Manage customer relationship

E-3: Is Subscription Economy a sustainable trend or due to the current zeitgeist?

Veit Brücker, Zuora: The Subscription Economy is an absolutely sustainable development that is reaching more and more areas of our daily lives. In addition, the Subscription Economy also reflects the changing consumer behavior of younger generations. They are comprehensively informed and do not want to "own" but to use - wherever and whenever they want. Issues such as status and ownership are taking a back seat. The success of the Subscription Economy has been demonstrated for years by the figures of the Subscription Economy Index, SEI.

It measures the performance of agile subscription businesses and makes them comparable with stock market indices. Over the past four years, the SEI for EMEA has recorded average annual growth of 24.4 percent, while the sales of DAX companies have increased by only 5.3 percent. Another important indication of the sustained success of subscriptions is that it is not only the number of subscriptions that has increased over the past four years. Rather, churn rates have also declined. In other words, companies are retaining the subscribers they acquired during the lockdown.

E-3: Where and how do you locate Subscription Economy - as part of an ERP system or standalone like CRM, SCM, etc.?

Bridger: Due to their design for transactional business with one-time sales, classic ERP solutions are not suitable for mapping the customer-centric and thus highly agile business models of the subscription economy. Therefore, there must be a differently designed system that can manage the data of all customer-centric processes - from classic sales to agile subscriptions - in a central location. Ideally, this is also where the real-time linking of all assets and processes takes place - from product definition and offer creation to the mapping of the agile contract to invoicing, receivables management and collections, as well as revenue booking and balancing of customer accounts.

In this way, companies also gain the necessary 360-degree business insights to be able to predict the further course of business relationships and dynamically develop offers further. However, you can't turn everything upside down from zero to one hundred. That's why projects for customers with existing ERP systems usually start with the product definition of agile subscriptions and the associated contract management system. We then automate the complex billing and collection of agile subscriptions until we finally take over the static products as well, so that customers can manage all agile processes around subscriptions, one-time purchases, and usage-based services in real time and automatically recognize, reconcile, and analyze revenues.

E-3: Can there be an autonomous IT solution for the subscription economy?

Bridger: What does autonomous mean? In the sense described above: Yes. But we definitely cannot and do not want to map all business processes! Apart from subscriptions, there are many other business processes that we do not map. So it is not necessary to replace the entire business IT in the companies. The Zuora platform can be seamlessly embedded in existing structures. However, the central point of product, offer and contract data management should be migrated to the subscription management platform sooner or later. Otherwise, there will be problems, for example with the key figures, which are completely different in the subscription economy than in conventional transactional business processes. Companies and financial managers must be able to access this data in an integrated manner, from product definition to accounts receivable. 

E-3: At SAP, aspects of the Subscription Economy such as CPQ are anchored in other applications. Is the positioning of the Subscription Economy a conceptual task from the ERP history or should the existing SAP customer rethink in the sense of the digital transformation?

Bridger: Subscriptions are not just about being able to make a customer an ideally tailored one-off subscription offer. It's about being able to manage an ongoing customer relationship that the customer must be able to adapt flexibly and repeatedly to their requirements at any time. The customer also wants to have one contract and one transparent invoice for everything. In our experience, this move away from the product sales orientation of my business processes toward customer-centric processes is difficult to achieve with subsystems of classic ERP systems that manage one-off transactional business. 

E-3: Almost all the functions of a subscription economy can be found in SAP BRIM. Is BRIM the right way into the future?

Bridger: From our point of view, any system designed to manage agile subscriptions is on the right track, because we see the subscription economy as the big driver for new business models and sustainable economic success. Some offer more, others less. The important thing with all systems is that they can map and orchestrate the entire order-to-cash process in an end-to-end secure and legally compliant manner. The cloud-based Zuora platform offers what is probably the most mature feature set and agile SaaS offering for this purpose - i.e. also subscription models, which we have been offering since 2007 in increasingly powerful and increasingly granular functionality. Zuora offers an unparalleled feature set and experience in helping companies implement subscription business models. We are always happy to demonstrate to potential customers what we offer in terms of added value compared to alternative options. However, it would go beyond the scope of this article to go into all of this.

