This is the first lecture in a course on the subscription billing model

1. Building Innovative
Subscription-based
Businesses
BUS-185
Lecture 1: Background and Introductions
Martin Westhead

2. Administrative Stuff
 Timing:
 Start promptly at 7pm.
 Please let me know in advance if you will be late
 Finish before 9pm
 Tools:
 Community ChargeThru. com
 Grading
 Attendance
 Contributions to ChargeThru
 Participation in class exercise
 Class register

3. ChargeThru.com
 Online community for Subscription Billing and
Payments
 Encourage participation
 Write articles
 Participate in discussions
 Share links and external information
 Special area for class
 Discussions for exercise

4. Grading
 Attendance
 Participation in the class exercise
 Participation on Charge Thru

5. Introductions: Me
 Martin Westhead
 Engineer and entrepreneur
 2 internet startups
 Executive Director of Ning Engineering at Glam Media
 Using and developing web technology since 1993
 Subscription Billing for 3 years
 Excited about this course

6. My Story
 Ning
 Social Network product
 Used to be free
 July 2010 Ning became fully subscribed
 Painful transition
 Had to adapt fast and learn
 Already had good customer relations
 Learned
 Importance of understanding Churn
 Managing payment failures
 Pricing – showing value, aligning with customer success
 Subscription Billing solutions
 Integration with industry leading service
 Built a subscription management solution from scratch
 Subscriptions are changing the business world
 Want to help with the transition

7. Introductions: Y’all
 Introductions
 Name
 Background
 Why you’re here
 What you expect from the class
 One non-class related fact about yourself

8. What to Expect
 Introduction to a new trend in business
 New model
 Need to think about doing business differently
 Who is it for?
 Subscription start-ups
 Existing non-subscription companiescreating
subscription products
 Interested bystanders
 Understanding of subscription basics
 Practical overview of tools and techniques

9. Course Overview
1. Background and Introductions (April 4th), New Trend,
Customer Relationship, Beyond Subscriptions
2. The Subscription Business Model (April 11th) Finance, Metrics
3. Pricing for a Subscription Business (April 18th), Pricing
models, Principles, Price Changes
4. Class exercise part 1 (April 25th) Business to analyze
5. Subscription Management Tools (May 2nd), Vendors and
capabilities
6. Payments how they work and what to do when they don’t
(May 9th)
7. Class exercise part 2 (May 16th) improving the business

10. Guest Lecturers
Jeremy Crawford
Chief Operations Officer, MLS Listings Inc.
Andy Woods
Product Manager, Zuora
Doug Caviness
Head of SaaS solutions,
Cleverbridge

11. Class Exercise
Franc
Ahn, Andrew (Junghoon) Rupee
Aurich, Sara Theresa Florean, Andrei
Bhurji, Bobby Javed, Osman
Chidambaram, Karthik Jones, Wendy
Trang Huynh, Remi Lau, William
Murphy, Keoni Anthony
Sujansky, Walter
Yen
Peers, Tanguy
Thiyagarajan, Sreedevi Peso
Tseng, Joann Costa, Rodrigo Fernandes
Vaughn, James Anthony Herman, Vanessa
Trang Huynh, Remi Lee, Debra
Lee, Kathy
Mulugu, Ravi
Powell, Jackson

12. Exercise 1: Choose a business
 Discussion Forum on ChargeThru
 Choose a subscription business:
 A start up or established
 Digital or non-digital product
 Real or speculative
 Innovative use of subscription
 Presentation to the class on:
 Outline of the business model
 Why did you choose it (what’s innovative)
 Details about their use of subscription

13. Exercise 2: Innovate
 Your team has been hired as
Innovation Consultants
 Innovation strategy, e.g.:
 Pricing / Pricing Model changes
 Promotions
 New products
 Outline a financial model for your changes
 Present to the board (i.e. class)
 Prize for the best

14. What is Subscription Billing
And why should I care?

15. What is Subscription Billing?
 Business model
 Recurring payments (Monthly, Annual etc)
 Emphasizes the customer relationship
 In core financial/business metrics
 Generalized to include related models
 Usage based billing
 Virtual currencies
 Difficult to manage subscriptions
 Impossible to do manually at scale
 Need new tools, conventional ERP insufficient

16. Three Categories of Subscription
1. Fixed goods or services
 E.g. each issue of the Economist for a year
2. Unlimited use of a service
 E.g. onlinestoragesolution.com/ unlimited storage $35
per year
 AT&T unlimited data plan
3. Limited use plus usage based charges
 Telephone service plus long distance charges
 If limited offer is free =>Freemium
 Razorblade model (Bait and switch)
 Approximation subscription model no contract

