are the entities with the resources and attention spans to follow a story that brings down corruption and separates fleeting, glossy images from substance. 

Like many other industries newspapers have existed on the same business model for decades or even centuries with little change.  Some executives have a hard time separating their core business model from their delivery model.  The two are different and the marketplace is insisting that a separation be made.  Newspapers can be viable, vibrant and profitable again but it will require work and some pain. 

When the business model change comes it will be sudden and swift because the existing paradigm will collapse everywhere at once and because large newspaper chains will accelerate the turnover.  The elements are in place.  Will San Francisco lead?