The subscription economy

By Tien Tzuo on October 29th, 2012

Every day we hear about how companies such as Netflix and Lovefilm take on the big boys and win. Today, you don’t buy a car or bike; city-dwellers get around with ZipCar or on a Boris Bike. You don’t book a hotel room; instead you subscribe to a bed and breakfast service through AirBnB or grab something last-minute with HotelTonight.

You can even rent a dog through FlexPetz.

Food, flashy cars, and fashion are all available via subscription or recurring payments these days. But what many entrepreneurs don’t realise is how, with subscriptions, launching a company has never been easier.

At my company, Zuora, we dubbed the shift to subscriptions and recurring revenue the “subscription economy”. That economy is growing by the day. In fact, there’s never been a better time to launch new businesses, knowing that you can use the subscription business model for your own needs.

New pay-as-you-go services mean there is now potential to scale in a cost-effective, efficient manner. Most of the things that a company needs to survive – phones, storage space, even offices – can now be handled via subscriptions at a fraction of the immediate capital outlay. Why invest in hard drives when you can use a subscription service like Box?

Phone systems and property rentals can now be handled by companies like Servcorp. With subscription-based services like for CRM, and FireHost for cloud hosting, start-ups have support to automate back-end processes, protect their data, and host their services without the hassle of dealing with outdated CRM or ERP.

Businesses can scale and grow in the subscription economy like never before, and a great number of companies are relying on third-party subscription partners to handle some of their workload.

Additionally, the flexibility of subscriptions make launching a business easier and cheaper. During a company’s life cycle, software necessary for one stage of growth can become burdensome as the company shifts strategy or grows. Google Docs may suffice one week, but Office365 might be needed the next.

Purchasing outright is becoming foolhardy, expensive, and short-sighted – especially when a new business may outgrow the product within weeks. Companies need to rapidly scale a business with new growth strategies and pivot in response to market changes – and to do that, they need subscriptions to the products they use.

Pay-as-you-go services are also more cost-effective for launching companies because they provide a start-up with more reach. They can match customers and companies of all sizes and sectors. Whether you’re launching a luxury retail business or SaaS solution in the cloud, subscriptions can provide customisable pricing tiers.

And organisations have the flexibility to test pricing and packaging at an ever-increasing pace, allowing for longer-lasting relationships with their customers, reducing churn and increasing retention.

Before, subscriptions were used to augment or supplement a business’ main revenue stream. Now, businesses can utilise subscriptions to handle infrastructure, provide flexible billing options, and offer incomparable customer reach – all at a fraction of the cost of conventional solutions.

Subscription offerings are also now just as powerful as the solutions offered by the big boys, reassuring entrepreneurs that if they launch a business with subscriptions, they’ll still be able to scale as fast as and possibly even faster than their competitors.

Tien Tzuo is chief executive of Zuora and a monthly columnist for The Kernel