The Subscription Model Will Be Your Company’s Future
There are changes that are profound and changes that simply cannot be ignored.
Today you will hear very little talk of GE’s refrigerators and washing machines, or IBM’s mainframes. Instead they talk about “providing digital solutions”. Their focus is achieving outcomes for their clients, not selling them equipment. They are not alone: Xerox has moved from equipment to information services. McGraw-Hill now offers financial services and adaptive learning systems.
The new behemoths on the Fortune 500 list — Amazon, Google, Facebook, Apple and Netflix all recognize that we live in a digital world, and it is quite unlike the product world of the past 120 years.
We grew up on the teaching that we manage what we measure, and so we became hopelessly product-focused.
We grew up on the teaching that we manage what we measure, and so we became hopelessly product-focused. This was at a cost to the relationship between the vendor and the customer.
To grasp the importance of this issue, contrast Walmart with Amazon. 90% of all Americans live within 20 minutes of one of Walmart’s 5,000 stores which serve 140 million shoppers a week. Walmart clearly knows how to buy and sell products, but every customer is nothing more than a vehicle for purchasing goods.
Amazon now has 90 million ‘Prime’ members (customers who get special treatment such as free delivery,) or roughly half of all American households. They pay $9 billion in membership fees and spend $117 billion each year. “
The Amazon versus Walmart battle has been framed as ecommerce versus traditional retail, but that’s always been a false dichotomy.
The Amazon versus Walmart battle has been framed as ecommerce versus traditional retail, but that’s always been a false dichotomy. It’s about starting with the customer instead of the product.
Walmart has no idea what you purchased last week, and no way of finding out. A focus on the customer was not built into their business model. Amazon, by contrast does know. In fact, they know the first book I ever bought from them in 1999 — ‘Maximum Achievement’, by Brian Tracy, and they know everything I have bought ever since. The customer is the centre of their business model.
In the digital economy customers are different: they prefer outcomes to ownership, they want the ride, not the car. The milk, not the cow.
You can certainly ask them why they’re leaving, or try to win them back, but you don’t get in their way of leaving.
Smartphone manufacture is a useful illustration. The battle is no longer over units sold, but on how phone use can be monetized. In February 2018, Apple revenue from services was $31b — enough to make services alone a Fortune 100 company. Apple’s focus is now on revenue per Apple ID over a user’s lifetime — and on growing this base.
With a focus on the lifetime value of customers, suppliers must do everything to know them, their interests, aspirations, and more. This customer focus includes making it easy for customers to leave if they want to. You can certainly ask them why they’re leaving, or try to win them back, but you don’t get in their way of leaving. This demands that you constantly raise your game.
Read “Subscribed” by Tien Tzuo and Gabe Weisert
Guest Author Ian Mann
Ian Mann from Gateways Business Consulting. He is the strategy midwife© who helps companies give birth to their best ideas. Ian specialises in strategy and leadership.
