Subscriptions in the Enterprise
If this is going to be the year of the platform, it will also be the year of the subscription business model. The real reason for any description in the context of "the year of" is that it is shorthand for "hey, this stuff has reached critical mass, and it's now time to pay attention or risk having your lunch money taken." So it is with subscriptions and their enabler, the software platform.
01/22/14 9:11 AM PT
This is, I hope, the last time I drag out the "year of" phrase attached to anything significant unless it's the year of MY Tesla, and that's highly unlikely.
Curiously, subscriptions and platforms have grown up together, even though neither is yet a necessary or sufficient requisite of the other. ZipCar and its ilk don't have formal platforms and the idea is not relevant to their models. Wireless vendors all have homegrown platforms -- primarily to run their Byzantine pricing and billing models -- and while that's closer to the heart of the matter, it's still off center.
Software platforms have lately become the enablers of subscriptions, just as subscriptions have opened up the market for platforms. Platforms may be the saddle point of maximum technology flexibility and business agility, along with lowest cost to operate, which fits well with the subscription model.
The state of subscriptions is the focus of a report that came out late last year from The Economist's intelligence unit. It's nothing that I haven't been saying for the last five or six years, but the Economist name adds some prestige.
To recap, subscriptions are good at enabling customers to get exactly what they want without the added cost and overhead of ownership. Subscriptions also enable the CFO to spend limited funds more incrementally and thus get greater value for every hard-earned buck, pound or euro, etc., etc. What's not to like?
However, one thing the report takes to the next level is the idea that subscriptions now have sufficient critical mass to be seriously evaluated by the enterprise, and that's breaking new ground.
More importantly, the definite implication is that enterprises should not simply consider subscribing to things like Salesforce -- if they haven't already, their lunch money might already be gone. The implication is that enterprises ought to be thinking about how to deconstruct their products and services while reintroducing them as subscriptions.
Surely, The Economist doesn't mean to say that everything should go to subscriptions in the next three years. If it did, there would be much rejoicing at the intersection of Routes 101 and 92 in Silicon Valley, home to a disproportionate number of subscription pioneers.
Taking business to subscription nirvana will take longer than three years, though -- and when it's done, there will still be conventional companies selling products and services, just as there are still a few thousand pesky mainframes in mission-critical business processes at this very moment.
I do think, though, that even those survivors out on the long tails of the Bell curve will have to adopt a subscription mentality. What I call the "subscription culture" takes us beyond simply the subscription economy to a place where customers think like subscribers regardless of what their vendors are doing.
Succinctly, this means people have been trained to expect the same kinds of customer relationship that a subscription company provides, and disappointing them is not good for the top or bottom lines.
The Freshness Factor
The subscription relationship includes some obvious goodies like very low costs amortized over the life of the relationship, and the absolute right to pick up stakes and move on if ever the customer sees that all the succulence of the subscription has dried up.
In that regard, there is nothing as American as a subscription -- westward ho, and all that. Less obvious, but more critical for the vendor, is the imperative to never let the subscription get stale. That tall order falls again into the lap of not only analytics and Big Data, but also the platform, which ought to have the analytics, workflow, social listening and collaboration built in.
By all that, you can see that The Economist's report is not wrong in expanding the concept of subscriptions to include other related models like renting. It seems subscriptions are slightly more popular in America, and rental models are slightly preferred at the moment in the UK.
Either way you slice it, and it might just be tax laws defining the relative need to take title to something, the fundamentals of subscriptions -- like how to configure, price, pay for and support them -- will be relatively consistent. So this leaves us with the year of the platform supported subscription service run by, and in many cases purchased by, the enterprise.
Note: Next time I write about subscriptions and even platforms, it will be with an eye to Erik Brynjolfsson's and Andrew McAfee's excellent new book, The Second Machine Age: Work, Progress, and Prosperity in a time of Brilliant Technologies. These two MIT professors have their fingers on the pulse of a very important trend, and I am advising people to take a look at it in the same way a time traveler might advise you to mortgage your house and put the cash on Secretariat to win the 1973 Kentucky Derby. (BTW, I don't know these guys, and I am not making anything endorsing their book.)