How did you spend your New Year’s Eve? Drinking champagne, while dancing to your favorite top hits from the 1980s? This is how I spent my New Year’s Eve, considering my gray hairs! And what were your kids doing, while you were taking over the dance floor? Were they watching the latest and coolest movies and TV series from Hollywood?
This might not have been exactly how you greeted 2023. However, what do the following have in common besides being great companions to an enjoyable 31st of December: champagne flowing from your favorite wine club, your children’s favorite Disney cartoon from Disney+, and the top 80s hits from Spotify? They are in fact all services to which you have been subscribing that allows you to enjoy these services on your own terms, including:
- Regular deliveries of your favorite wines, with additional online content including in-person and on-demand tutorials and masterclasses that you’ll pay as you use of which may be part of your premium membership
- Personalized experienced from your Disney+ subscription with recommendations based on your profile, with the possibility of adding Hulu or ESPN+ and the flexibility to easily change your subscription plan, such as switching from a monthly to an annual subscription or canceling your subscription at any time
- Flexibility to select the offering best suited to your current status, whether you are a child, a student, a couple, or have grown into a family! What a better way to build a great customer lifetime value!
While these subscription services are part of our daily lives, as we transition from ownership to usership models in which we’re constantly asking for more customized and unique experiences, have you wondered how difficult and painful it can be for the company that is offering these new business models?
Let me give you my own personal story to illustrate this. About 20 years ago, I was a Product Marketing Manager in charge of a hosted managed service offered by Orange, the top French mobile operator. When I was launching the company’s first hosted messaging service, I quickly realized the existing quote-to-cash process couldn’t accommodate usage and other non-flat fee pricing. The only option was to go through a lengthy systems implementation project, taking more than 3 months, that would cost more than 150 K€, a cost that couldn’t be justified by my business case. So, at the end of the story, I went back to flat fee pricing!
As companies enter the world of subscriptions and usage-based models, they will be confronted with different issues based on their current business models and business processes they are currently using to manage their revenues.
Digital native companies, like the ones I listed in my story, wholly rely on subscriptions and recurring revenues. Therefore, they must make sure their quote-to-cash process can support:
- Scalability: often these companies start small and rapidly grow very large
- Flexibility of subscription order and contract management to allow customers to easily change their options and contracts any time
- Ability to quickly create and test new models, including bundles, to discover what works and to harness customer usage data to create and enhance offerings
- Revenue share arrangements when reselling partner products and services, such as content providers for streaming services
- Triggering of regular replenishments that can be updated by the customer, such as a customer changing from quarterly to monthly delivery for their wine club shipments
Beyond these pure digital companies, we also see an emerging trend in which industrial companies are moving into the subscription world. Some companies start out by adding subscriptions on top of, or bundled with their existing products, services, and projects. Other companies completely transform themselves into an Anything-as-a-Service (XaaS) business, such as printing-as-a-service. As these companies look at monetizing subscriptions, their main challenge is to synchronize subscriptions with their existing quote-to-cash process for products and services that are supported by their ERP. This means that in addition to the capabilities listed previously, these companies also require a quote-to-cash process that supports:
- Flexible pricing modeling capabilities for subscriptions and usage plans in addition to product and service pricing to avoid SKU sprawl
- Orchestration of order management, fulfillment and provisioning for all items of an offering which could include a bundling of products, service, projects and subscriptions
- Converged or unified customer bill with 360 view of billing details to help decrease billing disputes
- Powering the revenue recognition process for subscriptions and to maintain ongoing financial compliance
- Integration into their ERP platform and quote-to-cash process
So, whether you are a pure digital or online company, a business unit offering digital services, or a product company looking towards recurring revenue models, don’t underestimate the work required to enhance quote-to-cash process to support all business models! Based on working with hundreds of companies, here is some advice for building out a robust monetization platform:
- Work on the best solution blueprint that fits your use case and look carefully at integration points as well as scalability to support further growth
- Be careful of the big bang approach and instead go with a step-by-step, iterative approach which could be based on launching a first product line
- Be ready to fail--but fail fast and be agile and go for an agile platform
- Learn from best practices among your peers and even companies from other industries
And with that, let's toast: Santé !!
