>Zuora came up with the phrase “subscription economy” to name the trend in which buyers increasingly choose recurring service payments over outright purchases.
It's not a trend where buyers choose recurring payments, but where companies only offer services through recurring payments.
Thank you for this. It made me laugh and makes HN feel like HN.
As I read the blog entry, I was struck by how much apprehension I had about the particular subject (Zuora and subscriptions) and not the theme (making a compelling sales presentation). I was tempted but decided to refrain from adding a comment about the subject and how much I find the "Subscription Economy" disappointing. After all, railing about an incidental matter from a submission rather than its point would be HN comments in a nutshell. So many of us here do it, myself included.
But I was happy—and not really surprised—to see the point had already been made and all I had to do was upvote. But here I am writing a reply to say that it provided me a good chuckle this morning as we get back to work after a holiday break. Back to the ol' grind in the Subscription Economy, eh?
I am also heartened that the #1 and #2 comments on here retain the voice of sanity.
I think this piece and the pitch it references are borderline abuse of the history and context of subscription businesses.
I see the current trend in subscriptions as largely a revolution in pure technology service businesses, where subscriptions are a rational way to pay for them (dropbox, github), along with software producers and their customers maturing to the point that they can mutually acknowledge the need for up-to-date and evolving core capabilities, such as Windows and Office, which can reasonably be seen to require recurring support which has value. (But you can still get a lot done with non subscription versions of Word 2003 etc).
Newspapers, telephones and cable TV have long been subscription based. Subscriptions alone obviously were not able to save newspapers from crushing deflation in their ancillary revenue models of classified ads, which they lost to craigslist and others. Cable TV to date has been much more successful in evolving and preventing disruption in those ancillary lines (pay per view etc) and has maintained a subscription model.
As an aside - everyone thinks Netflix is so wise with their current subscription strategy, I am a paying streaming customer myself, but the number of times of late that Netflix does not have the movie I actually want to watch, but Amazon's pay-per-view model does, makes me realize there are limits to the subscription approach as well. Netflix's model of creating content to justify their subscription is going to stop working eventually, content is a "long tail" type problem and their strategy of self-funding content is going to be increasingly unworkable within a few years.
> Netflix's model of creating content to justify their subscription is going to stop working eventually, content is a "long tail" type problem and their strategy of self-funding content is going to be increasingly unworkable within a few years.
A trend rarely happens on only one side of the demand-supply axis. There is definitely a trend towards subscriptions, especially for SMBs, but enterprise and individuals as well.
It's so much easier to pay a monthly or yearly fee then up front, especially for companies - both in terms of cashflow , accounting practices and stability.
Some companies has gone that route that have customers on both sides of the aisle - adobe is one of them. Their choice alienated some part of their customers, but be sure that many others were glad for the change - probably big companies with shifting employee roster, or those who upgraded frequently.
Sure they do. 3D TVs and bent TVs are two glaring examples of something people never wanted. The only way companies could uphold that view was by ensuring that no manufacturer had sensible alternatives - effectively forcing people that wanted a TV to buy it. And then pretending that the sales were proof that people wanted it.
It is the exact same with the majority of subscription services.
For a company I get that it is easier. But easier for an individual?
I walk twice around the earth before even considering a subscription service. It cannot be simpler than pay once and you are done for life. The reason as to why so few companies offer both is because it then becomes apparent how bad the subscription value is.
Agreed, and I'd add high-end smartphones with <5" screens, and non-"smart" TVs with decent picture quality as things that people still want but are forced into alternatives.
Personally I like the size of the iPhone SE, which has a 4" screen. I've talked to people and seen a lot of discussion on it so I know I'm not the only one.
The screen could be a bit larger if there was less bezel though: An iPhone SE size phone in the iPhone X style could have a 5" screen without getting any larger. That would be perfect.
The Sony Xperia Z5 Compact got the screen size just about perfect for me at 4.6". If someone could build a phone with a Pixel 2 camera, a Z5C screen, the thickness of a V35 ThinQ, compatibility with Project Fi, and an audio jack, that would be my sweet spot.
err... are you implying that there are no alternatives in the market to 3D TVs and bent TVs? As far as I know 3D TVs have basically gone out of market[1] because no one bought them. It is actually the exact opposite of what you suggested - they could not start a trend, even thought they tried to force it on people, because there was no demand for it.
For about 5 years, any tv you found in an electronic store was 3D, and I have yet to find a single person who claims to like them.
Today, every tv is a Smart TV, and yet again, I haven’t found anyone who thought they weren’t awful
In cars theres the same issue with GPS systems: even luxury cars have awful interfaces. Presumably tesla’s is decent (never tried), but otherwise the only interface I’ve encountered yet that met the minimum requirement of a sensible response time (let alone everything else) is a luxury jeep. Mercedes, priuses, bmws, etc are all horrendous.
In phones, the aux ports and phablets
On the web, heavy js
In games, complex 3D graphics (this is very slowly changing, as indie devs begin to realize games existed between 1980 and 2000)
This type of event, where the producers collectively decide what the consumers want, and only produce it, and miss the mark by a mile, definetely exist (these are just things I’m irrated by recently), though I assume incompetence and babdwaggoning over any kind of real thinking going into this. (They didn’t try to force a trend, they just all thought it was the trend, due to whatever terrible research they all do; hell, I’d bet there was one or two marketing firms that were the root cause of most of these messes)
If I recall correctly 3D TVs has always had minuscule sales volume compared to regular TVs. Even in it's "height" there were far more regular TVs sold then 3D ones.
If 3D TVs were able to garner any premium over regular TVs, the electronics companies would have continued selling them. It was, and probably still is, a net loss.
Smart TVs are a convenience that is actually in demand, mostly because it does not add a markup to price - why buy a non smart TV when you can buy a smart one at the same price.
The majority of iPhone users probably use bluetooth headphones.
Phablets are so much in demand, that apple had practically no choice but to build one.
