John Phillips, General Manager at Zuora

The need for future-proof architectures in a climate of uncertainty

Digital transformation is no longer an option for businesses today; it’s essential. The technology landscape is changing fast, and those companies that don’t adapt risk being left behind.

Indeed, tech is essential to an organisation’s growth. Behind every new customer experience initiative, operational improvement, and employee strategy will be a new layer of technology. But alongside this growth is a whole new set of challenges for IT leaders.

Each time a company makes an upmarket motion, an expansion into an international market, a merger or acquisition, a pricing or packing change, or adds a new sales channel into the mix, it can struggle to rearchitect systems that are neither scalable nor agile enough to keep up with the rate of growth their business is trying to achieve. A new technology stack is needed, one that will ensure the company is ready to face whatever the future has in store.

Recurring revenue models

Most companies are running on systems that were built with perpetual ownership in mind; designed to sell products that customers will purchase once and then own forever. Since the pandemic, however, there has been a growing wave of recurring revenue business models, such as subscription services. Gartner predicts that, by 2023, three quarters of organisations that sell direct to consumers will offer some type of subscription service. This is hardly surprising, as the subscription business model has proved to be highly resilient, even in uncertain market environments.

Unlike in the Product Economy, in which revenue and profits depend entirely on the number of sales made, the Subscription Economy is based around building and maintaining long-term customer relationships. It’s much easier, for instance, to renew existing customers than chase new revenue. And these existing customers are valuable. Zuora data shows that the average percentage of revenue from existing subscribers has increased over the last few years, with an average 70 percent of revenue coming from upsells, cross-sells, and renewals.

This explosion of recurring revenue models has seen companies spend considerable amounts of time and money attempting to build and customise systems that will support their evolving growth strategies. Most are realising, however, that rigid legacy systems and hard coded workarounds will only take them so far. To support this next phase of growth, businesses will need to include enterprise-grade solutions that offer configurability, scalability orchestration, and automation throughout their entire monetisation processes.

Challenging solutions

Recognising the need to overhaul their systems to unlock the benefits of a subscription-based revenue model, businesses can implement a number of different solutions, although many come with challenges of their own.

Some companies may have a homegrown solution, to which it’s likely they’ve devoted a lot of time and resources over the years. The problem with this, though, is such a solution will be hardcoded. This means that every time the business needs to shift strategy – whether this be because of inflation or budget changes or to meet their subscribers needs –  add a new pricing model, or launch a new product, the implementation will be laborious. Several engineers will be needed to support the shift, potentially pulling resources away from customer-facing initiatives for the months – even years – needed to make the necessary changes.

Others may consider using an ERP system as their subscription billing platform. The problem here is that ERP systems are built to handle one-time sales, rather than ongoing subscriptions.. Building a subscription solution out of an ERP system will almost always result in a lengthy – largely customer built – implementation which, as above, can be time and resource-intensive. What’s more, once the implementation is complete, dedicated resources will be needed to maintain the solution, as every subsequent change will be a custom effort.

Smaller businesses, or those just beginning their subscription journey, may consider using a point solution for billing. These solutions tend to be focused on a single feature set, though, and don’t take account of the various nuances that arise as a company grows and scales its subscription business. While it’s possible to customise such solutions, they’re almost always hardcoded and, again, this will require time and money. What’s more, they also lack the enterprise scalability and architecture that businesses today require.

Supporting future growth

If the pandemic taught us anything, it’s that companies must be willing to make bold decisions and act quickly to respond to changing market conditions. A shift toward a recurring revenue model, such as subscription or consumption-based services, is one such move. And with the right technology and partnerships in place, even the largest companies can transform themselves to be as agile as start-ups.

What’s needed is a system that can support all of a business’s future growth initiatives, whether they involve recurring revenue, one-time purchases, usage or consumption pricing, or more complex enterprise strategies.

This requires a technology stack with the flexibility to quickly monetise new offerings, expand into international markets, or scale through direct-to-consumer sales. And this means finding a system that will integrate a company’s billing and revenue operations, track business metrics for strategic planning, and reduce the time taken to close its books.

In simple terms, businesses need a scalable solution that will withstand future requirements, so they won’t have to rip and replace it within a year just to keep up with the pace of growth. They need a solution that breaks the dependency on IT to build or customise something new with each new go to market strategy. And while the idea of finding and implementing such a solution may seem daunting while having to manage dozens of applications, it doesn’t have to be – especially given the advantages it can offer in terms of a company’s go-to-market speed and scalability.

The business landscape is changing fast. Digital transformation is vital if organisations hope to maintain their competitive edge. For this to be a success, it’s important to look beyond legacy architecture toward a holistic solution that will future-proof a business and allow it to weather the storms of an uncertain future.