Lily Varon, Forrester Research: "B2B industries are driving most of the billing model complexities today"

What are some of the biggest trends you are currently seeing in the billing and monetisation industry?

The trifecta of cloud computing, mobile devices and the Internet of Things has brought on an era of product and billing innovation. Firms are testing new product offerings that combine elements of content, software, services and hardware together. As these products evolve, so do the monetization models.

The trend is that firms are shifting from one-time perpetual sales or fixed monthly subscriptions to hybrid models that blend one-time subscription and usage-based billing. Sometimes there’s no subscription at all! Think of Uber. It’s not a subscription in the traditional sense. But the vaulted card and the recurring nature of the business means there’s inherent flexibility in the billing relationship and an increased emphasis on loyalty, above and beyond what you get in a traditional one-time transaction. Calling these scenarios “subscription management” is increasingly inaccurate or at least an oversimplification.

What capabilities do organizations need, in order to capture maximum return in a recurring-revenue model?

Organizations need to rethink everything: move from an acquisition mind-set to a retention, or relationship mind-set. Unfortunately, most firms’ existing technology stack –from the commerce platform to the ERP- is likely built to support one-time transactions. The subscription management platforms supplement and enhance the existing tech ecosystem with the capabilities needed to support a subscription business. This plays out in everything: from a product catalogue that supports more flexible product and pricing configurations, to subscription specific BI and analytics, to financial reporting and revenue recognition capabilities that allow them to operate as financial systems of record for the subscription revenues they manage. Organizations need every piece of that puzzle to maximize the move to subscriptions.

What is driving the need for subscription billing in the B2C and B2B contexts?

There are four drivers common across all industries:

1) a desire for higher-touch, continuous customer relationships

2) a thirst for actionable insights to innovate and improve their business

3) an eagerness to capitalize on the agility of the cloud 4) and finally, to experiment with the Internet of Things.

In your opinion, is the growth of subscription-billing platforms being heavily driven by B2B or B2C? Which of these industries is currently driving most of the business model complexities in this context?

The headline-makers in subscriptions have primarily come from the B2C realm – Birchbox, Netflix, Zipcar – but the growth of subscription billing platforms is being driven mainly by B2B use cases. If you think about it, the B2C subscription scenarios to date have been quite simple models (e.g. a monthly USD 9.99 charge), but B2B scenarios are much more complex. They have to support account hierarchies and sales channels, more complex product configurations and distributed billing scenarios, the list goes on. Besides the B2C sides of famously complex industries like telco and healthcare, it is B2B industries driving most of the billing model complexities today, hands down.

Are such complexities of managing subscriptions different in a B2B vs B2C scenario? If so, what do they consist of?

B2B and B2C firms will have different needs from their subscription management platforms. B2B firms will be more interested in the CRM integrations (which enable the day-to-day management of the subscription lifecycle directly in the CRM platform for sales reps), the support for account hierarchies and sales channels, and the invoicing capabilities in the platform. B2C firms, whose customers more often pay with credit cards, will care more about the self-service functionality and dunning and revenue recovery tools (billing features that ensure consumer payment types are accepted each billing cycle).

In your opinion, how has the cloud changed the billing industry as a whole?

Cloud is a key driver of subscriptions. As firms re-engineer their products or services for the cloud, subscriptions or usage-based billing are key to monetization. Selling access to cloud services via a one-time perpetual licensing and support just doesn’t happen. Subscriptions are synonymous with the cloud.

What does billing innovation stand for in the recurring business model?

Billing innovation has become a key driver of creating deeper, stickier, more continuous customer relationships. Suddenly, this relatively “boring”, back-office initiative - billing - is the arena upon which firms are battling it out to be the most customer-obsessed. It’s fascinating!

IoT is expected to spark new business model innovation. As changes occur rapidly, on pace with technology, how can billing solutions capitalise on the IoT and address the agile needs of a business?

To capitalize on IOT, billing platforms need to bolster their support for usage-based billing. It’s my point of view that usage-based billing will be the monetization platform for IOT. It’s just a matter of time: the connected device or machine comes first, then the data aggregation, storage and analysis has to occur, then firms can design value-added services around how that device or machine is being used. It seems natural to me that the monetization of those services will be directly tied to the usage of the device and/or value-added services.

About Lily Varon:

Lily Varon is an analyst serving e-business & channel strategy professionals. Her research focuses on the technologies that ecommerce firms need to transact with consumers in the age of digital business, including ecommerce solutions for digital and physical goods, global online payments, the translation and localization of global websites, and the digital transformation of the physical retail store. Her research also analyzes consumer online shopping behavior around the globe, with a particular focus on Latin America.

About Forrester Research:

Forrester Research works with business and technology leaders to develop customer-obsessed strategies that drive growth. Forrester’s insights are grounded in annual surveys of consumers and business leaders worldwide, rigorous methodologies, and the shared wisdom of our most innovative clients. The Forrester experience has one purpose: to challenge the thinking of our clients to help them lead change in their organizations.