the big book of rr_innovators by marie martin

new coverTHE BIG BOOK OFRECURRING REVENUE

INNOVATORS

The Global GiantsThe Emerging LeadersThe Revolutionaries

This first-of-its-kind e-book on Recurring Revenue Innovators showcases 29 real-world examples of smart businesses that have boldly exploited recurring revenue business models to expand markets, boost sales, and reap greater profits.

These daring recurring revenue innovators, many in the Fortune 1000, offer inspiring case studies on how to use recurring revenue models in new, innovative, and impactful ways. These cutting-edge companies are using recurring revenue to disrupt their markets or carve out new ones.

You will find familiar names like Amazon, United Airlines and ESPN, under-the-radar surprises like Ingersoll Rand’s Nexia home automation service and Philips’ Community Without Walls, unexpected upstarts like BarkBox and Entitle, and market disruptors like Stitch Fix and Blue Apron.

You’ll learn about the Birchbox-led phenomenon of subscription boxes where subscribers pay for a monthly dose of surprises (cosmetics samples, women’s shoes, healthy snacks or marijuana paraphernalia). You’ll learn how “recurring revenue” reaches beyond subscriptions to include pay-per-use, freemium, and subscription-plus-usage models.

Why the rush to recurring revenue? What makes it the new dar-ling of business growth strategies? Unlike the standard one-off model of selling once and hoping for later, recurring revenue businesses sell once, build a relationship and, if done right,

collect month after month. Software firm Adobe turned Creative Suite, its largest revenue generator, into a subscription product and earned Wall Street kudos. Publicly traded Red Hat gets 87% of its revenue from subscriptions.

The Recurring Revenue Innovators e-book is brought to you by a diverse team of practitioners, consultants and suppliers: Aria Systems, which provides recurring revenue management; The FactPoint Group, a Silicon Valley market research firm; and Bob Harden, an independent consultant who had previously led software implementations.

We hope you enjoy it.

Tim Clark, Partner and Senior Analyst The FactPoint Group

Introduction

06 Apple iRadio Apple iRadio’s Love Affair with Subscriptions Continues07 ESPN ESPN Spins Web of Online Extras for Print Subscribers08 Google Google Mashes Up GooglePlay and YouTube 09 Ingersoll Rand Ingersoll Rand Unlocks Fast-Growing Smart Home Market10 Microsoft Microsoft Adds Subscription Option for Best-Selling Office Software11 Philips Philips Subscription Service Helps Elderly to “Age at Home”12 Sony SOE All-You-Can-Play for Just One Game Subscription13 Toyota Europe Toyota Test Drives Subscriptions in Europe14 United Airlines Subscriptions Make Skies Friendlier for Infrequent Fliers

16 BarkBox Pet Subscription Boxes Become a Woman’s Best Friend 17 Birchbox Birchbox Started Monthly Discoveries in a Box 18 Blue Apron Carving Out a New Market for Home Food Deliveries 19 Entitle “Just Don’t Read It, Keep It,” Says New E-book Purveyor 20 Globalstar Serving Hard to Reach Fishermen, Oil and Gas Workers21 Hearsay Social Financial Advisors Can Now Use Social Media22 Issuu Marrying Print with the Efficiency of Digital Distribution 23 Mozy Bringing Cloud-Based Back-ups to the Masses24 PeopleMatter Delivering Professional HR Services to Hourly Service Employees25 Red Hat Pay-As-You-Go PaaS Builds Impressive New Revenue Stream26 ShoeDazzle Building “The World’s Largest Fashion Subscription E-commerce Company”

Table of contents

The Global Giants

The Emerging Leaders

Table of contents (continued)

Copyright © 2014, Aria Systems, Inc. All rights reserved. Aria Systems and the Aria logo are trademarks or registered trademarks of Aria Systems, Inc. All other trademarks shown are property of their respective owners. This e-book is for informational purposes only. The companies profiled in this e-book were not involved in its creation, and do not necessarily sponsor,

endorse or affiliate with Aria Systems, or our products or services.