17. Subscription Nomenclature
 Account => Customer
 Product => The thing a customer buys
 Plan => The way a customer pays for a
product (e.g. recurring price and period)
 Subscription => Contract linking a
customer to a plan

18. Subscription Management vs.
Recurring Payments
Subscription Recurring Bank/CC
Management Payments provider
Subscription Management Recurring Payments
 Understands catalog  E.g. Paypal, WePay, Stripe
 Plan changes / cancels  Multiple charges over time
against the same account
 Invoices and proration
 Used by Subscription
 Triggers payments Management
 Reports and Analytics

19. Subscriptions are not new
subscribe (v.)
Early 15c., "to sign at the bottom of a document," from Latin
subscribere "write underneath, sign one's name," from sub
"underneath" (see sub-) + scribere "write" (see script).
The meaning "give one's consent" first recorded 1540s; that of
"contribute money to" 1630s; and that of "become a regular
buyer of a publication" 1711, all originally literal.
 Early meaning associated with Insurance (underwrite)
 Source: Online Etymological Dictionary

20. Why is it
exciting?
 Billing is dull
 Subscriptions are not new
 So what’s innovative
here?

21. Disrupting the business world
Subscription
SaaS Billing
Vendors like: Solutions like
Created a Created an
market for opportunity for
Innovative Subscription Businesses like

22. Subscriptions are everywhere

23. New World
 Coffee
 Fine Tea
 Fruits and Veggies
 Crafts and Books
 Kids Clothing
 Beauty
 Fitness
 Baby sitting
 Music
 Hosiery
 Men’s accessories
 Handbags
 Dresses
 Kids Toys
 Fishing gear
 Soaps
 Shirts
 Underwear
 Condoms
 Luxury Items

24. Old World

25. In the press
“As Web businesses embrace
subscription business models,
the benefits are clear: reduced
customer acquisition costs and
steady cash flow”
“The realities of our increasingly mobile
economy make it more likely that this
transition from an Ownership Society to what
might be called a Rentership Society, far
from being a drag, will unleash a wave of
economic efficiency that could fuel the
next boom”

26. …and there’s more
“C.E.O.’s are beginning to appreciate the value
of recurring revenue in a way never seen before
… [T]he software industry adopted it, which
caught people’s attention. Now you’re seeing
companies in just about every kind of industry
embracing it.”

27. Analysts take
“By 2015, more than 40% of
media and digital-products
companies around the world will
use subscription services for their
fulfillment, billing and renewals”

28. What does it mean for customers
and vendors?

29. What does it mean for customers?
 Good news
 Predictable costs
 Low upfront cost
 Costs are spread
 Seller is motivated to listen
 Bad news
 Tracking many subscriptions can be costly
 Danger of paying for things you don’t use

30. Vendor benefits
 Cash flow
 Predictable
 Stable Revenue
 Predictable fulfillment, stock, purchases, contracts
 Incremental sales
 Each new customer adds to revenue stream
 Customer retention
 If you meet their needs they’ll stay with you
 Customer tracking => business insights

31. Market Valuations

32. Funding growth
 Jimdo
 Online Website Builder
 Bootstrapped
 Prepay subscriptions
 Predictable cash flow
 In advance
 Funds growth without
investment

33. Ecological benefits
 The average car is idle 92% of the time (Time)
 Renting => sharing => fewer cars

34. Vendor Challenges
 New and dynamic business model
 Need to really measure
 Need to really understand the metrics
 Need to focus on customer relationships
 Doesn’t come for free
 Exposed to payment failures

35. Change in the way we think about a business
One off purchase Ongoing customer relationship

36. Business Shift
Sell Units Monetize Customer Relationships
Price Per Unit Ongoing payment plans
Buy Now One-Time Orders Ongoing orders
Simple Financial Metrics Complex interrelated bookings,
billings and revenue

37. Product Business
Design Make Sell
Product Product Product

38. Subscription Business ABC
Boost Revenue Per
Customer
Acquire New Customers
Reduce Churn

39. Beyond Subscription Billing

40. Subscription Billing is only the Start
 Subscription fatigue
 Cost of subscription management for customer
 Unused subscriptions
 Usage / Activity Billing
 Virtual Currencies
 Customer subscription tools

41. Next Week
 The Subscription Business Model
 Financial model of subscription businesses
 Key subscription metrics and gotchas
 Churn rate and the subscription plateau
 Guest Lecturer
Jeremy Crawford
Chief Operations Officer,
MLS Listings Inc.