Subscription Vendors - Building Innovative Subscription-based Businesses: Lecture 5

1. Building Innovative
Subscription-based
Businesses
BUS-185
Lecture 5: Subscription Vendors
Martin Westhead
References: Forrester Report: Subscription and Recurring Billing

2. Merchant
account
Recurring
Payments
Platform Types
Subscription Platforms
Recurring
Payments
Bank/CC
provider
Your
Product/Serv
ice
Subscription
Management
Your
Product/Serv
ice
ECommerce
Platform
ECommerce Platforms
Merchant
account
Complexity
Flexibility
Control
Lower Cost
Complete solution
Reduced control
Higher cost
(but more value)

3. Platform Capabilities
Subscription
Platform
Ecommerce
Platform
Deployment SaaS SaaS
Merchant of Record ✗ ✔✔
Payment gateway ✗ ✔✔
Fraud screening ✔ ✔✔
Store front ✔ ✔✔
Revenue Recognition ✔ ✔
Business model
management
✔✔ ✔✔
Marketing tools ✔ ✔✔

4. 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.

5. Subscription Platforms
Pros
 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

6. Ecommerce Platforms
Pros
 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

7. Gaming Platforms
Pros
 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

8. Build in-house
Pros
 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 development
1-2 staff ongoing maintenance and support

9. Others
Pros
 I already have (or need) one
of these so its easy to bolt on
Cons
 Constrained by limited
functionality

10. Things to
consider
when
choosing a
vendor

11. 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

12. 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

13. 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

14. Globalization capabilities
 Multiple currency support
 Charge in multiple currencies
 Presentation of currencies
 Currency rounding rules
 Language support
 Multiple timezone support

15. 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

16. Retention management and Chargebacks
 Credit card payment failure can be high
 30% is not uncommon
 Tools
 Retry
 Messaging
 Business logic (Aria systems 40 paths)

17. Pricing Model Flexibility
 (Marketing and campaign management)
 Promotions
 Discounts
 Coupons
 Customer segmentation
 Free trial
 Price change

18. Financial reporting
 Revenue recognition
 Aging/Waterfall reports (unpaid invoices)

19. 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

20. 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

21. Subscription life cycle management
 Creation
 Trial / Discount phase?
 Change
 Upgrades, Downgrades
 Add-ons
 Pause (Holiday Period)
 Cancelation

22. Security and scalability
 Multitenant implementations, no isolation
 Performance issues
 Security breaches
 Have experts review vendor capabilities

23. Maturity
 Will vendor be around in a year?
 Company performance
 Financials
 Investment rounds
 Customer references
 Etc.

24. 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

25. Major players

26. Major Players
Subscription Platforms
 Aria Systems
 eVapt (MagnaQuest)
 Metanga (MetraTech)
 Vindicia
 Zuora
Ecommerce Platforms
 Avangate
 CleverBridge
 Digital River
Gaming Platforms
 PlanSpan
 Live Gamer

27.  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)

28.  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: SaaSand 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)

29.  Founded: 1998
 Employees: 160
 Clients: 10 (50+)
 Concur, CubeSmart, Scribe, Telmore, Temenos
 Pricing: Annual platform fee + transaction fees (1% - 2%)
 Deployments: SaaSand 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)

30.  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)

31.  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)

32.  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)

33.  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)

34.  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)

35.  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)

36.  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)

37. Others
 Emerging (<3 years)
 BrainTree
 Chargify
 Cheddar Getter
 Monexa
 OneBill
 Recurly
 Saasy
 Spreedly
 Tranverse

38. 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

39. 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…

40. Guest Lecturers
Christian Springub
Co-Founder of Jimdo“Pages
to the People”

41. Next week
Payments how they work and what to do when
they don’t
Doug Caviness
Head of SaaS solutions,
Cleverbridge