28 Adobe Adobe Wows Wall Street with Shift to Subscription Sales29 Amazon Takes ‘Prime’ Position in Subscription Commerce30 HootSuite Freemium Service Proves to Be Gateway to Sales and Profits 31 Netflix Riding Subscriptions to ‘Blockbuster’ Success32 NC Education Lottery Digital Age Customers Subscribe to Lady Luck33 Pandora Internet Radio Pioneer Re-tunes to Outmaneuver Competition34 Stitch Fix Women’s E-tailer Re-fashions Traditional Sales Model35 Surf Air California Subscription Airline Takes Flight36 The New York Times Read All About It: Times Successfully Hawks Online Subscriptions

The Revolutionaries

Recurring Revenue Innovators

THE GLOBAL GIANTS

6

—Steve Jobs, Former CEOApple

“Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30% share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing.”

BILLION$3.99

Apple iMatch Solidified Love of Recurring RevenueThe Opportunity: The Opportunity: The Opportunity:

Solution: In June 2011, Apple announced iTunes Match, a $25-a-year subscription service that allowed subscribers to put music already on their PCs onto Apple iCloud [for easier access on multiple devices]. Since then, Apple has premiered subscription services on Apple TV for broad-casters, including the delivery of HD movies, Japanese anime and Korean TV, as well as big league baseball, hockey, soccer and other professional sports. In addition, iTunes sells subscriptions to complete seasons of popu-lar U.S. TV programs.

Results: In Apple’s fiscal third-quarter report for 2013, revenue from iTunes software and services, including income to partners, grew at 25% year-over-year to $3.99 billion.

Become Apple users’ one-stop destination for digital music.

Revenue from iTunes software and services,

including income to partners, grew 25%

a year in 2013 to...

RECURRING REVENUE INNOVATORS: THE GLOBAL GIANTS

7

—Matt Murphy, Senior Vice President ESPN

“ Adding Apple TV as the fifth platform that delivers WatchESPN provides greater value to the multichannel subscription. Wherever fans are, they will be able to access ESPN networks and content, simply by being a video customer to one of our affiliated providers.”

18%In 2013, ESPN.com’s

Insider subscribers jumped...

Solution: ESPN knows that its audience is migrating to online sports broadcasting so the sports entertainment giant is looking at how to add more web-based programming without cannibalizing existing cable and satellite revenue. As a result, ESPN’s WatchESPN, its main online property, is available only as a mobile app through cable or satellite TV providers. The decision seems to have boosted both TV and online subscriptions, as well as helped to cross-sell such online products as ESPN Insider for $9 a month/or $40 a year. It’s free with a paid ESPN print magazine subscription.

Results: ESPN.com’s Insider subscribers grew 18 percent in 2013.

Retain TV subscribers who favor viewing sporting events online—for free.

ESPN Spins Web of Online Extras for Print SubscribersThe Opportunity:


8

18 MTITLES

“ Google’s influence on the music industry will creep rapidly, making otherGoogle-owned properties (Google+, YouTube, Google Play) more important to the overall marketing strategy of artists and labels.”

—Marcus Taylor, Digital MarketerVenture Harbour

Solution: YouTube, one of the largest, best-known sources for streaming video, may also be the most-used (ad-supported) music streaming site. In May 2013, Google’s Android unit launched Google Play “All Access,” which offers unlimited, on-demand streaming on PCs, phones and laptops for $10 a month. Later in 2013, the trade press speculated about a second Google music subscription from Google’s YouTube operation, rumored to be called Music Pass. As of March 2014, YouTube has yet to launch Music Pass.

Results: As of January 2014, Google Play All-Access had roughly 18 million titles.

Become the dominant music streaming provider by offering consumers an unlimited “pass.”

As of January 2014, Google Play All-Access

had roughly...

Google Mashes Up GooglePlay and YouTubeThe Opportunity:


9

BILLION$12.3New recurring revenue

stream helped propel 2013 booked sales to...

—Steve Samolinski, Director of Product and Solution ManagementIngersoll Rand

“ We continue to push the possibilities with Nexia… consumers can further customize their systems over time as their lives get busier and their needs change.”

Solution: Ingersoll Rand offers Nexia Home Intelligence, a home automation service paid for on a monthly subscription basis that got its start in the Schlage lock division. The system features electronic locks that can be locked and unlocked remotely. The Bridge central controller, once it is activated with a $10 a month subscription, allows customers to monitor their homes and other properties from a PC, smartphone or tablet. Additionally, customers can control hundreds of home devices from scores of manufacturers, including thermostats, electronic locks, garage-door openers, sensors, lighting, security systems, entertainment, home appliances, etc. The new offering also gives Ingersoll Rand a toe-hold in the future market for the “Internet of Things.”

