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Article

The Dangers of Dumbing Down Your Business

Part 2: From ‘simple’ to ‘simplistic’ to ‘bad idea’

In Part 1 I talked about how there's nothing new about subscription services since they've been around for generations.

Now I'll relent a little and admit that there is something new about many of the subscription services out there. What's new is what is no longer there. Traditionally, the whole point of subscription services was to create a two-way commitment in which both the service provider and the customer benefits.

The commitment benefits the customer by providing discounts, rewards, exclusive products, price stability and service guaranteed in return for a promise to pay money regularly for a period of time.

The commitment benefits the service provider by establishing a more predictable and reliable forecast of revenues for some time into the future, which facilitates both resource planning and financial planning.

What we are observing now is a proliferation of subscription services that are characterized by recurring regular payments, without any of those traditional commitments. Yes, there is a degree of revenue predictability for the service provider, but it is driven solely by customer inertia, and so it is very vulnerable to customer whim and market place perturbations. And yes, there is a degree of price stability for the customer, but it is driven by the service provider's fear of losing customers, who can walk at any time.

There is nothing wrong about this as a pricing option for customers. But there is some danger in it for the service provider when it's the only pricing option offered to customers.

In a fast-moving world, a "no commitment" deal is a great way to get customers to try the product or service. But the next step is missing in these faux subscription plans: the ability for the service provider to automatically and easily offer the customer special deals (discounts, rewards, member-only, price guaranteed products) in return for long-term loyalty.

Why is this happening? In many cases this drive to over-simplification is driven not by customer needs or preferences, not by market considerations, not by company financial or growth plans, but by the limitations of the billing system. Suppose, for example, you have an e-commerce system that can handle simple periodic recurring payments, but cannot handle agreements, cannot automatically apply discounts for longer-term commitments, cannot manage agreement extensions, loyalty rewards, referral discounts, and so on. If you want to offer (for example) a cloud based media, app or storage service, you will be forced to offer an undifferentiated open-ended flat-rate service. With no commitments.

Constrained by simplicity, you will put a brave face on it. You will explain to everyone that by making things irreducibly simple for the customer, you will make life easier for the IT department, say goodbye to most of the product management department, and avoid the need for a sophisticated billing system.

You will not reveal the reality that the causal chain works in exactly the opposite direction: your billing system cannot support flexible, responsive and understandable pricing plans for customers at all, or possibly only after months of custom development and IT department overtime. You have no choice but to offer a simple one-dimensional plan to your customers, so you make the best of it.

You will gloss over the fact that your faux subscription customers can move on and take their revenues with them in a stunningly short period of time if something triggers an exodus. You will carefully avoid noting that the "subscription" plans you offer, unlike most of the subscription plans in history, do not offer any incentives to customers to be loyal, and therefore do not generate any level of stickiness. You will also not mention the fact that you know that the one-size-fits-all plan you have decided on is a compromise and is distinctly sub-optimal in terms of addressing all potential customer preferences.

You may also point out that the business you are in is rapidly becoming a commodity, and the race to the bottom demands a cheap and cheerful approach, not sophistication. Fine, if that's where you really want to be.

Things move fast in this twenty-first century. We can't predict what next year will be like, except that it will be different. Over the years we have seen efforts to productize services, followed by efforts to sell products as services. We were told that all revenues will come from advertising, so forget billing. Now we find that all revenues will come from subscriptions, so forget advertising and buy a subscription-oriented billing system.

Service providers understandably buy a billing system expecting it to last for years. Yet so many choose a system because it can handle what they perceive to be their billing needs of today, not to handle their billing needs of tomorrow. At MetraTech we have always understood that billing processes evolve, based on necessity, expediency, fashion, the economy, competition and customer perceptions. But we do not try to guess what will be in vogue next year, or the next. Instead we reassure our customers, that whatever it is, we can monetize it. Can your system vendor say that?

More Stories By Esmeralda Swartz

Esmeralda Swartz is VP, Marketing Enterprise and Cloud, BUSS. She has spent 15 years as a marketing, product management, and business development technology executive bringing disruptive technologies and companies to market. Esmeralda was CMO of MetraTech, now part of Ericsson. At MetraTech, Esmeralda was responsible for go-to-market strategy and execution for enterprise and SaaS products, product management, business development and partner programs. Prior to MetraTech, Esmeralda was co-founder, Vice President of Marketing and Business Development at Lightwolf Technologies, a big data management startup. She was previously co-founder and Senior Vice President of Marketing and Business Development of Soapstone Networks, a developer of resource and service control software, now part of Extreme Networks.

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