The Seismic Shift to Recurring Revenue Models & What It Means For Your Company
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This webinar will showcase the incredible shift from perpetual license to recurring revenue models among large public companies and hyper-growth companies alike. With Gartner research as a launching point and Adobe, we will talk about the real-world data that is driving this shift and what it means for your business.
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The Seismic Shift to Recurring Revenue Models & What It Means For Your Company
- 1. A Real World Look at Perpetual vs. Recurring Why Zuora Zuora Provides a BluePrint to Succeed in the Subscription Economy! By Trav i s H u c h Z U O R A Slide 1 − Zuora Confidential, not for distribution beyond intended recipient
- 2. The Gartner Report on Adobe • Adobe is betting the farm on the new model • The “cloud” is mostly provisioning and rights management • Big customers who always upgrade will benefit • Innovation will be faster • The relationship with Adobe’s channel partners will probably change Slide 2 − Zuora Confidential, not for distribution beyond intended recipient
- 3. We Celebrated When We Heard This Infinite pricing options Slide 3 − Zuora Confidential, not for distribution beyond intended recipient
- 4. Pundits Predicted Peril for ADBE Infinite pricing options Slide 4 − Zuora Confidential, not for distribution beyond intended recipient
- 5. The 6 Month Chart for ADBE Infinite pricing options Dec 12 – Earnings announcement Slide 5 − Zuora Confidential, not for distribution beyond intended recipient
- 6. Highlights from the Quarter Infinite pricing options Slide 6 − Zuora Confidential, not for distribution beyond intended recipient
- 7. This Guy is a Hero “We are leading the software industry in transitioning our business to the cloud, which is enabling us to target higher top-line growth and greater recurring revenue”. Infinite - Mark Garrett, Execpricing options VP and CFO Slide 7 − Zuora Confidential, not for distribution beyond intended recipient
- 8. Adobe Solved Two Big Problems • Setting the subscription pricing • Rights / license Infinite pricing managementoptions Slide 8 − Zuora Confidential, not for distribution beyond intended recipient
- 9. Slide 9 − Zuora Confidential, not for distribution beyond intended recipient 9
- 10. How Did They Sell CC to users? Infinite pricing options Slide 10 − Zuora Confidential, not for distribution beyond intended recipient
- 11. Perpetual to Recurring Pricing Analysis Before: Creative Suite 6 = $2600 Creative Cloud = $50 per month with annual commit = 4.3 years B/E (2.8 years discount retail) $75 – Cancel at any time price per month Infinite pricing options Photoshop = $999 Creative Cloud = $20/month with annual commit = 4.16 years (2.7 years discount retail) Slide 11 − Zuora Confidential, not for distribution beyond intended recipient
- 12. 95% Move to Annual Plans Infinite pricing options Slide 12 − Zuora Confidential, not for distribution beyond intended recipient
- 13. Slide 13 − Zuora Confidential, not for distribution beyond intended recipient 13
- 14. Why Does Wall Street Love Adobe Again? Infinite pricing options Slide 14 − Zuora Confidential, not for distribution beyond intended recipient
- 15. GAAP vs Non GAAP Revenue Infinite pricing options Slide 15 − Zuora Confidential, not for distribution beyond intended recipient
- 16. A Look at Price to Sales Ratios Stock Market Cap Price to Sales TTM Adobe 33.77B 8.42 Workday 17.26B 42.94 Salesforce.com 38.39B 10.25 Oracle 172B 4.57 Infinite SAP 95.29B CA 14.61B 3.19 Nuance 4.84B 2.6 Slide 16 − Zuora Confidential, not for distribution beyond intended recipient 4.36 pricing options
- 17. The Basic Issue with GAAP Traditional Income Statements are Backward Looking Income Statement For Period Ending December 31, 2013 Traditional income statements measure revenue based on how much money you made this past period. Slide 17 − Zuora Confidential, not for distribution beyond intended recipient
- 18. Again, GAAP is good for Manufacturing Traditional Income Statements are One-timed Focused Income Statement For Period Ending December 31, 2013 Traditional income statements do not differentiate one-time from recurring revenue or expenses. Slide 18 − Zuora Confidential, not for distribution beyond intended recipient
