Building InnovativeSubscription-based

BusinessesBUS-185

Lecture 5: Subscription Vendors

Martin Westhead

References: Forrester Report: Subscription and Recurring Billing

Merchant account

Recurring Payments

Platform TypesSubscription Platforms

Recurring Payments

Bank/CC provider

Your Product/Se

rvice

Subscription

Management

Your Product/Se

rvice

ECommerce Platform

ECommerce Platforms

Merchant account

ComplexityFlexibilityControlLower Cost

Complete solutionReduced controlHigher cost (but more value)

Platform Capabilities

SubscriptionPlatform

EcommercePlatform

Deployment SaaS SaaS

Merchant of Record ✗ ✔✔

Payment gateway ✗ ✔✔

Fraud screening ✔ ✔✔

Store front ✔ ✔✔

Revenue Recognition ✔ ✔

Business model management

✔✔ ✔✔

Marketing tools ✔ ✔✔

Alternatives Game Monetization Platforms

Vendors such as Playspan (Visa) and Live Gamer Expensive but very complete Ecommerce offerings Virtual currencies and micropayments Many payment method, including international and proprietary Payout support

Build in-house Netflix Survey Monkey Wordpress

Operations/Business Support Systems (OSS/BSS) High end Telecoms

Enterprise Resource Planning (ERP) Vendors such as NetSuite, Oracle, and SAP offer enterprise ERP solutions

that incorporate billing capabilities.

Enterprise Ecommerce Platform Vendors such as Elastic Path Software, Hybris, IBM (WebSphere

Commerce), and Oracle (ATG) offer solutions in this space.

Subscription PlatformsPros

Primary solution for most subscription needs

Feature-rich

Relatively low cost

Cons

Incomplete solution Payments International payments Tax Analytics Support

Constrained by Vendor capabilities

Cost: around 1-3% of revenue

Ecommerce PlatformsPros

Complete solution Payments Support Etc.

Immediate international presence (Great way to break into

new Intl markets)

Cons

Higher cost

Highly constrained by vendor capabilities

Cost: around 7-10% of revenue

Gaming PlatformsPros

Complete solution

Extensive monetization capabilities Subtenacy Customer payouts Virtual currencies Micro transactions

Extensive payment options Localized cash Playspan cards in

Walmart Very International

Cons

Very expensive

Highly constrained by vendor capabilities

Cost: around 11-15% of revenue

Build in-housePros

Control Can do exactly what you

need

Cons

Expensive

Hard to do Need a team with

experience

Often not core competency

Cost: 12-36 staff-months development1-2 staff ongoing maintenance and support

OthersPros

I already have (or need) one of these so its easy to bolt on

Cons

Constrained by limited functionality

Things to consider

when choosing a vendor

Supported business models Core issue

Even small extensions to business logic can prove challenging

What you need Today

What you need Tomorrow Vendor Roadmap

Level of influence on Vendor Roadmap

Building custom features on top is hard Ning burned by this approach

Front-end experience Ecommerce frontend

Seen by your customers

Administration front end Internal for product configuration Sales force (e.g. telesales) Support

Reporting and Finance Finance team Business Analytics

Developer Experience API

Capabilities Create, Update Read (CRUD) Events and Notifications

Documentation Ease of use

SDK Client libraries Tooling

Developer support Community

Testing environment Availability Refresh Ability to populate with (scrubbed) production data

Globalization capabilities Multiple currency support

Charge in multiple currencies Presentation of currencies Currency rounding rules

Language support

Multiple timezone support

Fraud detection and protection tools

Use of stolen credit cards Leads to charge-backs Monetization of stolen cards

Stolen Credit Card validation Costly Hard to block Confuses analytics

Retention management and Chargebacks

Credit card payment failure can be high 30% is not uncommon

Tools Retry Messaging Business logic (Aria systems 40 paths)

Pricing Model Flexibility (Marketing and campaign management)

Promotions

Discounts

Coupons

Customer segmentation

Free trial

Price change

Financial reporting Revenue recognition

Aging/Waterfall reports (unpaid invoices)

Account and subscription levels

Account management Sub accounts Payment management Roll up subscriptions to the right

organizational level

Subscription levels Base subscription plus add-ons Multiple subscriptions per account

Notification management

Entitlement management Source of truth for user access to

content/features Has this user paid for this capability in this

context?

Important integration point

Gap in some solutions

Subscription life cycle management

Creation Trial / Discount phase?

Change Upgrades, Downgrades

Add-ons

Pause (Holiday Period)

Cancelation

Security and scalability Multitenant implementations, no isolation

Performance issues Security breaches

Have experts review vendor capabilities

Maturity Will vendor be around in a year?

Company performance Financials Investment rounds

Customer references

Etc.

Lock-in It is hard to switch vendors later

Seamlessly moving customer subscriptions Hard and Error prone Difficult to test Particularly hard on a 24/7 uptime system Expect to take months for large customer

base

Running multiple systems during transition Costly and awkward

Major players

Major PlayersSubscription Platforms

Aria Systems

eVapt (MagnaQuest)

Metanga (MetraTech)

Vindicia

Zuora

Ecommerce Platforms

Avangate

CleverBridge

Digital River

Gaming Platforms

PlanSpan

Live Gamer

Founded: 2003

Funding to date: $43M

Employees: 100

Clients: 90+ AAA, HootSuite, Pitney Bowes, Red Hat, VMware

Pricing: Annual platform fee + transaction fees (~2%)

Target: enterprise and midmarket

Deployments: SaaS

Story: one of the first vendors to get into cloud-based recurring billing.