Results: For Ingersoll Rand, known for its old-line industrial products, the subscription-based Nexia service added a new stream of recurring revenue to its total sales of $12.3 billion in 2013.

Expand and diversify product offerings into the lucrative and growing “smart home” business.

Ingersoll Rand Unlocks Fast-Growing Smart Home MarketThe Opportunity:


10

Solution: Office 365 is currently at a $1 billion/year run rate for the subscription piece of total sales. In early 2013, Microsoft reported that Azure, its cloud computing platform for building, deploying and managing applications and services through a global network of datacenters, also reached $1 billion in revenue in the previous 12 months. Plus, Microsoft said it had sold $1 billion worth of Lync, its enterprise-oriented communications suite, in a 12-month period.

The three subscription software projects generated $1 billion each in sales in 2013. In addition, Microsoft also offers a $60 annual entertainment subscription to online multiplayer games for its Xbox game console.

Results: Microsoft’s three subscription software initiatives generated $1 billion each in 2013 contributing to its $77.8 billion in annual revenues.

Remain competitive through new revenue streams that grow share price.

In 2013, Microsoft’s three subscription

software initiatives each generated...

—Clint Paterson, Microsoft Blogger

“We think subscription software-as- a-service is the future. However, we think people’s shift from packaged software to subscription services will take time. Within a decade, we think everyone will choose to subscribe because the benefits are undeniable.”

BILLION$1

Microsoft Adds Subscription Option for Best-Selling Office SoftwareThe Opportunity:


11

SUBSCRIPTIONS

Sold 1 Million “Community Without

Walls” subscriptions to help seniors

stay at home.

“ Lots of providers have identified [home-based subscription services] as where they need to take their business. It’s something customers have been asking for.”

—Linda Brock, Director of Senior LivingPhilips

Solution: Given more of the elderly are delaying their move into a care facility (average incoming age is nearly 85, up from 78.5 per industry researcher Leading Age), Philips, the giant Dutch electronics company with a large footprint in health care, now provides senior housing providers a subscription service to expand their services to the home-bound elderly. Philips offers “Community Without Walls” subscriptions to 1 million seniors that include an alert system for falls, a medication dispensing service and remote monitoring.

Results: Philips sold 1 million “Community Without Walls” sub-scriptions, helping seniors stay at home. Also, Philips’ Lifeline with AutoAlert has helped over 7 million people and at-risk individuals with their medical alert needs.

Accelerates route into the fast-growing home medical service market.

Philips Subscription Service Helps Elderly to “Age at Home”

1 MThe Opportunity:


12

—John Smedley,President, SOE (Sony Online Entertainment)

“ We are going to make every subscriber to all of our PC games an all-access member. Basically there will be one SOE membership for all our PC games. That’s a benefit most [video game] companies simply can’t offer because they don’t have our portfolio of games.”

ALL-YOU-CANPLAY

Solution: Sony Online Entertainment offers an upscale version of the freemium subscription model—subscribers can play its multiplayer online video games on PCs free of charge or pay $15 a month for select enhancements, including: more character slots and storage, 10% discount at SOE’s marketplace and a monthly allotment of virtual currency for purchasing upgrades.

Results: Sony attracts PC gamers with its complete portfolio of games extending customers’ lifetime value.

The Opportunity:

Keep subscribers hooked even after hours of play.

Subscribers can play its multiplayer online

video games on PCs free of charge or pay

$15 a month for select enhancements.

All-You-Can-Play for Just One Game Subscription


13

—Derek Williams, GM, Telematics and Multimedia Product PlanningToyota Europe

“ We’d like to see if people are prepared to [subscribe to an added map functionality].”

Toyota gains a new stream of

recurring revenue.

Solution: With mapping services becoming quickly outdated (15 percent of the highway network changes every year), Toyota Europe took the opportunity to test a $60-a-year subscription for map and other in-car application updates for 2014 Toyota Corollas. The service offers directions in eight languages and map updates twice a year. Plus it has two Google Map features, Street View and Panoramio, so travelers can see photos and videos of their destinations, plus real-time traffic from TomTom, as well as local search, weather and parking information. Toyota Europe also offers a separate online viewing subscription for auto manuals and buyer documents.

Results: The international automaker Toyota gains a new stream of recurring revenue.

Toyota tests new revenue routes in tradition-bound automobile industry.