E-3: Where are the interfaces between a Subscription Economy system and an SAP financial system?

Bridger: From a purely technical perspective, there are numerous possible Zuora-to-SAP connector solutions ranging from classic SAP to Hana. From a purely organizational point of view, the interface should increasingly be moved in the direction of SAP so that Zuora can map the entire end-to-end process of a customer relationship, as this ultimately promises the greatest benefit. In migration processes, however, it often ties in with sales order creation as well as billing request and invoicing, for which we then supply the necessary key data. This is also due to the products already managed in SAP for one-time sales. However, depending on the importance of the Subscription Economy for the company, the next step is always a Zuora-centric solution that manages all products, offer cuts, orders and their changes up to invoicing and collection in an integrated way.

E-3: Even the subscription economy cannot do without logistics. Which SCM systems do you recommend?

Bridger: In general, we do not make recommendations for specific SCM and logistics software. Our systems can provide the necessary data to all systems via appropriate interfaces. However, the fact that subscriptions produce significantly more stable goods flow requirements than one-off purchases means that procurement and production requirements can be determined more accurately, as they no longer have to be determined solely on the basis of historical data, orders already placed, and further estimates by the sales department.

In fact, very precise predictions can already be derived directly from the subscriptions. Nevertheless, many other parameters have to be managed for a decent scheduling - especially if we look at the current supply chain challenges. So the more items that need to be scheduled, the more important are powerful scheduling management systems, some of which today even determine AI for the overall corporate scheduling of safety stock.

E-3: What are the key parameters of the new subscriber culture and what will change further?

Bridger: Agility is the decisive lever. Subscription customers today don't have to commit themselves for years and thus fall into subscription traps. They can try anything, discard it, and come back. They can manage their subscriptions independently and adapt them to new circumstances. They have full transparency and can play with different options and decide freely. They are more sustainable on the road. Share economy concepts also reduce costs.

It is simply a new zeitgeist that has become firmly entrenched in the younger generation and will thus gain further space every year. So we are only at the beginning of this new business paradigm. In ten years' time, business models will have shifted even further in this direction because, among other things, the IoT and tactile 5G connections will enable many more services based on products that are currently still sold in the traditional way, which we are not even thinking about today.

E-3: What is the Subscription Economy already doing today, what is missing and what is still to come?

Bridger: The Subscription Economy delivers real added value to consumers. On the one hand, through offers that are ideally tailored to their requirements and preferences. On the other hand, subscriptions also make new services possible that would not have been possible without them for reasons of cost, practicability, or time. With a device-as-a-service offering, such as from Acer, I can save myself the expense of buying complete IT equipment for my company. I don't have to rent it long-term either. I can simply use it. What's more, in the subscription economy, the offering can usually be scaled according to my needs. However, in many areas there is certainly still more flexibility on the part of the
provider in it. For sports streaming subscriptions, for example, it would be desirable to be able to put together my own individual subscription. So no Bundesliga, but field hockey, high diving and boxing, to put it in a nutshell. For the future, we see above all a broadening and greater individualization of the subscription offering. And here we see again that the management system for subscriptions must be a highly agile system.

E-3: Along the B2B2C value chain - where is the subscription economy already most pronounced today, and where is there still a need to catch up?

Bridger: The highest level of maturity in the Subscription Economy has been reached by SaaS offerings, which were again among the fastest growing sector in our SEI last year. In the media sector, video and music subscriptions are complemented by games subscriptions, but also by photo subscriptions for media agencies. 

E-3: In E2E, what is before and what is after the Subscription Economy?

Bridger: I can't tell you if there will ever be an end to the subscription economy. After all, you couldn't say that when the first ERP systems were invented and introduced. What is clear, however, is that the enterprise IT landscape is in a state of upheaval in several respects. Cloud services will make the solution modules more flexible to combine and thus make subscription management clouds like Zuora faster and easier to integrate. Focusing on core competencies while remaining open to docking with complementary systems is required here for every market participant.

E-3: Thank you for the interview.