Integrations: salesforce.com,NetSuite, SaaS tax solutions and payment processors

Aria Systems (Subscription)

Founded: 2006 (1997)

Employees: 300+

Clients: 35+ (150+) Industry leading US cloud computing service provider,

Fortune 500 utility for new subscription business unit, AvFinity

Pricing: SaaS (1-2%) on- premise (1 time license fee + annual maintenance)

Deployments: SaaS and On-Premise

Target: multiple: cloud, pay TV, broadband, Internet telephony, and mobile virtual network operators (MVNOs); also supports PaaS and SaaS clients

Story: eVapt was acquired by MagnaQuest in 2010 a CRM vendor

eVapt/MagnaQuest (Subscription)

Founded: 1998

Employees: 160

Clients: 10 (50+) Concur, CubeSmart, Scribe, Telmore, Temenos

Pricing: Annual platform fee + transaction fees (1% - 2%)

Deployments: SaaS and On-Premise or Managed Service

Target: vertical agnostic but provide targeted functionality for telco, financial services, cloud, and conferencing and collaboration verticals.

Story:The solution is directed at eBusiness customers who want to get up and running quickly with an API-enabled, cloud-based service. The company’s other product, MetraNet, is a BSS.

Metanga/MetraTech (Subscription)

Founded: 2003

Funding to date: $30M

Employees: 100

Clients: 110 Blizzard,Intuit, Nascar.com, Plaxo, Vimeo

Pricing: Transaction fees (2% - 2.5%) on successful transactions

Deployments: SaaS

Target: multiple: cloud, pay TV, broadband, Internet telephony, and mobile virtual network operators (MVNOs); also supports PaaS and SaaS clients

Story: Vindicia has pursued a strategy of developing its own payment gateway, sales tax engine, chargeback process, and eCommerce storefront for customers looking for a unified solution.

Integrations: salesforce.com

Vindicia (Subscription)

Founded: 2007

Funding to date: $80M

Employees: 250

Clients: 400+ Box, Dell, Docusign, HP, Newscorp

Pricing: Annual platform fee + transaction fees (1% - 2%)

Deployments: SaaS

Target: broad vertical focus, with particular strength in the high-tech, telecom, and media markets

Story: Zuora targets invests a lot of effort helping clients understand the business challenges around accounting and metrics for recurring revenue-based business models.

Integrations: salesforce.com, Accenture and Capgemini enterprise accounting and other CRM solutions

Zuora (Subscription)

Founded: 2006

Employees: 110

Clients: 200+ Bitdefender, Kaspersky, myFICO, SerenaSoftware, Total

Defense

Pricing: Revenue share (8% or 4.9% + $2.50 transaction fee)

Deployments: SaaS

Target: software and SaaS markets

Story: The company primarily supports clients in a full-service model, acting as the merchant of transactions, although the company also supports clients who wish to use their own payment gateway and merchant account.

Avangate (Ecommerce)

Founded: 2005

Employees: 230

Clients: 50 Avira, BitTorrent, FastBill, Malwarebytes • Parallels

Pricing: Revenue share (average 8-10%)

Deployments: SaaS

Target: global, full-service provider of subscription billing and eCommerce services focused on B2B and B2C software and SaaS companies

Story: Clients typically rely on cleverbridge as the merchant of record, although eBusinesses can choose to serve as the merchant of record themselves.

Cleverbridge (Ecommerce)

Founded: 1994

Employees: 1300

Clients: 200+ BitDefender, Logitech, Microsoft, TrendMicro, VM Ware

Pricing: Revenue share (% depending on services)

Deployments: SaaS

Target: Software/SaaS, Gaming, Cloud services

Story: The firm offers end-to-end outsourced services on an à la carte basis including commerce, marketing, site optimization, global payments, taxation, and digital fulfillment.

Digital River (Ecommerce)

Founded: 2006

Funding: $46.3M

Clients: 1000 online games

Pricing: Revenue share (11-15%)

Deployments: SaaS

Target: Online games, digital entertainment, and social networks

Story: global payment solutions through its UltimatePay product which enables in-app purchases using over 85 global payment methods in 180 countries. ULTIMATE GAME CARD, is a pre-paid card you can buy at Walmart.

PlaySpan (Gaming)

Founded: 2007

Funding: $35.3M

Clients: Acclaim, CCR, Funcom, Hangout Industries, Quepasa and

Sony Online Entertainment

Pricing: Revenue share (11-15%)

Deployments: SaaS

Target: Online games, digital entertainment, and social networks

Story: Live Gamer provides an advanced offering that goes beyond billing to drive core business metrics and optimize new transaction-based revenue streams.

Live Gamer (Gaming)

Others Emerging (<3 years)

BrainTree Chargify Cheddar Getter Monexa OneBill Recurly Saasy Spreedly Tranverse

Kill Bill Open Source platform

Software is free Apache license

Ning’s Billing System Billing 100K customers today

Flexible Sophisticated catalog – highly configurable Plugin architecture – add what’s missing

Great solution if you have developers and need control

http://kill-bill.org

Recommendations Decide if subscription management is a core

competency?

Anticipate future needs and build them into your requirements now

Identify your integration points

Consider if an ECommerce Platform makes sense

Review scenarios, not just static requirements

Remember, its hard to migrate…

Guest Lecturers

Christian Springub

Co-Founder of Jimdo “Pages to the People”

Next week

Payments how they work and what to do when they don’t

Doug CavinessHead of SaaS solutions, Cleverbridge