When Tien Tzuo coined the term “subscription economy” in 2007, he envisioned a future where consumers would prioritize access over ownership.
As the CEO of subscription management platform Zuora, Tzuo has been at the forefront of this economic shift for nearly two decades. Today, as the subscription model reaches maturity, companies are grappling with evolving consumer expectations, the specter of subscription fatigue, and the need for more sophisticated monetization strategies.
The key to success in the subscription economy, according to Tzuo, is creating an “essential” relationship with the customer. “Don’t focus on the sale, focus on the ongoing relationship,” he told PYMNTS CEO Karen Webster. “Earn the right to establish an ongoing relationship slowly over time.”
This shift in mindset requires companies to think beyond traditional transactional models. Tzuo pointed to the example of a coffee subscription service that’s exploring ways to better understand customer habits.
“They’re asking questions like, ‘Do we sell you a coffee maker? Do we sell you a grinder?’” he said. “Are there other things that we can do to help understand what your coffee habits are and deliver you actually what you need where you don’t have to think about it anymore?”
By focusing on the broader need — in this case, fresh ground coffee every morning — companies can create a more valuable and sticky relationship with their customers. This approach also opens up opportunities for expanded services and revenue streams.
While Tzuo believes that “anything could be a service,” he acknowledged that there are challenges in making certain products and industries subscription-friendly. The key is understanding the underlying need that the product or service fulfills.
Tzuo cited examples of heavy equipment manufacturers like Caterpillar and John Deere embracing subscription models. “Are you really interested in the excavator? Or are you just trying to move some dirt?” he asked. By reframing the value proposition, these companies can offer more flexible, service-oriented solutions.
Even seemingly unlikely candidates for subscription, like flooring, are being reimagined. Tzuo mentioned a company developing a “smart floor” that could measure foot traffic for retail or public spaces. “These are companies that are really saying, ‘Look, just pay us a subscription fee and we’ll make sure that the carpets are always clean and good,’” he said.
However, the challenge lies in finding a large enough market to make these niche services sustainable. As Tzuo noted, “There’s a riddle of there being a big enough market to make a service sustainable.”
As the subscription economy matures, calls for increased regulation have grown louder. The Federal Trade Commission (FTC) has expressed interest in further regulating the space, particularly around issues of transparency and ease of cancellation.
Tzuo sees potential benefits in some regulation, particularly in establishing trust and reducing friction for consumers. “Anything that helps take friction out of the system or prevents a few bad apples from ruining everybody’s experiences … the more trust, the less friction, the better off we are,” he said.
However, Tzuo believes the industry could potentially self-regulate, pointing to examples like the PCI standards in the credit card industry. “If the industry does not want the government to do it, the industry should absolutely regulate it,” he said. “The more standards bodies, the more people come together and seal of approvals, those are always good.”
The lack of industrywide standards may be partly due to the relative newness of the subscription economy. “When we started, Spotify didn’t exist. Uber didn’t exist. Netflix was not a streaming service,” Tzuo said. “A lot of these things are relatively new. Peloton is relatively new as well. So I think the time has come.”
As the subscription economy approaches its third decade, Tzuo remains bullish on its prospects. He dismisses concerns about “subscription fatigue,” instead seeing a market that’s becoming more sophisticated and competitive.
“What we’re seeing certainly is there’s been a wave of companies that were able to take advantage of this business model, but now competition is higher,” Tzuo said. “Consumer expectations are greater. And so I think you’re gonna see the sophistication level go much higher.”
Tzuo predicted that successful companies will focus on giving customers more choice and flexibility. “This is about letting them manage their own lives and manage their own needs and manage their own subscriptions,” he said. This may lead to a pendulum swing between bundled and unbundled offerings, as companies strive to meet diverse customer preferences.
The integration of artificial intelligence (AI) is also poised to play a big role in the evolution of subscription services. Tzuo sees AI driving more sophisticated pricing and engagement strategies, particularly in areas like metered usage and consumption-based models.
As the subscription economy continues to mature, the companies that can strike the right balance between choice and simplicity are likely to come out on top. “If I’m a consumer and I have a choice, do I want to buy and spend a lot of money on a physical product and deal with obsolescence, deal with ownership, or would I rather simply pay a fee that I can dial up when I need, dial down when I need, and give myself more flexibility?” Tzuo asked. “Of course, I’m going to opt for the latter.”
For Tzuo and the subscription economy he helped define, the journey from disruptive idea to economic mainstay is nearly complete. The next challenge will be navigating the complex landscape of consumer expectations, regulatory scrutiny, and technological innovation. As the subscription model enters its next phase, the companies that can deliver both value and flexibility are poised to thrive in this new economic paradigm.
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