Heavy js and web is a completely different story because you aren't the customer for website with heavy js, and the advertisers, who are the customers of these websites, have a great demand for more javascript.
AAA titles are dominating the market. Indie sales are a minuscule fraction of the game industry market. Why? because there is insane demand for AAA titles, and for that matter for massive multiplayer games - LoL, Fortnite, PUBG etc...
Just because you don't like it, or for that matter the entire of HN don't like it, doesn't mean there is no demand for it.
>If 3D TVs were able to garner any premium over regular TVs, the electronics companies would have continued selling them. It was, and probably still is, a net loss
Sure; the issue is that due to supplier convergence, the only option in a modern tv. If they weren’t so obviously harmful to sales, we’d still have them around, because it’d be impossible to differentiate between negative vs positive impact, simply because nothing else was available to even buy (in that trust/price/quality/brand range)
>The majority of iPhone users probably use bluetooth headphones.
Before or after it was their only choice? Like cars, the presence or lack of an aux port is irrelevant compared to the rest of the purchase. It doesn’t imply one way or the other whether anyone actually prefers it, when the change is bundled with so much more.
>AAA titles are dominating the market
AAA titles are always dominating the market. My point is that there is no way to differentiate between a AAA game being successful because of, despite or irresThe majority of iPhone users probably use bluetooth headphones.pective of its graphical complexity, because consumers simply cannot buy a AAA title that did not spend half its budget on 3D graphics.
This is only changing because a few indie games/smaller titles have seen extreme success despite “weak” graphics (minecraft, fortnite, LoL). Even kickstarter games appealing to older genres (eg The recent CRPGs trend) probably put an outsized emphasis on graphics, despite targetting players of 90s work.
My opinion is that games can get very far with very limited graphics, but looking at the general market its impossible to actually make the case because there’s very few examples where its even been tried. The best you can really do is turn to modern indie, or point out that some older games are still heavily played (WoW, starcraft, quake, etc)
If the whole market suddenly shifts in a particular direction, there’s no chance for competition to rule out an idea as being a bad one.
>I have yet to find a single person who claims to like them
I like 3D well enough at least for the occasional novelty and film that uses it well, e.g. Gravity. There is just about zero content available however. My impression when I bought my TV was that there were certainly non-3D options available. But I got a pre-Christmas deal and I paid about the same as for an equivalent TV that didn't have 3D.
It's the same with Smart TVs. It doesn't really add to the cost of the TV. I just never use the features.
I guess the latest trend is whatever resolution that's an additional increment beyond the limits of human vision. Or maybe OLED.
I do understand that the TV manufacturers are really desperate to drive TV upgrade cycles. The good news is that the new features are mostly harmless if you need a new TV anyway.
And the better news is that if you don’t actually care about these silly new features you can get amazingly great TVs for next to nothing. I saw a 46 inch 4K LED smart TV at Costco for around $300. It didn’t have HDR (the current trendy hotness in the top of the line TVs), so I guess it’s considered substandard, but holy crap that’s a great deal.
Just because it doesn’t increase the cost of the base model doesn’t mean it doesn’t increase the price, just that you don’t have the option of not paying for it.
The actual feature (having netflix, amazon, hulu, etc natively available) is fine; the problem is that its slow, unreliable, prints useless errors, and no matter how much you spend, the interface is always a janky horrible experience. There are also other nuisances like forcing the framerate up to 60fps by frame interprolation, causing everything in 24fps (most content) to look awful, and in certain implementations, jitter.
Some of the things I noted have perfectly valid ideas, but just ..pathetic.. implementations (smart tvs, gps), and others are preferences that get forced onto you (aux port, web heavy-js, game graphics)
But the key is the suppliers collectively decided that this is exactly what the consumers want, and the only option left otherwise is to turn back to 1990 or look to the chinese knockoffs. The ability to signal to the market that this isn’t whats wanted is lost... except by entirely avoiding all recent technological advances.
And the truly strange thing is that there are few, if any, offering the same object but with improved interfaces (with cars it makes sense, the rest of the vehicle is more important; but tvs? video games? What the hell? These should be much easier to find variations on.
> There are also other nuisances like forcing the framerate up to 60fps by frame interprolation, causing everything in 24fps (most content) to look awful, and in certain implementations, jitter.
THat's just a shitty TV. My now almost 5 year old Smart TV handles 24hz just fine... the panel is actually running at 120 so 24 is an even multiple.
Personally, I really like my smart TV and use many apps for stream non-mainstream sports, and the like.
As far as I can tell, its an intentional modification (makes the show look "better"), and I only usually see it on the more expensive, newer home TVs. Whats your TV model/brand?
The markets aren't spectacularly and miraculously efficient, but they're efficient enough that products without demand will not last, with the exception of industry-wide collusion to remove the consumer-preferred option from the market. Game theory says the existence of a wanted-but-not-provided product probably won't last, however. And regardless of continuous cooperation of the participating suppliers, there can always be a new entrant.
Anecdotal on the TV point, but I recently purchased a new TV... no bend, no 3D (didn't even see that as an option), no hassle. :)
>I walk twice around the earth before even considering a subscription service.
I can't imagine going back not having music subscription service. I don't have to make a decision which album to buy anymore and I don't have to worry about my kids pirating music.
That's because the music subscription service was designed from the ground up to be exactly unlike the previous music business model; in fact the spotify model boils down to legal napster.
The problem is when something really has no reason to not be a one time purchase, like companies on instagram charging me $15 a month to send me three new pairs of socks twice a quarter, or maybe they mail me a wooden box once a month with some woodsy smelling beard oil, a leather flask, and a small axe.
Software is moving this way too; but I'm still in the camp that would shell out $25 for a program as is that would still work on my machine decades later even if the company folds or puts out another version, than pay $2 a month for something that might not work at all or fundamentally change its functionality in a year.
I've actually moved to preferring subscription software for things like 1Password (which moved from purchase to subscription).