Toyota Test Drives Subscriptions in Europe

SERVICESMAPPINGThe Opportunity:


14

$42Subscriptions Make Skies Friendlier for Infrequent Fliers

Solution: To enhance its ancillary revenue, United Airlines allows infrequent fliers to subscribe to such familiar services as checked bags and added legroom. Travelers find that the luggage ser-vice, which runs $349 year, pays for itself in seven legs, if they just check one bag—even faster for a second bag. The extra legroom of Economy Plus goes for $499 a year. United’s subscriptions were the first for a U.S. carrier but were quickly copied by Delta’s trial program.

Results: Airlines make an estimated 6% of annual $708 billion in global airline revenue from new add-ons and subscriptions.

In the highly competitive airline market, increase sales from price-conscious travelers.

Add-ons and subscriptions generate

6% of annual airline sales.

—Scott Wilson, United VP, Merchandising and e-Commerce

“ The Economy Plus and checked baggage subscriptions offer our customers more of the comfort and convenience they value year round.”

BILLION

The Opportunity:


15

®

BY EMC


THE EMERGING LEADERS

16

—Mark Meeker, Co-founder, BarkBox

“We’re the new generation pet brand. Our generation treats our dogs differently. The big pet companies don’t connect to us at all, and they’re not innovative.”

MONTHLY REVENUES$2 M

Pet Subscription Boxes Become a Woman’s Best Friend

BarkBox boasted 105,000 paying

customers and...

Solution: BarkBox delights pet owners (80% women) with packages full of sample pet goodies for a basic rate of $19 a month, with a premium offering for $29 a month. BarkBox has also launched BarkPost, a website with 3 million unique visitors a month and an on-demand service offering veterinarian house calls in New York for $99. In addition, the business offers PuppyFeed, a photo-sharing forum that’s gaining in popularity.

Grab a stake in the $53 billion annual pet supplies and services market.

The Opportunity:

Results: In November 2013, BarkBox boasted 105,000 paying customers and $2 million in monthly rev-enues, flying past $1 million a month and 50,000 subscribers just six months earlier.

RECURRING REVENUE INNOVATORS: THE EMERGING LEADERS

17

—Larry Burns, Retail Consultant and Blogger

“The Birchbox site is well-designed and has an e-commerce engine, so when you like something you’ve tried, it’s very easy for you to return to Birchbox and make a purchase. In fact, there is a reward program if you so do.”

MILLION$80

Birchbox Started Monthly Discoveries in a Box

Some experts claim that Birchbox’s annual sales

have grown to...

Solution: In 2010 Birchbox started delivering subscription boxes of four or five carefully selected cosmetic samples every month for $10. Birchbox did at least $80 million in revenue in 2013, and now it’s going for a $50 million venture round. So, the idea worked. Since then, the number of subscription box services has exploded. The services range from Eco-centric Mom, an eco-friendly box for moms and moms-to-be for $21 per month, to gaming and nerd boxes like Loot Crate, delivering gamer food, geek culture for $13.37 per month, to adult box Spicy Subscrip-tion, which will “take your love life to the next level” for $35 per month. Then there’s Cannabox’s

Forge new subscription-based category by delivering sample, “discovery” boxes with assorted merchandise.

The Opportunity:

monthly box of cannabis accessories designed for both the recreational and medical marijuana users with paraphernalia such as cigarette papers, pipes, etc., but no marijuana. The boxes go for $19.88 a month.

Results: Some experts claim that Birchbox’s annual sales have grown to $80 million annually.


18

—Matt Salzberg,Co-founder/CEOBlue Apron

“Our product is about intro-ducing people to new things. It’s better than you could do on your own at the grocery store if you went shopping for the same ingredients. We feel that we are changing people’s lives and lifestyles [with healthy food]. We literally have customers say we ‘saved their marriage’.”

MEALS DELIVERED300K

Carving Out a New Market for Home Food Deliveries

As of December 2013, Blue Apron

said each week, more than...

Solution: Blue Apron ferrets out exciting gourmet recipes— featuring complete meals with just 500–700 calories per serving—then buys, assembles and delivers the ready-to-prepare package to its customers’ front doors. And the cost is just $10 per meal. Home chefs can prepare the meals in less than 35 minutes, and subscribers can order up to three packages, delivered weekly. Blue Apron said it covers 80 percent of the nation with its ground-breaking new service, and sumptuous food photography adds to the visual appeal of its website.

Fulfill an underserved niche for nutritious, freshly delivered meals in the crowded food delivery market.

