Costs go up and revenue drops, but after the
transformation to a subscription model is
complete, costs go down and revenue comes
back up (see graphic below).
We want it to be as inspiring a story as
Adobe: They flipped the switch and revenues
were down — it hadn’t been below a billion
dollars in the first quarter in like 10 years.
But Adobe didn’t cut staff commensurate to
their revenue. They did some adjustments
to cost and explained this to Wall Street and
provided detailed metrics. Yes, the stock
dropped when they had their earnings call,
but 24 hours later, after they spent six to eight
hours with the analysts, things were back up.
As more businesses move to
a subscription-based model, should
we be worried about privacy with our
data? Services can monitor your behavior.
Generally, that’s a good thing because
[companies are] using that knowledge to
create better services for you.
But once a customer leaves a service,
a company should just return them the
information. It’s their data. That’s pretty
black and white, tends to work well, and
is well-aligned to things like the General
Data Protection Regulation [an EU law that
regulates how companies protect citizens’
Advertising may never go away, but as
subscription services become the norm,
readers and publishers alike are starting to
appreciate the dividends of a direct consumer
relationship. The behavioral insight that
comes with membership plans and paywalls
helps media companies move away from
empty calories like page views toward more
valuable engagement metrics like time spent.
We like the paid subscription–based
business model because we think it’s a healthy
dynamic bet ween the vendor and the customer.
There should be rules and regulations that the
data is the customer’s data, not the vendor’s. It’s
the advertising model where the vendor thinks,
“Well, I think this is our data, not your data.”
And my response: “Why is it your data? It’s my
In Subscribed you dive into industries that
have done this well, namely the New York
Times with newspapers and Uber with ride
sharing and, perhaps more surprisingly,
Caterpillar with construction equipment.
What other industries can we expect to see
in this market? One that I am really excited
about is airlines. Surf Air is called the “Netflix
of Aviation,” and members get limitless access
to flights for a monthly fee. It’s an example of
building a business by starting with customer
wants and needs, attacking pain points with
a machete, and growing a loyal subscriber
base. There are already subscription-based
companies in real estate, education, finance,
and pet care.
The reality is ownership is dead; Now it’s
really about access as the new imperative.
In a 2015 piece in Fortune, you said
a business school education was “worthless”
and recommended people don’t get an MBA.
Has your view changed? I’m still waiting for
my alumni card to be rescinded — just kidding.
I don’t regret going to business school;
there’s a lot of things that you learn. There’s
an embedded assumption in business today
that the goal of business is selling units of
their product. It’s built into how do you do
marketing, it’s built into how you do finance.
And this model is different.
Anybody who’s going to Stanford GSB
today, I’d say it’s not that lessons in the past
are not important, but try to understand
there are different models. The underlying
concepts are still the same — you still have
to have profit and revenues — but the time
dimension and the customer dimension add
more nuances to the overall picture. Δ
You call Adobe the company that
provided the “textbook” to inspire
others and reference how its revenue
dropped drastically after the transition
to subscription. How do you advise
leaders to manage through that pain?
The fear is if I’m selling a guitar, instead
of taking 400 bucks right now, I’m taking
money over time. And so doesn’t that
destroy revenue? If I just flip the switch,
my revenues would plummet.
You can actually keep selling your product
and sell ne w digital subscription services, like
Fender does — its Fender Play offers access
to online lessons for $9.99 a month — or, if
it’s a complete s witch to subscription, you
can face what Thomas Lah and J.B. Wood
(authors of Technology-as-a-Service Playbook:
Ho w to Grow a Profitable Subscription
Business) dubbed “s wallowing the fish.”
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54 WORLD SPRING 2019 STANFORD BUSINESS
Impact of transitioning to
Impact of investments in
the new capabilities
The Fish Model
In Technology-as-a-Service Playbook, authors Thomas Lah and J.B. Wood
warn that cloud-based subscription startups face an initial period in which
revenue dips and expenses peak, creating the financial "fish" graph below.