Software is a moving target where everything else is changing around it - OS, hardware, web infrastructure, etc. and having devs continuing development on a tool I'm using is useful. The subscription model in this case accurately reflects the reality and is better than randomly having to pay $45 on occasion to upgrade to a version that still works.
I'd also argue that Spotify is better than legal Napster with its streaming and music playlist curation. Spotify may be the best software application I use on a regular basis.
That I agree. I've payed for spotify for nine years. But that's reasonable because it is streaming the music. As is netflix et al. Though I have yet to see a media subscription service with decent software. It would be much better if they could provide a decent API that people could integrate it. But that doesn't fit well with the lock-in, and lock-in is apparently the only thing worth doing.
Bent TV probably no since they are mostly viewed with other people, but ultra wide bent monitors are super nice, especially for gaming. I go this way instead of VR which seems to take time to 'get there' (also HW requirements are easier to pay for).
I’d strongly argue the opposite. Even Palmer Lucky himself is finally starting to swear off the VR coolaid a little.
“A lot of people insist on price, but if the VR available today were as good as The Matrix, price wouldn’t be the issue. It’s going to be a combination of better software and better hardware. Right now free isn’t cheap enough for most people.”
I still regard the Rift/Vive as the poorest technology investments I’ve ever made, but if others want to spend thousands of dollars on low res, low frame rate (no, 90-120 FPS is not good enough to adequately trick the human mind) motion sickness generators, have at it.
The install base is, and will remain, far too small to support serious investment in AAA software/games for many years yet I suspect. People love to argue the minute practical differences between the Rift and the Vive, but I’d argue who cares about either when there is so little software worth anyone’s time available.
I had them both before the Rift had its non-xbox controllers. The Rift let in light through the nose, had no room scale (needed to be in a chair), and just generally seemed like a worse experience.
Did things change or are there other reasons you like it? Are the controllers just that much better?
Room scale support came to the Rift via addition of a third camera to your setup. It’s not quite as good as the Vive’s tracking but the difference is pretty small now, small enough that it largely doesn’t matter.
The tracked hand controllers the Rift now has are arguably a little better than the more basic “baton” style controllers on the Vive, although I believe HTC do have a “Knuckle” controller on the way that adds more advanced hand tracking.
The Rift is also significantly lighter and less sweaty on the head, its built in headphones are good enough you can avoid the additional weight of decent headphones, something the Vive pretty much requires.
I do strongly think both systems are _way_ too early for anyone other than insane early adopter types. Given this, I think the Rift makes most sense for no other reason than it’s the cheapest. Both of them will make many people sick even after relatively short play sessions. Neither of them are “good” in my opinion, merely the best it seems the market has managed so far.
>It cannot be simpler than pay once and you are done for life.
Although that's rarely the case. At some point, your OS upgrade--which you probably have to do for security reasons--breaks your five year old program. Or the program doesn't handle some new format or peripheral, etc.
I don't really disagree with your basic point. I dislike money leaks. For online services of various types, I mostly have no choice but I at least want to minimize them with on-prem software--especially for things I only use every now and then.
Adobe is arguably the poster child for a software company for which subscription vs. one-time licenses is a particularly polarizing question among its user base. For companies, it arguably didn't matter much and access to the current versions of the entire portfolio was probably a win for many. At the same time, some Adobe software was and is widely, but often casually, used by a fairly wide range of consumers who were fine with running programs that were a couple versions old given the price to upgrade. (This described me for a fairly long period of time.)
That's really where subscriptions break down. You need to use something every now and then but you don't care if it's five years old as long as it still works.
Of course, one-time purchase alternatives like Photoshop Elements are one option these days as are free programs like The GIMP.
I mean, let's be honest... the major change that happened for Adobe users wasn't the shift to a subscription model, it's the fact that they closed the widely used hosts file loophole that enabled pretty much anyone technically savvy to use the full OEM version of the software without paying for it.
My assumption at the time was they had no choice to go to a subscription model at that time, because the other option would be to instantly demolish the finances of every broke graphic designer out there, which would possibly cause an exodus to a cheap or OSS option and risk their ability to stay the dominant player.
I always assumed that the choice was made due to piracy. I don't have any stats, but Photoshop had to be near the top of the most pirated software list, if not at the top.
On that side of the coin, I can't blame Adobe for going to the subscription model. On the other side, it's a real kick in the ass for casual users.
I worked in Graphic Design for 15 years, and always kept a personal copy of Adobe Photoshop and Illustrator. I didn't upgrade every version, because right around CS2, the upgrades weren't worth it, imo. I still have a pre-subscription license that I hope keeps working, because as a person who only opens it up once a month, it's simply not worth the price for me.
>Photoshop had to be near the top of the most pirated software list //
Which has maintained its position as the de facto standard which may otherwise have leaked away if the students/early career users couldn't have used cracks.
Actually the way you describe it Adobe didn't lose anything - they angered the people who already didn't care to upgrade, and supported the preferences of those (businesses) who are paying them on a regular basis.
No disagreement. Aside from a few consumer and prosumer products, Adobe has always kept a hard line that their primary customer base is graphics professionals who are willing and able to pay for a premium product. At a time when retail software generally was dropping in price, Adobe maintained its pricing on most of its products. It's a strategy that's generally worked out pretty well for them during a period when business models around selling software have become much more challenging.
When my kid wanted to do animated vector graphics, I looked at the options. There was a $22/mo subscription option with Adobe, and there was a competitor whose product I could buy outright for $30. I went with the competitor. Two months and 10 projects later, my kid has moved on to other interests. I ended up saving $14 over those 2 months. In fact what would have happened is I would have paid for 4 or 5 months of subscription until I got around to noticing that they haven't been using it lately, then I'd have to jump through whatever hoops they have set up to cancel the subscription. With the software I purchased, when they want to go back and do a couple of more animations in a few months, I won't have to worry about restarting a subscription.