The Opportunity:

Results: As of December 2013, Blue Apron said it was delivering more than 300,000 meals in 39 states every week.


19

—Bryan BattenCEO, Entitle

“We’re more similar to Netflix in its DVD days than Netflix in its streaming days.”

300%

“Just Don’t Read It, Keep It,” Says New E-book Purveyor

Entitle claims monthly growth

rates up to...

Solution: The popularity of tablets and e-book readers, such as the Kindle Fire, iPad and Nook, has spawned a new generation of services that loan bestsellers and other titles to subscribers for a monthly fee. But Entitle has taken a different tact—with each subscription, $10 for two books, $15 for three, and $20 for four books, readers own the books they read. Entitle, which launched in December 2013 with $5.3 million in venture funding, says it now offers more than 125,000 professionally published titles.

Results: Entitle doesn’t reveal subscriber counts but claims growth rates ranging from 200 to 300 percent per month.

Exploit a new niche in the lucrative e-book subscription market.

The Opportunity:


20

—Gavan MurphyMarketing Director, Globalstar

“With pre-paid pricing, we are in a very enviable position to target consumer markets through our world-wide business-to-consumer (B2C) distribution network. Realistically our competitors are not in a position to compete there.”

BROADEN

Serving Hard to Reach Fishermen, Oil and Gas Workers

Globalstar now believes its pre-paid

service will...

Solution: Leveraging their established satellite coverage in remote locations, Globalstar has launched a pre-paid service targeting a broader set of consumers with calls as low as 50 cents a minute on a satellite telephone. The entry level service is $30 a month for 10 minutes, a decent price to reach out to someone in the remote corners of the globe. Globalstar’s Spot brand targets traditionally hard-to-serve customers like fishermen, oil and gas workers, as well as the employees and executives of international businesses and governments.

Results: Before Globalstar’s pre-paid service launched in early 2014, the telephone service provider reported that 40 percent of its new voice subscribers came from the consumer sector. Globalstar now believes its pre-paid service will help to broaden its sales beyond that base.

Expand satellite phone service beyond a small circle of customers to increase market share.

The Opportunity:

SALES


21

—Clara ShihCEO, Hearsay Social

Financial Advisors Can Now Use Social Media

Generated both new leads and

stronger customer relationships for...

Solution: San Francisco-based Hearsay Social’s Software as a Service helps financial advisors, insurers and other regulated businesses market their products on social media sites such as Facebook, Foursquare, LinkedIn and Twitter. Hearsay’s offerings allow brokers to post vetted, compliant, pre-approved content on these popular sites while archiving all social activity in order to comply with regulatory rules and regulations.

Results: In a company study of its customers, 64 percent of respondents reported they both generated new leads and built stronger customer relationships using Hearsay Social.

Open the world of social media to old school Wall Street advisors and other regulated sales reps.

The Opportunity:

“We now live in the LinkedIn and Twitter era, where social business is no longer optional but necessary.”

64%


OF CLIENTS

22

—Joe HyrkinCEO, Issuu

Marrying Print with the Efficiency of Digital Distribution

By October 2013, Issuu reached

a record...

Solution: Tens of thousands of periodical publishers have found the transition from print to online possible, thanks to Issuu’s digital newsstand service, which enables pub-lishers to upload the design and content of their pub-lications to Issuu’s fast-growing website. Issuu offers two levels of service: basic functionality is free and paid subscribers get value-added upgrades. The free upload service includes “recommendations” for competitive publications to entice more readers. Publishers can buy a measure of exclusivity—with no competing magazine titles promoted—plus detailed data on usage and read-ers for $30 to $40 a month. Readers pay nothing for the service.

Results: Issuu claimed it had reached 81 million visitors by October 2013; an increase from 66 million just two months earlier, with 7 billion monthly page views and 25,000 uploads per day.

Open a new online market for millions of brick-and-mortar print publications.

The Opportunity:

“We give publishers statistics they are not getting elsewhere. Issuu is a great tool for marrying the beauty of print and print-like content with the efficiency and distribution capabilities of digital.”

VISITORS81M


23

—Dave RobinsonMozy VP, Global Marketing

Bringing Cloud-Based Back Up to the Masses

Subscription and services revenues will

expand twice as fast as licenses revenue.

