Forget buying: Sharing is the new retailing, but is the region catching up?
Tien Tzuo, CEO, and co-founder of $3 billion cloud services company Zuora, in a conversation with Business Insider (BI), issued a stern warning, “Don’t go to business school. Everything you’re taught in business school is wrong.”
Stop. Say that again?
“The business world is undergoing a sea of change these days as the idea of “ownership” is being replaced by the idea of sharing,” says Tzuo.
Sharing is retailing
Today, the trend is to stream music and movies instead of buying CDs or DVDs, and we rent everything from clothes to power tools.
“Companies also rent software from the cloud instead of buying it, and all the servers and data centers required to run it,” said BI.
“And we often do it all on a subscription basis, paying per month, quarter or year. And it’s this latter part of the equation that changes everything,” Tzuo told BI.
TZUO’s concept explained
Tzuo just released a book called, “SUBSCRIBED: Why the Subscription Model Will be Your Company’s Future – and What to Do About It”
“Companies like Netflix, Spotify, and Salesforce are just the tip of the iceberg for the subscription model. The real transformation–and the real opportunity–is just beginning,” Tzuo says in his book.
“Subscription companies are growing nine times faster than the S&P 500. Why? Because unlike product companies, subscription companies know their customers. A happy subscriber base is the ultimate economic moat.”
in Tzuo’s opinion, today’s consumers prefer the advantages of access over the hassles of maintenance, from transportation (Uber), to clothing (Stitch Fix, Eleven James), to make-up (Dollar Shave Club, Birchbox).
Tzuo was employee No. 11 at Salesforce, one of the software companies that pioneered the concept of subscription-based software. He left Salesforce in 2008 to found Zuora, a cloud-based accounting software company that helps companies bill for their subscription services.
He led Zuora through a successful IPO, as BI reported in April 2018.
With shares at $14, Zuora raised $154 million and entered the market at a $1.4 billion valuation.
“We don’t have to convince people that the world is moving to subscriptions,” Tzuo says.
With subscriptions, the business shifts from convincing people to buy a product to now about convincing them to keep using a service.
In this new world, the only companies that will survive are the ones that know everything they can about their customers, said BI.
“Amazon knows how many things I bought and sold, movies I watched, and now, through Alexa, knows how many times I asked about the weather,” Tzuo explains.
Amazon founder Jeff said once “No matter how far in front you get in front of competitors, you are still behind your customers. They are always pulling you along.”
“When you start with the customer and you stop thinking about the product all sorts of things happen,” Tzuo says.
Are subscriptions a regional retail game changer?
The consumer in the region is slowly shifting purchasing behavior from the physical store to the digital realm.
With sites like Souq, noon and other retailers going online, the trend is obvious but the subscription model is not so obvious as it in the western world.
John Micklethwait, Editor in Chief at Bloomberg, told Arab News that the subscription model is the “way to go” and that he expects the Middle East — where paywalls have been slow to take off — to be a “big area” for attracting paying readers.
The 2018 Middle East Sentiment Survey by McKinsey & Company revealed that consumers in the region are becoming more cost-conscious, less brand-loyal and are rapidly shifting purchasing behaviors.
Approximately 55% of consumers are now actively looking for savings across markets, with those in Saudi Arabia leading the pack and finding creative ways to spend less and more actively.
UAE daily the National reported that subscription boxes are growing in popularity. Internationally, the trend has now given rise to niche categories like literary boxes, which contain books, teas and coffees, and boardgame boxes, which are packed with card games and party activities.
“In the UAE, there are tailored subscriptions targeting men, women, and children. From pioneering brands like Glambox, which sends its subscribers cosmetics, to newer endeavors that cater to the country’s more health-conscious residents, the market is hungry for home-grown, couriered packages that contain everything from flavored nuts to men’s fashion accessories, said the daily.