I suspect that at this point, they're so dominant among graphics professionals that most broke freelancers are going to feel that they have little choice but to suck it up and pay for the subscription. I'm not convinced the subscription was a direct response to closing a widely used activation loophole but I'm sure piracy more broadly played into Adobe's thinking. Given that they maintained almost uniquely high pricing among software widely used by consumers/prosumers/freelancers/etc., there were always extremely high incentives to bypass Adobe protections.
At the same time, as you suggest, those large numbers of non-corporate users almost certainly helped Adobe emerge as the de facto standard that it became.
If all you need are Lightroom and Photoshop, yes. The full Creative Cloud is $50/month for professionals. This is a pretty good deal if you would otherwise have purchased a bunch of apps but Adobe doesn't really provide a subscription option between single app and everything.
There are real merits to subscription models, not only in accounting but in risk avoidance (you haven't paid up front) and support (the vendor has a cash incentive to keep you happy). There are obviously drawbacks too, like lock-in and the risk of a vendor collapsing, but in some cases it looks like a good decision.
As far as consumer-facing? I'm not so sure.
Lots of companies, especially the ones with protected IP or network effects, can kick their customers around quite a bit without shifting demand.
I don't want Microsoft Office to be subscription based. I've never met anyone who does, unless what they actually wanted was the online storage subscription. (I know some people who initially said they did because they didn't want the menus to keep changing on them between editions, but then the subscription version developed the same problem.) But it's a real fight to avoid their implicit network when people keep sending me .xls files or formatting-dependent .docx or all the other things Open Office won't actually manage, so I (or rather my employers) end up paying the subscription.
Spotify, Hulu, etc are more popular, but it's still fairly telling that no one offers direct purchase of TV shows in anything short of ultra-expensive box sets. Even buying music and movies outright has become increasingly tough to do. There are probably people who will save money even with a lifetime Spotify subscription, but I suspect people who don't vary their listening a lot lose out compared to direct purchase, and people with tastes not easily provided by one streaming service have definitely lost out. It basically looks like IP holders shied away from direct sales as soon as they couldn't inflate costs by overpricing a physical medium, and left consumers without a choice.
The last category are I suppose subscriptions offering consumable products on a schedule, like Dollar Shave Club. These have more obvious value - there's no lifetime purchase possible, so it's not much different than a "reorder monthly" option. But even here they mostly seem to be succeeding by offering novelty or taking on markets that have been overpriced for ages.
I'm not sure I can think of a consumer-facing subscription product equivalent to e.g. CircleCI - something that could be sold as a lifetime purchase, which is instead sold as a subscription - for which buyers voluntarily chose a subscription model.
TiVo has a lifetime subscription but I assume most people go for the monthly.
Most consumer-oriented services (Spotify, Apple Music, Netflix, etc.) could be sold with a lifetime option but I suspect the balance sheet liability would be unattractive to most companies and the big upfront payment toward an ultimately unknowable future service would be unattractive for most consumers. (Will the company still exist? Will I still want the service? Will the company come out with a new and better service and put the one I paid for on legacy support?)
>Even buying music and movies outright has become increasingly tough to do.
Really? I admittedly don't do it a huge amount but my impression was that CDs and DVDs were still pretty readily available for purchase on both physical media and digitally.
Microsoft Office is still sold as a one time purchase if you prefer. Although Microsoft is getting quite annoying with in app messaging encouraging people to switch to the subscription version. Also the onedrive storage is a very good value by comparison, so you’re basically burning money to buy the one time purchase version.
As for music, TV shows, movies, it’s definitely possible to buy them rather than using a subscription service. Music is the easiest, Amazon and iTunes still offer MP3 purchases for reasonable prices that you can play anywhere and not have to worry about DRM. Movies and TV shows are more complicated because they all have pretty crappy DRM and the pricing is kind of ridiculous, but it is possible to buy them outright.
As much as I hate how everything is moving to subscriptions, there are occasions when I prefer it. For example my Plex pass, I don’t really trust that the company will be around and providing enough value in the long term for me to invest in a lifetime subscription even though it is offered. And so I pay annually and sometimes I don’t renew. I think I paid for 3 out of the last 5 years, depending on how much use I’m getting out of it.
Oh come now. Subscription software is simply a system by which software developers can ensure a continuous revenue stream, independent of the value of any ongoing development they do.
On the other hand, traditional licensing provides an incentive for companies to hold back feature enhancements and bug fixes to encourage users to pay for an upgrade to the next version.
Not true. I work in the enterprise software space. We definitely noticed a strong trend, starting around mid-2010, where prospective customers started shying away from one-time, upfront purchases and demanding a subscription model.
The reason is simple: one is a capital expenditure, whereas the other can be categorized as an operational expense. With a subscription model, even if you end up paying more in the long run, you realize the return on investment almost immediately.
I get the feeling this is something they always wanted, but the software business model had to catch up to that need.
Thinking back to my first job as an EE in the early 90's, I clearly remember the new owner of the company who had been a CFO in his previous life, trying to figure out a way to move our hardware sales to a leasing-type model. His experience as a CFO led him to the conclusion that larger companies would prefer to bill items to OpEx rather than CapEx for just the reason you said.
>>I get the feeling this is something they always wanted, but the software business model had to catch up to that need.
It's more that the need manifested itself with the economic crash, as companies realized they would rather keep as much cash as possible in the bank in order to more successfully navigate the uncertain economic climate. Subscription model satisfies that risk aversion.
I keep hearing this "capex vs. opex" argument from time to time; are there tax benefits to this, or something else that justifies putting the same costs under different label?
Yes. Cash at hand is very valuable. It cushions you against certain types of business risk and also gives you the ability to pounce on opportunities that may come up (e.g. acquiring another company).
In some companies there are also budgetary reasons. For example, a department may blow their capex budget on something early in the year. If you have a payment model that supports regular payments, the customer can still buy your product, as opposed to having to make room in next year's budget (which is not only not guaranteed, but also delays the purchase).