Solution: For a monthly subscription fee, Mozy backs up computer data to the cloud for everyone from grandmothers to large businesses. Mozy offers three tiers of service: home or personal, pro or small business, and enterprise or large business. The company charges $6 monthly for 50 gigabytes (after 2 free gigabytes) for home users, while the subscription fee for businesses starts at $20 per month per user. In 2007, EMC acquired Mozy, which offered subscription-based software tools as early as 2003. In 2007, Mozy took the recurring revenue model into the commercial market when it launched MozyEnterprise.

Results: Mozy now boasts 6 million consumer subscribers and 100,000 business subscribers. EMC predicts that its subscription and services revenues will expand twice as fast as its revenue from software licenses.

Take advantage of the under-served, fast growing cloud-based market.

The Opportunity:

®

BY EMC

“Cloud backup is reaching a tipping point… Established cloud backup providers who aren’t keeping up with changing customer tastes and technologies are seeing customers lured away.”

SUBSCRIBERS6M


24

—Nate DaPore CEO, PeopleMatter

Delivering Professional HR Services to Hourly Service Employees

In retail, foodservice and hospitality location

served more than...

Solution: PeopleMatter’s HR services platform provides assistance in the hiring and training of dependable talent in such service segments as convenience stores, retail stores, fast-food restaurants and hospitality. The company offers three modules for a monthly subscription, based on the number of stores a company has. Subscribers pay additional fees for background checks, training videos and tax credit applications.

Results: PeopleMatter served more than 38,000 retail, foodservice and hospitality locations in 2013.

Monetize HR services in underserved service industries with predominantly hourly workforces.

The Opportunity:

“My goal is to continue building a purpose-driven company that positively impacts the relationship between employers and employees in the workplace. I want to change people’s lives for the better.”

38KLOCATIONS


25

Pay-As-You-Go PaaS Builds an Impressive New Revenue Stream

Solution: Red Hat Software, a pioneer in Linux open source software, uses subscription-based services to complement and generate revenue from its free software. When Red Hat started out, it offered technical support for its software, and then in 2011, it added a subscription for its Platform as a Service (PaaS) called OpenShift Online. Like other PaaS, OpenShift provides cloud-based software tools and infrastructure so developers can build applications. Red Hat also sells a private version of OpenShift Enter-prise for companies that prefer to build applications on their own infrastructure.

Results: More than 1.5 million open source applications have been built on the OpenShift Online public PaaS (open source). Year-end results reported that their subscrip-tions had generated 87 percent of Red Hat’s $1.53 billion in sales. Red Hat also had $1.29 billion in deferred revenue, a measure of future subscription income from current customers.

Mine the gold rush for open source software.

The Opportunity: $1.53BILLION SALES

It’s reported that Red Hat’s subscription generated

87 percent of total sales

— Iain Gray VP, Customer Engagement Red Hat

“We believe that the subscription model puts control back into the hands of the customer.”


26

—Adam Goldenberg Co-CEO of JustFab

Building “The World’s Largest Fashion Subscription E-commerce Company”

Each month they are adding...

Solution: ShoeDazzle and JustFab merged in August to form the “world’s largest fashion subscription e-commerce company,” though the two maintain separate storefronts. For $40 per month, celeb-inspired subscribers get a $40 credit on new shoes at the two sites, plus free shipping and a 10 to 25 percent discount at ShoeDazzle. The combined websites expect $400 million in sales from more than 33 million global customers.

Results: After receiving $40 million in new funding, the combined companies are adding 1 million new members monthly, with a goal of capturing 15 percent of online sales from women 18- to 35-years old.

Capture a significant market share of the 18- to 35-year-old demographic of women who buy clothes online.

The Opportunity:

“By maintaining the distinct JustFab and ShoeDazzle brands, we will be able to significantly broaden our reach in the United States and continue to take substantial market share from traditional footwear brands, retail players and e-commerce competitors.”

1MNEW MEMBERS


27


THE REVOLUTIONARIES

28

—Mark Garrett, CFO, Adobe Systems

“Customers are overwhelmingly choosing subscriptions instead of perpetual model licenses, which are accelerating our tran-sition to a new business model. We are building a stronger, more predictable revenue model for Adobe which will drive higher long-term growth.”

DEFERRED REVENUE$828M

Adobe Wows Wall Street with Shift to Subscription Sales

Solution: In a bold decision in mid-2013, Adobe switched from a shrink-wrapped licensed software model to a subscription model for its most popular titles: Photoshop, Illustrator and InDesign. In dropping the perpetual license for its Creative Suite, Adobe upended its traditional sales model. New customers pay $50 per user per month while existing Creative Suite customers pay $30. With an annual commit-ment, subscribers have access to Adobe’s Creative Cloud application, and various other services including 20GB of cloud storage. Adobe offers similar packages designed for teams and businesses, offering lower monthly rates for limited service access or a more limited commitment.