- 19. The Three Metrics That Matter in SAAS Annual Recurring Revenue $100 Churn (10) Net ARR Retention Rate 90 COGS (20) G&A (10) R&D (20) Recurring Profit Recurring Profit Margin Growth Net New ARR Ending ARR Slide 19 − Zuora Confidential, not for distribution beyond intended recipient 40 Recurring Profit Margin 40% (40) 40 $130 Growth Efficiency Index
- 20. Wall Street Uses GAAP, But The Picture is Incomplete Revenue is the only relevant information in GAAP…but it is just a piece of the picture. Slide 20 − Zuora Confidential, not for distribution beyond intended recipient
- 21. Analysts are Getting Paid to Calc Churn Wall Street tries to back into The 3 Metrics that Matter… but it is really just an estimate. Slide 21 − Zuora Confidential, not for distribution beyond intended recipient
- 22. The Formula for Looking at a SaaS Business ARRn – Churn + ACV = ARRn+1 you start the period @ some recurring revenue rate you do a good job & minimize the amount of ARR that goes away Slide 22 − Zuora Confidential, not for distribution beyond intended recipient you invest in growing ARR by acquiring new ACV You then end up at a new ARR level, kicking off the next period
- 23. The Subscription Economy Income Statement First, you begin w/ Annual Recurring Revenue $100 Churn (10) ARR… Net ARR 90 COGS (10) R&D (20) giving you an expected recurring income (20) G&A you then anticipate churn… Recurring Profit 40 you spend to service the base giving you your recurring profit margin Slide 23 − Zuora Confidential, not for distribution beyond intended recipient
- 24. Enough With The Wall Street Stuff Slide 24 − Zuora Confidential, not for distribution beyond intended recipient
- 25. WEBSITE CRM BILLING Validate CC PLATFORM Confirm Sign Up Sign up Validated Create Account Create Subscription Welcome Email Link Account Slide 25 − Zuora Confidential, not for distribution beyond intended recipient Create Bill Provision Service Process Payment
- 26. Our Platform Subscription Subscription Subscription Pricing Quotes Orders Subscription Lifecycle Billing Payments Real-Time Bookings, Cash & Revenue Commerce CRM Systems Billing Payment Gateways Slide 26 − Zuora Confidential, not for distribution beyond intended recipient Finance Accounting/GL
- 27. Z-Business is used by 500+ Subscription Economy customers across multiple industries High Tech Devices SaaS Telecom Slide 27 − Zuora Confidential, not for distribution beyond intended recipient Cloud Infrastructure Media Education Healthcare 27
- 28. Summary • Stories of Adobe’s Demise were premature • Recurring revenue models do not require a SaaS architecture • The market craves predictability Infinite • Don’t overcomplicate making a move • pricinghelp you options If you make the decision to go, let us with the analysis and implementation Slide 28 − Zuora Confidential, not for distribution beyond intended recipient
- 29. travis@zuora.com @travishuch Slide 29 − Zuora Confidential, not for distribution beyond intended recipient 29
- 30. Slide 30 − Zuora Confidential, not for distribution beyond intended recipient 30
Editor's Notes
- Many of you may have read the report since we sort of set up the registration as a “twofer” It’s a pretty good report despite the fact that it’s been out there for a few months – there were five things I found interesting
- We were really interested when Adobe made this move.
- But everyone (Wired Businessweek)pig piled on Adobe and said the hardcore creatives are mad.
- Thank you Yahoo Finance. Way better than Google finance.
- This is easier to read than Salesforce’s earnings releases.
- But really, marketing and engineering did a lot of the heavy lifting here. But they didn’t build some science fiction SaaS architecture
- All of Adobe’s software is installed. They have a cloud that enables you to share stuff, collaborate on stuff and view stuff, but you still install photoshop on your local machine. People are always confusing SaaS with Subscription and recurring revenue.
- Predictability!Collaboration 20GB Storage Cross device / Mobile Run any version of the software
- http://www.zdnet.com/adobes-q3-q4-outlook-fall-short-but-creative-cloud-surges-7000020800/
- Mental Detour – Let’s talk about Wall Street – Mad Money
- Predictability!
- There is a bunch of stuff about “Diluted EPS”
- I decided to throw Nuance under the bus again.