But the biggest reason is ROI. Let's say there is a software that will save your department $1000 per month. You can either buy this software for a $24,000 one-time payment, or for $500 per month. If you do the former, it would take you two years to start realizing the ROI. If you do the latter, you start realizing it immediately. And of course, if you don't like the software, you can always cancel your subscription, which means you're also protected against the risk of, say, buying something that never gets adopted by the users (or project failures, etc.).
Even for individuals, it can be useful. I've taken out loans for vehicles I could technically have afforded to drop the cash for (turning a one-time expenditure into a subscription, basically), but dropping the cash would have in a stroke eliminated my entire cash reserve. I'd rather have a (secured) loan at what was at the time an absurdly low interest rate (in the end I think I paid ~$300 interest total) and still have my reserves around for the entire time, rather than had a window of time I would have been lacking reserves in.
As it happens, I would have been fine just dropping the cash. No major emergencies occurred. But I didn't know that at the time.
Interestingly enough, there are arguably better tax benefits towards capitalizing licensed software (Capex), instead of subscriptions (opex). I have a lot of PE clients who actually prefer CAPEX because it can make EBITDA look larger, but like the simplicity of OPEX.
My understanding is that capex purchases must be deducted over time, but opex costs are deductable immediately. Moving tax deductions sooner is generally a good thing, although, as a sibling pointed out, moving the deductions later makes your current net income look more attractive, and there are many reasons that deductions in a layer year could be more advantageous in specific situations.
When I was running my Web Agency, we gave the client two options, one was an hourly rate, the other a monthly subscription.
A majority of our larger clients took the subscription since it came with a few more benefits in service and response time. The smaller clients wanted to have us doing ala carte work which was also fine.
The best part about our sub clients was it built a closer relationship with us. Communication was easier and more streamlined and it was easier to show a real value to the work we were doing on a month to month basis. Our hourly clients didn't care about analytics, they just wanted a part-time content manager or someone to upgrade their design every now and then.
It was easy for us to continue to have the incoming revenue and plan a budget based on those numbers. Our smaller hourly clients were just frosting on the cake. We never would have gotten so many smaller companies on board if we only offered sub services to them. The hourly rate was perfect for them to keep the work manageable and on-demand and still within a reasonable budget.
My other friends who did the same thing would simply charge a bulk rate for the design and development and then once the site was released, they had to find another client willing to dole out %5-$10K for their services. We built long term relationships with our clients and were able to tailor future services to their needs - which totally blew my friends mind. They were so opposed to a sub based service, all they wanted was the money up front which was a total red flag to me.
>It's not a trend where buyers choose recurring payments, but where companies only offer services through recurring payments.
If a firm could be profitable and offer out-right purchases relative to recurring payments, why aren't they doing that? Let the market be rife with only recurring-payment firms. A purchase firm enters with higher prices, if they fail to succeed, it's "buyers [are] increasingly choose recurring service payments over outright purchases."
Get where you're coming from, but I don't think they're entirely wrong. Whilst you can't buy Photoshop once now (your point), there are plenty of models where the choice is still there. Netflix and Spotify both have one-off purchase equivalents. You can still buy Jira as a one off purchase instead of SaaS.
Please describe how Spotify and Netflix offer these lifetime price one-time purchase options.. quite well hidden in their exclusively subscription pricing
In the enterprise world, many companies prefer recurring payments (opex). Reasons include...It's risky to invest large sums early on in a project without knowing the outcome. Also easier to get approvals for a smaller recurring payment than a single, large sum
1. I disagree with the underlying premise of the article - the deck is unimportant.
2. I disagree with the reasoning given as to why it works.
Firstly the deck is unimportant because - as the ex-employee quoted at the end said: the prospect is already sold thanks to the marketing and branding campaigns run by Zuora. The deck is superfluous.
Secondly, the reasoning that Raskin often gives as to why this works is based on the fact it follows the "storytelling" formula that Hollywood uses. He liberally uses examples of Star Wars and other films in his articles.
But we aren't characters in a movie.
Rather than looking to what motivates characters in a movie to act as a model for persuasive messaging, we are better looking at what persuades people to act in real life.
Arguably religion and politics are the most persuasive forces on the planet.
And the real reason Zuora's message works is that it follows the same formula (and has the same elements) as religious and political ideologies.
1. There's a heaven and hell (for Zuora, heaven is thriving and getting more customers and hell is losing one's business)
2. There's a devil which is stopping us getting to heaven and sending us to hell (for Zuora this is the traditional business model of single non-recurring purchases)
3. There's a doctrine that needs to be followed to get to heaven & avoid hell (for Zuora that's the subscription business model)
4. There's a leader that provides the tools and solutions necessary to implement the doctrine and get to heaven (for Zuora this is their solution)
Viewing Zuora's success through this model, through this lense, makes more sense than Raskin's model.
There are plenty of other examples. Hubspot is a great example - they used (unconsciously) this model to sell the concept of inbound marketing. Check out this article on the subject - https://bit.ly/2Ov3NCT
Seems as though you actually agree with the article's premise, which you mistook to be about the sales deck.
The point is that your messaging should be about what the buyer needs, not what your product does. You happen to have different packaging for it (as do I[1]), but overall it seems we're in agreement.
No business in the world needs another product or solution. No business needs a subscription-based business to thrive. Nor does every business need to do inbound marketing to survive as well. Plenty of businesses thrive without it.
What Zuora and Hubspot (and many others have done) is use the same principles as religion to sell an ideology to their potential customers - an ideology that makes them think that they need what is being sold otherwise a horrible end (hell) awaits them.
There are similarities in the language - yes we could say that Raskin's promised land is my model's heaven.
But there is a major and important difference.
Raskin's model postulates that the promised land (heaven) should be the point of the whole story. For him, the whole story should be geared towards selling the promised land. (look at his other articles, he states that the promised land aka heaven is the most important part of any story).
But this is wrong.