Results: By August 2013, deferred revenue, a key metric, had soared to $734 million or 41 percent of Adobe overall sales. By November 2013, Adobe wowed Wall Street when it posted $828 million in deferred revenue and signed on 3 million subscribers to its Creative Cloud and Document Services.

Leverage its large installed base to expand sales and increase profits.

Signed on 3 millionsubscribers.

RECURRING REVENUE INNOVATORS: THE REVOLUTIONARIES

The Opportunity:

29

—Robbie Schwietzer, Vice President, Amazon Prime

YEARLY$1,224Prime members

spend more than twice regular customers...

Solution: Amazon’s flagship subscription service, Amazon Prime, allows no-charge, two-day shipping for $99 a year, throwing in Instant Video movie and television show sub-scriptions and Kindle book loans. Plus, owners of select Kindle tablets, for no charge, can download movies and TV shows for offline viewing. Then, there’s the “Subscribe and Save” program, where customers can subscribe to 40,000+ products for refills, including household essen-tials such as coffee, pasta, spices, kitty litter, baby food, candy and toilet paper. Amazon also lets developers build subscrip-tion elements into Amazon-based applications. Lastly, Amazon’s Web Services (AWS) offers a cloud IT infrastructure, with pay-as-you-go pricing, a recurring revenue model based on usage.

Broaden existing market as the competition stiffens.

Takes ‘Prime’ Position in Subscription Commerce

Results: Beyond creating new revenue streams, the average Prime member spends $1,224 a year at Amazon.com, compared to $505 for non-Prime customers.

“ In all my years here, I don’t re-member anything [like Amazon Prime] that has been as success-ful at getting customers to shop in new product lines.”

The Opportunity:


30

110%“ We decided to go with freemium because we didn’t want to cannibalize our (user) growth, so we wanted to keep the product free… We have really great fans and users who ultimately evangelize for us.”

—Ryan Holmes, CEO, HootSuite

Solution: Social media management pioneer HootSuite started in 2008 as a free service that attracted hundreds of thou-sands of customers through word-of-mouth marketing. Today, HootSuite charges for advanced features with two tiers: small-business and enterprise. Their basic version is free of charge for customers who manage no more than five social media profiles. For the paid tier, they target businesses with multiple employees handling multiple accounts. 95 percent of HootSuite subscribers use the service for free, but it is the paying subscribers who pay the bills.

Results: The company added an eye-popping 200 enterprise customers in the fourth quarter of 2013 and revenue from enterprise subscribers jumped 110 percent. HootSuite now counts more than 8 million users, which includes an impressive 75 percent of the Fortune 1000 companies.

Monetizing a popular service in the booming world of social media.

In 2013 Q4, revenue from enterprises

jumped...

Freemium Service Proves to Be Gateway to Sales and ProfitsThe Opportunity:


31

$1.1Net income jumped 315 percent in 2013’s third

quarter on revenue of...

— Zacks Equity Research

“ Netflix’s consumer-friendly strategy helped to increase its paid streaming subscriber base (both domestic and international) by 38.6 percent on a year-over-year basis to 35.6 million in the recently concluded second quarter.”

Solution: In 1997, observers said Netflix was foolish to challenge the established movie rental chains. But Netflix proved them wrong when its movies-by-mail service dominated the rental market, driving Blockbuster Video out of business. Today, it is growing its base of subscribers as loyal consumers are switching from Netflix’s mail service to streaming movies and TV series. It recently sweetened the pot for its growing legion of subscribers by introduc-ing made-for-Netflix original shows.

Results: More than 44 million subscribers in more than 40 nations watch 1 billion-plus hours of TV shows and movies each month, while net income jumped 315 percent on sales of $1.1 billion for the period ending Sept. 30, 2013.

Reinvent the movie rental industry to increase market share and revenues.

Riding Subscriptions to ‘Blockbuster’ Success

BILLION

The Opportunity:


32

MILLION

Subscriptions helped generate millions.

“ We believe that this will bring in new lottery players, and it will be people who are comfortable buying things online.”

