Throughout the FIPP D2C Summit, speakers have given their take on the digital subscriptions landscape, often with an eye to the particulars of their business. Zooming out, today’s session with Tien Tzuo – who is both CEO and Co-founder of subscriptions management company Zuora, as well as author of the bestselling book Subscribed – discussed the state of play for subscriber-oriented business models in more general terms.
Tzuo is known for evangelising the coming shift to subscriptions back in 2007, coining the phrase “subscription economy”. Speaking with James Hewes, President and CEO, FIPP, Tzuo gave his take on why subscription businesses are winning (and will continue to win), how Covid-19 upended consumer expectations, and what all this means for the magazine media industry.
Paying for content: history of an idea
Back in 2006 or 2007, as many FIPP members will recall, there was some early evidence of subscriptions – but they were all free, explained Tzuo. Even though paid-for options like the iTunes store existed, faith had been eroded by the likes of Napster and other illegal download sites.
“People will never pay for anything online – that was the attitude,” Tzuo pointed out. “It was the early days of the internet. There was a bit of a hangover from advertising – many companies were organised with editorial over here, advertising over there as a source of funding for editorial.”
But then, something began to shift, when it looked like every company that set up a paywall had no trouble getting people to pay. “Now, the model has flipped somewhat, where the editorial is the core driver and the advertising is almost the icing on the cake, a nice add-on,” said Tzuo.
Transitions from print to digital subscriptions are not always intuitive, and organisational structure is an important factor identified by Tzuo that can complicate the process further.
“Editorial and advertising were typically somewhat siloed, but now it’s more streamlined across the board,” he said. “Digital teams have gradually realised that you should care about the customer and deliver a quality product, hiring someone to really own the subscriber experience like a Chief Marketing Officer. Then the digital offering takes over, and becomes the most high quality offering.”
In his book, Tzuo offers the acronym PADRE to encompass the holistic thinking required. “Engineering, logistics, manufacturing: how can they all help with getting more subscribers? This is not just a sales problem.”
Tzuo believes that companies with a strong brand are in a really good position to leverage it for subscriptions by capitalising on the strong association that readers have with the brand. “In Britain, people are strongly identified with which newspaper they read,” he said by way of example. “But all of our views are shaped by what we read.”
Covid-19 has rewired expectations
When the pandemic hit last year, Zuora was in a good position to see how it would affect subscriptions. Tzuo observed companies waking up to the power of recurring revenue, as those that had a subscriptions revenue stream – from security companies to the membership arms of hotels and airlines – fared better in the ensuing economic fallout.
“These businesses were more resilient to the impact, dropping revenues by ‘only’ 10-15 per cent rather than 90 per cent, as was the case for many travel companies, for example.”
Companies with a digital relationship with customers also did better, as they were able to adjust and adapt alongside the customer, who after all was probably using their digital devices more than ever amidst the global emergency.
“These two factors together have caused companies to realise that they have to think about subscriptions,” explained Tzuo, “and it’s a small step to then move towards a subscription-based business model entirely. Expectations have been completely rewired due to the pandemic, and companies will have to respond to that.”
On the question of whether consumers might become overwhelmed by subscription fatigue eventually, Tzuo was adamant: “No! We’re just getting started,” he said. “The lure of personalising and choosing your subscriptions will always win the day. When I was young, we had three TV channels, but now you can watch anything, any time, anywhere – why would we ever go back? There’s just so much consumer choice, it’s only going to grow and get better.”
A tale of two businesses: newspapers and magazines
Something talked about a lot at the D2C Summit, and evidenced in the recent Digital Subscription Snapshot 2021, Q2, is the fact that newspapers seem to have made the transition to digital subscriptions more quickly, effectively, and lucratively than magazines.
For Tzuo, the reasons for this come down to necessity, which is the mother of invention. “Newspapers were looking at an existential threat a few years ago. As information-centric publications, their basic offering could be replicated for free elsewhere, whereas magazines are brand-centric and the ad revenue holds up more. Essentially, newspapers were looking at a cliff edge, while with magazines it’s more a case of a boiling frog.”
He also pointed out that newspaper subscriptions are more expensive than magazine subscriptions, at around US$200 per year for the former versus US$50-80 annually for magazines. “There’s something that needs to happen with magazines where they consolidate, or hit that 30-dollar-a-month price point which would make their businesses more sustainable,” Tzuo said.
Tzuo also thinks that media companies can learn from software and tech companies, which seem like they’re further along in the subscriptions journey and can therefore offer a glimpse into the future.
The end of ownership and the rise of usership
All of this is taking place alongside a broader decline in product sales more generally, while usage is going up. “We’re moving towards a subscription economy, where we buy less but use things more,” said Tzuo. “Then the question for the consumer becomes, what’s the brand that offers the best choice for me, based on what I want to do?
“When I buy a product, I have to deal with the maintenance and the obsolescence. I’d rather buy a service, run by someone who’s dedicated to making it better and better.
“These are two very distinct business models. Coming up with a product and selling as many units as possible – this is the classic way that business students learn about selling things.
But now, Apple, Amazon and other companies start with the customer. They create an ID, a relationship, an account. When you have an ID, the company tries to deliver as much as possible via that ID, to get you to spend more time with them. This is how the most successful modern companies function.”
Tuzo predicts that in five to 10 years, “we’ll all be subscribers first. Stuff just clogs everything up – there’s really no need to own anything in this new economy.”
The customer is always in sight
In Tzuo’s experience, customer-centric cultures are generally very positive, since employees tend to embrace learning from the customer to make the product better.
“In the old model of product-centrism, in order to optimise, the sales team doesn’t have to talk to the manufacturing team, and so on. The internal organisation is still very siloed. Silos were built initially because when you’re selling a unit, you’re always trying to increase the margin you make off that unit by lowering costs and making the operation more efficient – you’re always trying to scale efficiency and build it into the business.
“But you have to break down those silos in a customer-centric model. If you focus on loyalty programmes, for instance, the whole company needs to be on board, with the customer at the centre.” In other words, a unified voice and a unified experience is what the customer is looking for, and they should not be being sent to a different department or having their issue outsourced elsewhere.
“Subscription models prioritise the relationship with the customer, so getting the right pricing model becomes important, for example paying more as I use the service more and more. It’s a very different model, with a need for agility and responsiveness.”
Capturing the data is what then enables companies to generate that dynamic response. “The best companies simply look at data,” said Tzuo. He gave the example of the Financial Times, which managed to drive its digital subscriptions sales by 600 per cent over Brexit weekend almost exactly five years ago, dropping its paywall for all Brexit-related news for 24 hours as the vote got underway. By taking this smart, responsive approach, the FT could use it as an opportunity to collect data from its audiences.