Heaven (Raskin's promised land) is the same for most businesses operating in the space. For example, if you sell B2B the heaven you'll be selling is the same as every other business in B2B - "more money".
What these businesses are actually selling is a new doctrine. That is the point of the story - to sell a new way of thinking.
Hubspot sold the doctrine of "inbound marketing". Their heaven (promised land) is more clients and more money.
Zuora sells the doctrine of "subscription economy". Their heaven is the same as Hubspot's.
Drift is selling the doctrine of "conversational marketing". Their heaven is the same as the other two.
David Allen is selling the doctrine of "getting things done". His heaven (promised land) is "more productivity" and this is the same as every other productivity coach in the world.
What enables these businesses to distinguish themselves from each other and their competitors is not the promised land (because it's the same as virtually everyone else's) but their doctrines.
My model is a more accurate explanation of what is happening. That's important because we use models to recreate them for our own situations - you need an accurate model in order to do it right.
As Dharmesh Shah himself put - their success came from creating a quasi-religion of "inbound marketing".
This is how this model views it - through the lens of religious and other ideological story-telling, and it more accurately fits what these companies have done.
I don't think it's necessarily about what the buyer "needs", as much as appealing either to a big "want" or avoiding a significant loss.
Many of these companies probably don't "need" a subscription model, so Zuora focuses on the negative they're avoiding (getting left behind). From my experience, convincing someone to avoid a loss is way easier than convincing them to pull the trigger on a big win. This is a huge reason why people continue to invest with money managers instead of doing the mathematically better option of buying index funds: the money manager promises to preserve capital, whereas the index fund lists shows that it outperforms manual money management on average (big win potential).
In many cases, you're focusing less on reason and more on emotion, and you use logic to drive it home. People are more emotional than logical ("nobody ever got fired for choosing IBM"), but they need a logical argument to justify their emotions (IBM solves our problems and isn't going away, so the higher price is justifiable).
Speaking only for myself, when I'm an investor, I wanna know stuff like:
- cost of customer acquisition
- gross margins
- revenue growth
- size of market
- yada yada
That being said, a slick pitch deck is nice to see. It makes me feel good, which never hurts.
I only invest on the fundamentals of the business.
If a startup had great numbers AND their pitch deck sucked, I'd stikk give them the money. If I had specific thoughts on how their pitch deck sucked, I might offer suggestions on how they could improve.
From what I've read, that kind of stuff belongs at the end of the presentation. Get them on board with the vision and the problem, then justify it with figures they can use to justify buying in to your solution.
The original Star Wars script was heavily influenced by an analysis of ancient and religious mythologies, so it's not surprising that you're seeing the same themes.
So basically anyone that can understand the basics of a good salesman from Wolf of Wallstreet can land deals better than the “moderate” personality types that have been shown to statistically deliver better sales results for most companies? Am I missing something about how those studies were conducted that this emotionally based rather than fact-based approach is better at conversion rates than a mix of approaches? On the flip side, is this why more successful people have a habit of defaulting to “no”?
I wouldn't think this as an "either / or" approach: in my experience, a sales pitch and a deck are very rarely the deciding factor in closing a sale, however they can help tremendously.
The key aspect here is that a pitch like the one described is usually made to very senior people in an organization, who have little time and mental bandwidth to endure through a list of facts and figures and shudder product features: getting them invested in the result that would come from adopting the product/service is the ultimate goal, not closing the sale at that stage. You still need to do all of the good (i.e. fact-based) salesman work, but that is done at a different time: either ahead of the executive presentation (in which if you did things right you may have the buyer on your side in making a case for using your product/service), or as a consequence of it.
To me what's interesting is not the deck itself, but the focus shown by the company on sticking to their marketing points and on enabling their salespeople to do their job more effectively (you have no idea how many times I have had to figure out on my own what to answer to a prospect that was asking "what makes your company/product/service different from any of your competitors?"...).
I learned much of what I know about product marketing from Tien (CEO of Zuora); as this thread demonstrates its hard for a lot of product / developer folks to understand why its such an important part of any non-consumer offering, as so much of customer development culture is focused exclusively on metrics and optimization.
#1. Name a Big, Relevant Change in the World
#2. Show There’ll Be Winners and Losers
Is it common someone will invite a Zuora sales rep to give them a presentation, if they don't _already_ think they want to launch a subscription product?
I would have guessed most people attending sales presentations would be looking to fulfil a need they had already identified.
Enterprise sales typically involves some "champions" inside the customer's companies looking for solutions to problems they currently have. They do have the need already and vaguely know what the needs/goals/benefits/challenges/costs are but not in crystal clear terms. They are looking for "experts" i.e. you to come in to spell those out and educate them. They are evaluating a bunch of companies and technologies. You have to make your sales pitch stand out of the pack to get the deal.
Part of the sales process is to identify those internal "champions" and supply whatever materials/ideas/education to them to make their jobs convincing the others inside the organization easier.
A good sales deck like the one in OP makes a huge difference. I remember going in with a sales guy to a big bank customer meeting once to pitch our pre-alpha product (yes, we were still building it). My God, his sales deck was amazing. I was convinced myself after listening to his presentation and wanted to buy our product. We got the multi-million deal at the end, admittedly with lots of help from engineering during the sales. :)
I assume someone involved wants to launch a subscription product, yeah. And that person probably doesn't care about hearing how subscription products are really great.
But since this is B2B, it's pretty likely that not everyone at the buyer's company is convinced on the project and looking to buy a product. They might want to in-house everything, or not want a subscription product, or just be someone up the chain who doesn't know about the topic at all yet. It's one of the weirdest things about enterprise sales - it's not just informing people that products like yours exist, or pitching your merits over competitors. Instead, it tends to mean bolstering the business case someone at the company is already making.
(Actually, that might well be why the guy at the start of the story failed. I've seen people sell their product to employees as the best option for their needs, then lose out because management decides there's no need at all.)
You're right about a significant proportion of sales presentations, but not everybody in a company being presented to is necessarily fully in agreement about the scale and imminence of that need.
