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Christian Blume, cleverbridge: "Subscription commerce is about understanding the customer life cycle value"

Tuesday 15 September 2015 | 08:53 AM CET

Keep the subscriptions simple, at the end of the day it should be the consumer that has the actual decision power

Can you please give a brief introduction about cleverbridge, when was it founded and what were the reasons that led to the establishment of the company?

cleverbridge was founded by seven former employees of a company called Element 5 (acquired by Digital River in 2004). We started the business in 2005 because we felt that there was an opportunity in the market where we could deliver a much superior solution to software companies. Fast forward to 2015, we are still growing substantially and enjoying the markets that we conserve.

You have been in the market for ten years. From your point of view, what are the most important breakthroughs in development in digital goods in terms of growth?

When we started the business, one of the major pivots that we were able to facilitate for our prospects and clients was to offer them a highly flexible solution, allowing them to do metrics-driven tests with regards to how they would conduct ecommerce on an international level. And that was something that was not necessarily available especially with having those metrics directly accessible and making real-time changes to the environment that they were using.

Then we continued to develop all the solutions that we had in place: we always had subscription business on top of our minds and enabled our clients to actually move from a perpetual license environment into the subscription business. Today, roughly 50% of our business is based on subscriptions. And what we are seeing now is a shift from the typical B2C type of software and cloud-environment, to the B2B environment. B2B types of software and cloud environments are increasingly being offered online, which generates a nice recurrent revenue stream and attractive price points.

Therefore, there is endless opportunity in those markets, with changes that need to be addressed: how those companies invest their spending money.

We see the subscription commerce model applied to a variety of industries, not only to digital goods. Can you give some examples of other industries that apply this subscription commerce model successfully?

There are a few examples including the Dollar Shave Club, a typical business model where you can subscribe to the shaving materials that you need on a monthly basis. There is also Blue Apron, which a lot of people use in the US, which delivers the food that you need in order to prepare a meal, and to which you can subscribe on a weekly basis. Peapod, which is also in the environment of food business, is another example. There is Birchbox for beauty products that you can subscribe to. We are seeing so many broad opportunities in the market that it seems as if everything can go subscription-based today.

What are the most important metrics a merchant needs to apply when it starts thinking of offering a subscription commerce model?

What you need to do is you need to understand your business and the business opportunity that is out there. You need to ensure that you have a truly value-added service that fits a subscription-business model. Because it is not about what you feel a subscription should be like, it is more about what your customers feel about the subscription. When it comes down to metrics you need to have a really good understanding of what really drives my customers to actually buy the products, so the value proposition has to be very clear, making sure that the customers understand what are they going to get out of it.

And then, at the end of the day, because that to me is the most important metric, is to understand the customer life cycle value. Because there is a high burden to actually acquire a customer and with a subscription-business model you typically only have increments of the total product cost. If you do not get things right, you are going to be stuck with high acquisition costs and with low recurring revenue and, at the end of the day, that is not going to deliver break even.

It is different from what you see in a normal environment, where you have an upfront payment and you receive everything in full. You basically have the acquisition costs already priced into it and here you have to stretch it out over the customer life-cycle, making sure that the life-cycle stays for as long as possible because that is where you are going to get your money out of, reaching profitability.

Talking about customer life-cycle management, can you give our readers some insights on best practices?

Mainly, you have to understand that every single product is different from the other products that are out there. One example may not be applicable to any other products that are out there.

First, there is the part of helping the customer choose the right product, giving him the opportunity to potentially try out the product in a trial-run for maybe a 30-day period. You can offer him access to everything, but the relevant pieces could be just a small subset of the possibilities that the product offers. Also, giving customers guidance around what they should be focusing on - what they are trying to and what the solution is going to be, as well as guiding the customer with recommendations around what could be additional pieces that they could subscribe to. 

You need to truly understand the timing of your market, which is really understanding how much time is one of your customers actually going to spend with your product up front before they drive the decision to invest or buy the product. There are solutions where it will take 20 days to actually understand the true value of the product. And there are other solutions where it is simple and easy, like and anti-virus solution.

Understanding data collection is important as well, because we tend to try and get as much information on a potential customer. You have to be very cognizant about how much you are asking a customer to enter as information in there. With every field that you add beyond the first 4-6 fields, your conversion rate is going to go down substantially. And at the end you have to ask yourself if you are going to use all the data that is available.

A personal learning from my point is “keep the subscriptions simple”. What the consumer wants is to understand what he is getting himself into and how much he is paying for it. The supplier of the services obviously wants to have more information, but at the end of the day it should be the consumer that has the actual decision power.

If we look at the “Everything-as-a-service” models that are appearing, what are your predictions in terms of growth in the next three years in terms of digital goods?

We always get confronted with the question of what is the total addressable market. There are so many things going on with the Internet of Things, on the one hand, and the typical cloud businesses that are trying to sell subscriptions and access to services, on the other hand. I think what is important is to understand that basically everyone is moving into subscriptions, which means that the total addressable market is probably at a level of numbers and opportunities that have so far been unheard of because it can all be clustered together. 

Unfortunately, I have not come across any kind of research firm that has been able to predict the market sizing all the way, but I think that it will be much bigger than the market we started out with addressing as cleverbridge. There is so much opportunity, it is just a question of making sure that you focus.

About Christian Blume

Christian is a seasoned ecommerce professional, having worked in the industry since 1998. He was the General Manager of FERI Digital Investor GmbH and Director of Product Management for another ecommerce provider before founding cleverbridge AG in 2005. He has his Masters of Economics from the University of Bonn, Germany.

About cleverbridge

cleverbridge is a proven leader in ecommerce technology, services and expertise for global software and subscription companies that serve consumers and businesses. For more than 300 clients – including Avira, Corel, Dell, Malwarebytes and Parallels – cleverbridge is a true extension of their teams, understanding each client’s billing models, markets, channels and specific ecommerce requirements.