The Subscription Economy Is About Strengthening Customer Relationships, Not Just Recurring Revenues

Editor’s note: Tien Tzuo is the CEO of Zuora, a subscription billing company. Follow him on Twitter @tientzuo.

TechCrunch recently ran a post by Ray Sobol, founder and CEO of EvidencePix, called It Might Be Time To Ditch The SaaS Monthly Subscription Model. In it he argues that a pure pay-as-you-go approach is better than a monthly subscription model because customers only pay for what they use.

But Sobol is missing the point. One hole in his argument is that it undervalues the importance of predictability for customers. For instance, in the mobile phone world, many consumers like unlimited voice or data plans, because they don’t want to feel like they are constantly “on the clock.” In addition, he seems to be advocating for a reduction of options for customers. In the same mobile phone world, customers enjoy a buffet-style approach to pricing: prepaid, monthly usage buckets + overage, unlimited, shared, family plays, simple monthly unlimited, à la carte. The options are as diverse as the cell phone industry’s customer base — and it’s only becoming more diversified.

This is doubly true for businesses that need to budget and forecast and hate getting bad surprises in regards to how much things cost. Finally, from a vendor’s perspective, having predictability allows them to plan better, be more efficient, and pass down the costs. Otherwise, the per-unit costs may be very, very high.

It’s not about subscriptions versus pay-per-use. Just as industries have different needs, businesses and customers are different and so have varying needs. There is not a single pricing model that is best for everyone. We’ve found that offering a plethora of options is often better for both customers and vendors.

The subscription economy is a shift from viewing what you offer as widgets to be sold one unit at a time to a service that customers use. When we talk about the “subscription economy,” we’re not talking about putting everyone on the same $10/month plan. If some customers want a pay-as-you-go plan, you give that to them. If other customers want the predictability of subscriptions and are willing to pay for that, you accommodate them. Maybe some customers are willing to sign long-term contracts, because they love you and don’t mind showing loyalty for a good deal. And maybe other customers are non-committal and want month-to-month contracts.

Whether you’re in software, media, transportation, retail, or manufacturing, we are moving to a world where more and more of our needs are fulfilled by services. And in this world, pricing models need to change all the time. You’ll constantly need to alter your customer preferences and your own business objectives, and respond to your competition. I’d argue that the point is not to say that one business model is better than the other. Instead, the point is to have flexibility.