The "insight sale" format - where you attempt to show something very big is happening to their industry which you just happen to have part of the solution for - works in some situations better than others. It's a much more interesting presentation at an industry event than simply talking about your product. It's good at persuading a sceptical senior management that the underlings who want to implement your solution are focused on the right priorities. It can be a snappy introduction to the "??? -> Profit" part of the presentation with the more relevant benefits and technical details when your presentation is targeted at more motivated customers (but it's not a substitute for nailing that bit and if you're still waffling on a high level about subscription economies when their tech team wants to understand why integrating your service is better than rolling their own, you probably screwed up)
Sure, on the many occasions where the potential client is going to have a far more specific reason why they want a subscription model and why a third party SaaS solution might be the most efficient way for them to implement it you can do a lot better than the generic example material in the article. A presentation/discussion which opens by understanding the client's specific Big Relevant Changes will be further ahead than one with a cool buzzword and examples as generic as Dollar Shave Club and IBM. But the killer bit isn't the buzzword or trend line, but emphasising that there are potential losers and winners (in that order) from business decisions related to buying your product, and not taking for granted that the client has already figured that bit out.
Bonus points for being able to amaze them with a stat when you switch from talking about losers to talking about winners (I bet Zuora's full client presentations have some compelling and market-specific figures showing client's sales revenue growth after switching billing model)
You may or may not resonate with this particular article's theory, but I like seeing things like this posted here because you can collect more and more examples. The textbooks will take you only so far though... ultimately you need to go take the in-person exam.
Sales is a complex art, and a story that resonates is extremely important. People don't remember details, and they don't buy numbers or features. They buy solutions, and sometimes that's an answer to a problem that they didn't know they had.
Marketing to create customers requires that your audience agrees with your premise in the first place, otherwise you'll never get to step 2. However, of course everything is contextual and this approach is more about opening deals, especially at large enterprise organizations. This is not something you would send to a prospect's IT department, and is not meant to compete with a price-features matrix, but rather it forms your company's brand and creates trust and familiarity in your market.
I met the author Andy Raskin a few years back. He's a great guy and definitely understands marketing, and I highly recommend taking his course in SF if you get the chance.
This strikes me as similar to a lot of investor pitch decks. It's not a bad approach, but the 'visionary' parts might be difficult for some sales people.
Thanks for this - the writeups on Monroe's Motivated Sequence help me understand why this deck works, and this deck helps me understand Monroe's sequence (without this deck, it I came across most of the writeups on the the sequence, I would have ignored them because they illustrate it so poorly)
"Yeah, I just need to run to Home Depot and get some more nails"
A deck is that wooden structure on the back of your house. A power point presentation is an electronic file made up of "slides". There is also a "deck of cards", but no one calls a deck of cards just a "deck". Maybe if they called it a "deck of slides", or you know just use a term that makes sense, like "presentation".
It comes from "slide decks", because not too far long ago, presentations were made with actual 35mm transparencies which were slid into a projector, and were carried in decks.
I've always disliked it because a "deck" is stack of small, flat things, canonically, playing cards. A set of PowerPoint slides is not small (they are usually wall sized) and they are not an actual thing I can carry around. I think of a set of PowerPoint slides as a “PowerPoint presentation” or “PowerPoint file”. I guess I could let “slide deck” slide, because a stack of slides would be “deck”-sized, and I assume that sales presentations back in The Day actually were slides of some sort.
To me, a "sales deck" (current title is "The greatest sales deck I've ever seen") implies a stack of playing-card sized marketing material, or a joking reference to your stack of business cards.
It's a narrative flourish irrelevant whose accuracy is irrelevant to the pitch, except that it sounds attractive to say "customers want this" vs "customers are powerless to reject this". For a business, it matters that the trend exists; the cause doesn't matter.
Hmm, the cause does matter. If customers want it and you're not giving it the risk is they'll go elsewhere to find it; that's why it is sold in that way, to apply pressure: "if you don't do this you'll lose customers" hits the businesses who are already succeeding.
If it's "other companies are selling the idea to customers that they should move to a subscription model" then the company you're pitching your subscription service assistance to can decide to promote the purchase model instead of going along with convincing customers to buy in a different way.
There's a lot of griping about the "subscription economy" here. In light of this, the fact that their sales deck is (apparently) successful indicates that it is indeed highly effective.
That is, it sounds like they have an uphill battle, and apparently this deck has helped them gain ground. I'll give these techniques a try and see if they work for me (even though the clickbait title irks me).
interesting. but slightly off topic - do sales guys construct their own decks? surely decks need approval / sanctioning before distribution to prospects? don't firms have their own decks for sales people to leverage?
It really depends on the organization: the Holy Grail is to have a well developed Sales Support function that prepares decks for sales people from a data source which is pre-approved (some investment banks have that, it's awesome) so that the Sales people can focus 100% on doing their thing.
In smaller, scrappier companies or just in less "sexy" industries, sales people are known to prepare their own decks and whether prior approval is sought is really to the mercy of the individual's integrity and savvy.
Even in the biggest companies, Sales people make the choices about which resources to pull into their pitch deck, but yes, there is a corporate template with a typical flow.
Most sales people I know pull from existing corporate collateral then tweak for particular opportunities.
The reason is that good pitch decks can be excruciatingly hard to write. Writing includes the storyline (obviously) but also details like PowerPoint formatting. Relatively few sales people have the time or experience to do this from scratch.
Actually the OP is an excellent reference. Story-telling is a powerful rhetorical device. That said, you can't apply it blindly. You need to think about things like who is your audience and what punches their buttons. Here are two examples:
* If you are selling to techies it helps to show though-provoking technology (demo or striking concepts) very early to catch their attention. Business value may or may not have much impact.
* If you are selling an internal project to corporate execs it's common to have enough on the first two slides so that you can make the pitch successfully even if the conversation diverges from your agenda in the first few minutes. I would also ensure that they can read out how it will enhance their careers/position in the company pretty easily.
