By Tien Tzuo
*A Book Review*
by Michael C. Gray
© 2022 by Michael C. Gray
Being in a digital age, we are witnessing a huge shift in how businesses are conducted and organized.
Since the Industrial Revolution, companies have been obsessed with their products and producing them with the maximum marginal profit. The product was the governing principle around which everything was organized in a straight line. Enterprise resource planning (ERP) systems were developed to measure and improve operational efficiency of these processes.
Today's customers are moving away from ownership of possessions to focusing on outcomes. They want the ride, not the car. Companies responding to that shift include Uber, Lyft and Zipcar.
Author Tien Tzuo visualizes a new model, shifting from the "company to consumer" linear model to a circular model of providing experiences and services focusing on the customer/subscriber. He calls it "the Subscription Economy", where the whole world runs "as a service": transportation, education, media, health care, connected services, retail, industry.
Tien Tzuo's company, Zuora, is a Subscription Economy software as a service (SAAS) provider supporting companies that are implementing the subscription approach, including automated billing and collection and compiling key operating statistics.
Companies are becoming more concerned with knowing who they are selling to. Instead of creating products they think are good ideas, they are finding out what their customers want and providing it to them.
More companies are tracking their customers' purchase history. For example, you can see your own purchase history in your Amazon account. In the past, most companies couldn't tell you what a customer's last purchase was.
More items are being set up as ongoing services. For example, Apple will automatically upgrade your iPhone to the latest model when you have subscription contract.
Gillette's share of the US men's razor business fell from 70% in 2010 to 54% in 2016, because more men are buying online on an auto-ship basis from Harry's and Dollar Shave Club.
Manufactured products are now designed with sensors to collect data that can be studied to better understand user behavior and to monitor when products need to be serviced.
Tien Tzuo describes the PADRE operating model for businesses. It's a way of visualizing a company as an integrated organization composed of eight subsystems, all tied to the customer. The PADRE subsystems are pipeline, acquire, deploy, run and expand. These subsystems are supported by three "back of the house" subsystems: people, product and money.
Zuora has developed The Subscription Economy Index to measure the growth metrics of companies around the world. Two of the components are ARPA, average revenue per account, and net account growth. For business-to-business companies, growth rate is the leading indicator of a company's success. According to McKinsey, in the software sector, a company that grows less than 20% annually has a 92% chance of failure. For business-to-consumer companies, net user growth is the key metric.
To better understand the transition to digital and how it is changing the global economy, get and study a copy of Subscribed.
Buy it at Amazon: Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It.
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