Subscriptions Get SaaS-y

Subscriptions started life as the business model of magazines and, later, book-of-the-month clubs.

How times — and business models — have changed.

In 2014, subscription commerce grew to be a $5 billion segment within the retail space alone and has shown no signs of slowing. Seemingly every day, more companies, verticals and product variants enter the arena — one that avails consumers of the opportunity to purchase and receive delivered goods (both physical and digital) on an automatically recurring basis. Today, it seems, wherever there is a consumer desire, there exists the opportunity for businesses to adapt their business model and benefit.

During a recent discussion with Karen Webster about that very opportunity, Ralph Dangelmaier, CEO of BlueSnap, observed that one of the biggest reasons so many merchants are interested in taking on subscription commerce as a business practice is its “predictability of revenue.”

“When these companies — in particular smaller ones — take investment money, they want to have a predictive outcome,” observes Dangelmaier. “And if they can start to get people subscribed to some of their products, it makes it very easy to upsell.”

For companies to whom the concept is uncharted territory, implementing the model can — from a technical perspective — be a tricky proposition.

The important first step for them, notes Dangelmaier, is the need to understand the difference between a recurring payment model and a true subscription model.

BlueSnap defines a recurring payment model as what subscriptions were initially envisioned as and was commonly seen, for example, in the newspaper or magazine business. That model operates at a set price for the consumer per month, and there is very little upselling or downselling. The payment each month essentially allows the consumer to get access to a new edition — daily, weekly or monthly — based on the publication schedule.

On the other hand, the true subscription model, as BlueSnap sees it, “has many different flavors,” says Dangelmaier.

“There are subscriptions where you can upsell or downsell; there are subscriptions that might run an offer for three months and then go to another price; there are promotions and coupons that come with subscriptions,” he explains.

There is also what is called “metered” subscription, usually applying to data purchases — such as what Apple does with its iCloud data. When a user exceeds the amount of data allotted by his or her plan within a given month, the payment increases to that of the next tier.

“It gets very complicated very quickly,” notes Dangelmaier. “A merchant needs to decide what their business model is, how it will be charged and then, technically, how to build it.”

An additional challenge that BlueSnap often sees companies facing, says Dangelmaier, is that they will build for one model, but then they “don’t have the ability to change as their products change or as the business changes.”

It’s also a shortcoming that many websites today reflect. In the latest Checkout Conversion Index — a collaboration between PYMNTS and BlueSnap that ranks the 650 merchants that represent 70 percent of eCommerce volume in the U.S. — merchants that offer subscription options ranked the lowest of any merchant type. There is too much friction in signing up, choosing options and attaching payments to the option.

The predictability of revenue has drawn more than just traditional retailers to subscription commerce. Many different types of businesses see this new business model as a new way to adapt their services to meet the needs of an evolving market.

A BlueSnap client that’s making the move into the subscription space is Autodesk, a large enterprise organization known for its CAD software. Dangelmaier will be speaking about Autodesk’s journey from downloadable software to a subscription model at the 2016 Subscribed conference (produced by Zuora) in San Francisco tomorrow (April 12).

He gave Webster a sneak preview of sorts during their conversation.

Autodesk is moving from its 30-year-old business model of downloadable software to a cloud-based model. “They’re realizing that they want to offer subscription models for some of their products,” says Dangelmaeir, “and they want to have the flexibility to be able to charge in multiple ways: packaging multiple products together, giving people discounts, giving people metered subscriptions, etc.”

Autodesk turned to Zuora — an enterprise software company that specializes in the subscription business model — to help solve some of those problems, working with BlueSnap as the payments platform to enable it.

All three companies got together, explains Dangelmaier, and “delivered what we think is the ultimate flexibility for Autodesk to be successful in its evolution as a SaaS-based business.”

Central to that success — for any product or company — is a platform that can enable flexible pricing based on options, demand, payment types, different types of promotions and coupons that are only applicable in certain markets at certain times and so forth.

It’s important for a company, Dangelmaier explains, “to think about all the kinds of permutations that are going to happen as they go out and globally sell. They may not think of them all initially, but if they build your infrastructure in a way that’s very flexible and dynamic, then they can deal with the marketing requests as they come along,” he emphasized.

One of the elements of the subscription or recurring payment model that consumers often complain about is how to stop a particular service. It’s not always easy to do, and that can create problems for merchants and consumers.

While acknowledging that the issue doesn’t impact the enterprise side as strongly as it does consumers, Dangelmaier says that it nonetheless remains a point of concern for the former.

“Merchants sometimes don’t know all the rules,” he tells Webster. “You have to have a very easy spot on your website for a shopper to be able to cancel; if not, they’re going to call their card company and say they didn’t authorize the charge, even though they did without realizing it.”

In its efforts to help merchants for whom that type of mixup is a persistent problem, BlueSnap provides guidelines, as well examples of websites, that it believes do subscription “really well,” says Dangelmaier, like AT&T, Netflix and Spotify.

“If everybody operated like [those companies],” he remarks, “[things] would be a lot easier.”

It arguably hasn’t hindered the process of the subscription market getting bigger, with Dangelmaier noting that the subscription sales that BlueSnap processes are experiencing 50 percent growth year over year — and that’s a combination of current subscriptions and companies that are adopting to the model.

“Everywhere I turn,” remarks Dangelmaier, “it seems like every merchant is trying to figure out some way to add a subscription to their product line — even if, historically, as is the case with Autodesk, they’ve never done it.”

Subscription is “a really important feature that merchants need to have,” Dangelmaier says.

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