Figuring out what to say in a pitch is an old problem that many people have worked on. The ancients had a surprisingly good grasp on solutions. It's worth glancing at what they had to say [0] along with modern views.
No, in many companies, different sales people thrive on different sales strategies. Good sales decks are not feature reviews; like the article says-a deck is a launchpad for discussing a compelling narrative, which is why they’re only really effective as part of a presentation (as opposed to a downloadable resource).
I also think it's probably better if you have your own sales slides, because other people's slides might not fit your presentation style.
I did prep a few sales presentations for my former boss though. He just didn't have the time.
There is usually a review though. Depending on what industry you're in you can't promise certain things, and often the company wants a bit more control over outward presentation.
The author misses the significant issue that this ultra-simplistic approach works only with the simplest USP businesses: established markets with a single environmental factor driving change and a single paradigm shift in response.
More complex businesses, blue ocean (new market) businesses, businesses combining insights from multiple trends or with multiple layers of innovation will find this approach completely infeasible.
Could it be that your description of Zuora as a simple USP/single driving change business is actually a testament to the simple way they tell their story? I'm the author of the post, and every business I consult with is, as you say, "complex...addressing multiple trends or with multiple layers of innovation..." That hasn't stopped any of them from crafting a similarly simple story -- starting with a single change. Usually that means either (a) focusing on the most important one; or (b) naming a change that subsumes many of the others. Getting leadership teams to align around one change isn't easy, but I'm getting better at it :)
After I published the post, Zuora released a version of the deck that I assembled from their public slides at https://www.zuora.com/resource/best-sales-deck-ever/. It's not the deck I got from their ex-salesperson, but IMO what you can learn from it is similar enough.
LOL this comment thread, what is everyone even talking about? people fighting over different vr headsets and whatever size phone they prefer in the context of a powerpoint presentation hah
Everyone likes to think that sales and marketing doesn't work on them. More often than not, I find this attitude in people who have no decision-making authority anyway.
I see the point made here though. The actual sales pitch isn't for a moment talking about the actual solution, like in this deck what is being sold here? is it a SaaS product? Consulting services? Business Advice? How long will it take? What's the ROI? Who does the work? Does it work with our current systems? How much does it cost? What does the ongoing model look like?
Of course you will go on to answer all of these in detail, but the deal is practically won by the time those questions are asked. And that's how you end up with poor software or massive enterprise consulting contracts that aren't helpful to anyone. Meanwhile the sales team goes off and hunts down a fresh client.
Don't forget that the sales narrative can also be _true_. In other words, giving context, perspective, and a vision is a necessary part of understanding the solution you're providing. How many companies have been bought and sold to others' dismay? ("How can surveys be worth $8 billion?!?") Context.
That struck me less like "subscription economy, wink wink, here's a hot chick and all the associated connotations of women and payment" - and more like "it's the subscription economy! everything is great! here's a happy person to represent the future potential"
It's absolutely a deliberate choice to include an attractive woman in that slide's background photo, just as it was a deliberate choice for the doors to be gold.
I'd guess that people looking at the slide most consciously notice the conspicuous gold doors.
But we all also notice that there's some sort of person standing there. That person is greeting us with a smile.
We may not process it consciously, but many viewers of the slide are definitely also attuned to the attractiveness of the person. We might notice the bare legs, the skirt, the shoes, the braid of hair casually laying on the shoulder. The bit of midriff showing.
Many readers will think "sexy" even if we're not aware of the thought.
This choice is intentional, because sex sells.
The majority of the intended audience is straight men, so this is probably an effective sales practice, but at the same time it strikes some of us as cheap. The body of the woman in this photo is being used as an object and simply as a means to an end. And the audience is being appealed to on a basis unrelated to the value of the product for sale.
Try these ideas:
- Imagine the same photo, but where the woman is dressed in [more modest] business casual attire, holding a binder with notes for an important meeting.
- Imagine the same photo, but with an attractive sexy man smiling at us. Maybe he's showing some toned biceps or perhaps even a glimpse of abs.
- Imagine the same photo, but with a middle-aged white man dressed in a suit and tie.
- Imagine the same photo, but with a large black woman beaming confidence in formal business attire.
In all of these cases (except maybe the abs), you probably wouldn't consciously notice the details, but they would definitely all color your subconscious impression differently.
I agree. That particular slide really struck me as being "attention grabbing" in a way that had nothing to do with the actual point they were making on the slide.
It's a cool photo and visually appealing but I cannot think of a single thing about the image that has anything to do with the idea that "we are all living in a subscription economy."
I can think of some slides that would evoke that. Like a slide with an animation of money flowing out of my pocket incessantly as calendar pages are torn off a calendar. :)
I am feeling a bit biased against the "subscription economy" right now after only narrowly avoiding the "router as a subscription" that my internet provider wanted to saddle me with this weekend when I upgraded my plan.
Thanks, I completely agree. The image has little to do with the caption, and it is very carefully crafted to be subliminally suggestive rather than overtly sexual.
I'm not saying these things should be censored or permanently banned--
--However, I am definitely saying everyone should strive to be better than this.
Zuora should use neutral imagery and win deals based on technical and reputational superiority. If they're winning because of a flashier pitch deck, then my post is lamenting this irrational form of deal-making :(
You know how they say there's no dirty words, just dirty minds?
This comment reminded them of that. Talk about going around looking for a chance to be offended.
This is just a stock image to add some human element. It's not 'let's put a sexy image there'. It could have just as well been some guy on the street or whatever.
Nor does "skinny young blonde girl's legs." mean anything. She has legs. Most of us do. They aren't prominent, nor is she provocatively dressed. Or what that she's blonde? If is she was redhead or brunette one could just as easily talk about "skinny young brunette's girl's legs". It's not some sexual image, end of story.
It's not a trend where buyers choose recurring payments, but where companies only offer services through recurring payments.