November 2012 saw the much publicized investment of $15.5M by Andreesson-Horowitz into ItsOn, a company that is providing new and sophisticated ways to charge their customers for telecoms services. As the telcos start to move beyond the limitations of the subscription model, we look ahead to the sorts of billing capabilities that you will need in a Post-Subscription Economy. The next generation after subscription will be characterized by greater pricing flexibility and customer control that subscription billing gives today. In a world where customers can stop and start their use of a service in a matter of minutes or where services are paid for by sponsorship and loyalty points, concepts like MRR and Churn become insufficent to understand the business. New models and new tools will be required.
But subscriptions were new and cool, are they dead already?
Today the subscription model is on the ascendant. However, it has a fundamental issue that will ultimately limit its adoption by both businesses and consumers. The issue is: management cost. It costs time and effort to manage a subscription. Subscription billing tools like Zuora, Recurly and Aria have reduced the cost to the provider offering subscriptions but there is still a cost to the customer.
Consider the picture of the Subscription Economy, in it we see an increasing number of products and services that are starting to become available under a subscription model. We can now buy razors (dollarshaveclub.com), pet food (petflow), condoms (manpacks.com), movies (neftlix.com), children’s cloths (wittlebee.com) and even cars (zipcar.com) using a subscription model. Imagine the number of subscriptions you would have to manage, as the subscription model starts to dominate. In the Subscription Economy, I will have dozens of subscriptions from dozens of different companies. All the subscriptions will automatically bill me on different dates. Every month I would have to check each provider’s invoices for correct billing (or suffer the cost of their errors). How many mysterious credit card charges would I have to chase down? And when, for example, my cat dies, how many weeks of unused cat food would I receive before I remembered to visit the pet food subscription site to cancel my order?
The same story applies to B2B subscriptions. Companies can easily end up with dozens of subscriptions to cloud services of one type or another. It is common to find that hundreds or thousands of dollars a month have been spent on services that are no longer used or needed.
In today’s world subscription, providers are quietly enjoying the benefits of these windfall revenues but as the number of subscriptions that we are all required to manage increases the likelihood of being billed for unused services increases and customer tolerance for the wastage will fall. At that point businesses that can provide flexible customer controlled pricing models will be in a position to start stealing market share.
So what does next generation billing look like?
Billing in the Post-Subscription Economy will be characterized by much greater flexibility, in terms of customer control and provider pricing.
- On the customer side, this will mean better control of their service activation. Client applications will provide visibility into their overall subscription portfolio: Costs can be managed, unused services stopped automatically and discounts and offers taken advantage of.
- On the business side, it means more flexible and sophisticated pricing tools, such as loyalty points, coupons, promotions, complex bundling schemes, dynamic pricing and fine-grained price targeting.
ItsOn is a startup that offers a Service Delivery Platform with this kind of sophisticated billing baked in. They aim to provide their consumers and businesses access to a customized service experience suited to their needs, and the way they interact with their mobile world. Examples include a snack food maker’s sponsorship of streaming for a sporting event, free social networking with voice services, sponsored news services, and sponsored online shopping with mobile service credits for loyalty shoppers.
“ItsOn provides 3G and 4G wireless consumers and enterprise business managers with complete, real-time visibility and control over their voice, text and more importantly, data usage. Mobile service consumers are finally empowered to choose exactly which mobile services they need and how much they want to spend—eliminating over-charging and bill shock,” said ItsOn founder, chairman and CEO Dr. Greg Raleigh.
“As the feature phone goes by the wayside, a new level of personal connectivity is becoming central to our identity in the form of the smartphone. But mobile service plans are not keeping up,” said Marc Andreessen, co-founder and partner at Andreessen Horowitz. “ItsOn addresses a universal problem that has never been solved. It is the ultimate usage based model of the future. The company’s cloud-based technology is the leap forward needed to unlock the next wave of growth and financial opportunity in mobile. We believe ItsOn is about to change this industry.”
ItsOn has done research to suggest that there is a large population or price sensitive users who would start using data plans and services if they had more direct control over the costs, and when they do, it will be disruptive to the industry.
However, this is just the start. In order to really get control of the subscription management costs, the customer needs a common way to see and control all their services with a single interface. The interface may be a mobile app, a cloud service like mint.com or an application like Quicken. They may even be intelligent agents that can add and cancel subscriptions and move between providers based on rules set by you. To enable these tools we will need common, Industry wide, billing APIs.
The writing is on the wall
The subscription model is rapidly growing as the business model of the moment. It has benefits to both customer and provider. However, there are also costs and as subscriptions start to become the purchasing norm those costs will cause increasing pain. To address this challenge we will need a new generation of models and tools that will support much higher levels of customer control.
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