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Netflix, Prime, Blue Apron: How subscription businesses are taking over

December 03,2018 15:20

Here, Tzuo, who earned his MBA from Stanford Graduate School of Business in 1998, shares more about why it's no longer the era of the “unknown customer,” what it means to transform a business to a subscription model, and his views on the value of an ...

Tien Tzuo, MBA ’98, evangelizing the shift to subscription-based business models, coined the phrase “subscription economy.” [Photo: courtesy Zuora]
You write a lot about the need to change our mind-set. Why is this shift difficult?

You call Adobe the company that provided the “textbook” to inspire others and reference how its revenue dropped drastically after the transition to subscription. How do you advise leaders to manage through that pain?
TT: The fear is if I’m selling a guitar, instead of taking 400 bucks right now, I’m taking money over time. And so doesn’t that destroy revenue? If I just flip the switch, my revenues would plummet.

We want it to be as inspiring of a story as Adobe is: They flipped the switch and revenues were down — it hadn’t been below a billion dollars in the first quarter in like 10 years. But Adobe didn’t cut staff commensurate to their revenue. They did some adjustments to cost and explained this to Wall Street and gave them detailed metrics. Yes, the stock dropped when they had their earnings call, but 24 hours later, after they spent six to eight hours with the analysts, things were back up.
As more businesses move to a subscription-based model, should we be worried about privacy with our data?

In Subscribed you dive into industries that have done this well, namely the New York Times with newspapers and Uber with ride sharing and, perhaps more surprisingly, Caterpillar with construction equipment. What other industries can we expect to see in this market?

In a 2015 piece in Fortune, you said a business school education was “worthless” and recommended people don’t get an MBA. Has your view changed?
This article was originally published on Stanford Business and is republished here with permission.

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