Meet Tien Tzuo, The Man Helping Businesses Join The Subscription Revolution

• Subscription-based services like Amazon.com, Inc. AMZN Prime and Netflix, Inc. NFLX have forced companies in every sector to re-examine their business models.
• Many of these companies have turned to Zuora for help. Co-founded by Tien Tzuo, Zuora makes it possible for companies successfully to shift from selling products to selling subscriptions.
• Tzuo spoke with Benzinga about his company and about the evolving migration to the new Subscription Economy, a phrase Tzuo coined.

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Benzinga:  What is driving the shift to a subscription business model?

Tien Tzuo: There are a whole bunch of drivers. It's easy to build services in the cloud. You have your phone have only to whip it out to access your system to meet whatever personal and professional need you have.

If you look at the face of technology, manufacturers are putting sensors in all their products to hook them into the Internet. Your Nest thermostat is talking to some cloud-based service. Your car is starting to talk to some cloud-based service. Teslas now update themselves over the air in the same way your phone does and your laptop does.

BZ:  What about the role of customers?

TT:  Customers are really driving this (shift). Once they start using these services expectations start to change.

Once you use Uber or Zipcar, the whole idea of buying a car becomes less and less attractive. Once you start using a Google apps the idea of buying traditional enterprise software like SAP or Oracle becomes less appealing. And, once you start accessing any song you want on Pandora or Spotify or iTunes, the idea of having to buy a song simply makes less sense.

BZ:  This sounds like a sea change. Is that what’s happening?

TT:  You get everything you need from the service. Why do you need to actually deal with the physical products? Why buy the cow if all you want is milk? That's the mindset. We're all getting used to this.

For us to say, "I know what I want but I have to go buy a product, install and deal with it," why would I do that, when I can just whip out my phone, access the service and have my needs fulfilled instantly?

BZ:  What types of businesses can benefit from a subscription model?

TT: Any company can rehash themselves into a subscription economy company. The point of the subscription economy is to transcend the experience.

Schneider Electric is a good example. It’s a $25 billion global company that sells electrical equipment. If you walk into a building, Schneider provides all the generators, capacitors, wires and thermostats.

Schneider is now saying, "Why do we have to get companies to buy all this physical stuff? Why don't we just own it? We'll go into a building, put all the stuff in. And we'll even manage it remotely, because everything's connected to the Internet."

BZ:  How does this change things for Schneider’s customers?

TT:  So, you're in a conference room and it's too cold. You place a call. Twenty minutes later somebody shows up, removes the little plastic cover on the thermostat they won't let you touch unless you have the magic key and makes an adjustment. Twenty minutes later now it’s too hot.

Schneider says, "We'll manage it all remotely. We'll monitor it. We'll see everybody's temperature preferences; put ID chips in everybody's ID badge so we'll know their temperature preference and where they are.

At lunchtime if everybody's eating in the cafeteria, we’ll turn down the temperature in the offices because nobody's there and that'll save energy.

BZ:  How much re-thinking do companies have to do to make this type of change?

TT: This is a core transformation. At the center of it is not thinking about selling a product but of offering a subscription experience.

A customer is someone who might buy something from you. A subscriber is somebody with whom you have a relationship. They're getting value from what you do on an ongoing basis.

BZ:  Shifting to the consumer, what are the benefits he or she receives from a subscription model?

TT: Certainly, there's savings from not buying a product up front. Why spend $1,000 on a phone, when you can spend $30 a month?

It's more than that, because once you've switched to $30 a month, you know the person on the other side has an incentive to keep you. When you can walk away from the relationship at any given time, guess what? The person on the other side of the relationship really cares.

In addition, the services you love are getting better and better. The iPhone updates itself. Instead of someone selling you a product and saying, "Hey, good luck with that. If it breaks in the first year, I'll give you a warranty. But if it breaks on day 366, sorry, you're out of luck,"

It brings it back to relationships. Back 150, 200 years the local baker knew you by name, they knew what you liked. You built a relationship based on knowledge. This is the same thing. This is a return to relationships.

BZ:  What is Zuora’s role in all this?

TT: We're a software provider. We provide a set of applications, which we call a Relationship Business Management set of applications. It's a new product, not CRM or ERP. It's RBM.

It contains modules, like quoting, billing, payments, e-commerce, revenue recognition. We wrap all that stuff around a subscriber identity record. Everything now is mapped to the customer - subscriber.

We help businesses build and establish relationships with their subscribers, and then modify those relationships, through our suite of applications all built around the subscriber record. It’s the next big thing.

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BZ:  What about going public? What are Zuora’s plans?

TT: We feel like we're big enough. We have looked at many companies that went public over the last few years. We decided we're not going public (yet) for two reasons:

One, the subscription economy is big. We want to scale fast and focus on this business more than we want to focus on reporting numbers to the public.

The second thing is we happen to live at a time where because of the capital markets, there's a lot of capital interested in companies like us.

When we can attract that type of money without having to go public, it gives us the best of both worlds.

At the time of this writing, Jim Probasco  had no position in any mentioned securities.