—Van Denton,North Carolina Education Lottery spokesman

Solution: Starting in December 2013, citizens who participate in North Carolina’s state lottery could subscribe online to play their lucky numbers. After purchasing a two-week subscription, they could automatically bet their favorite numerical combinations for up to $70 a week. Eleven other state lotteries have adopted this recurring revenue model. The advent of subscriptions is expected to boost ticket sales 1 percent to 2 percent in North Carolina, not an insignificant sum when tens of millions of dollars are involved. The new service is designed for those lottery players who want to subscribe to a set of numbers for multiple drawings.

Results: New subscriptions to North Carolina’s lottery system helped to generate $478 million in net profits, to fund their education system.

Tap into the young, digital-savvy and under-served customer who enjoys games of chance.

Digital Age Customers Subscribe to Lady Luck

$478The Opportunity:


33

Solution: Pandora was first to pioneer internet-based radio using a freemium model, coupled with advertising-supported lis-tening. With a subscription upgrade, listeners can enjoy their favorite stations without commercial interruption. Tech-media giants Apple, Google and Beats Music have all copied Pandora’s successful model—isn’t imitation the greatest form of flattery? Pandora’s current pricing for new subscribers is $4.99 a month, a bargain for most consumers.

Results: Up 11 percent for a one-year period through March 2014, Pandora has 3.3 million subscribers and 75.3 million active listeners. Pandora’s share of the total radio listening market in the U.S. is nearly 9 percent, with 2013 revenues hitting $637.9 million, a 56 percent year-over-year increase.

Build and then expand the new market for online radio fans.

In 2013, Pandora had a 56 percent increase

in revenue to...

—Brian McAndrews, CEO, Pandora

MILLION$637.9

Internet Radio Pioneer Re-tunes to Outmaneuver Competition

“Pandora continued grow-ing revenue over 50 percent [in 2013]. We continued to improve monetization… and drove our first non-GAAP prof-itable year as a public com-pany…2013 marked notable growth from user metrics to financial achievements...”

The Opportunity:


34

—Bill Gurley,Benchmark Capital (investor)

86%OF INVENTORYSolution:

Each month, Stitch Fix sends subscribers a box of person-alized fashion items, which can be purchased or returned. The company has targeted 30-something women who don’t have time to shop in stores because of work or other commitments. Stitch Fix designed its new service to save subscribers time, plus to add a dollop of fun to the online shopping experience. The digital “personal styling service” selects clothing based on a subscriber’s style, size and budget preferences derived from a combination of analytics and self-reporting. The company applies the $20 monthly “styling fee” toward the purchase of any items within the box; the unsold items can be returned postpaid in three days. Individual items average $65 and, over time, Stitch Fix learns what to send based on sub-scribers’ preferences.

Results: Some 80 percent of the company’s so-called “fashion fixes” result in a sale and, it sells 86 percent of its inventory at full price—a percentage that any brick-and-mortar retailer would love to emulate.

The Opportunity:

Win by changing the merchandising model with out-of-the-box thinking.

Sells at full price...

“The model [Stitch Fix] put in place for hyper-personalization has the ability to dramatically change the business model for women’s fashion. Most compa-nies end up writing off a lot of inventory, but Stitch Fix has an ability to forecast the future. It’s a real revolutionary step.”

Women’s E-tailer Re-fashions Traditional Sales ModelThe Opportunity:


35

After 9 months, they have 3 planes, 65 employees, and

a solid foundation with...

Solution: SurfAir assesses a $1,599 per month subscription for an “all-you-can-fly” membership that allows commuters to make unlimited trips between any of four California small airports near metro areas (Burbank, San Carlos, Santa Barbara and Hawthorne), plus Las Vegas and Lake Tahoe. Monterey, San Diego, Sacramento, and the Sonoma and Napa areas are on the expansion list.

Results: Surf Air Launched in June 2013 after raising $11 million in VC funding. It had grown to three planes, 430 subscribers and 65 employees by early 2014.

Successfully compete in California’s lucrative commuter air flight market.

California Subscription Airline Takes Flight

430SUBSCRIBERS

—Wade Eyerly,Founder, Surf Air

“Think of it like Netflix for an airline. So you get four DVDs at home at once for your member-ship fee. We give you four board-ing passes at once and you use them the same way. Use it; get another one, book again.”

The Opportunity:


36

$160Read All About It: Times Successfully Hawks Online Subscriptions

Solution: As daily newspapers struggled, the Times bucked the closely-held industry view that readers won’t pay to read news online. But the Times has demonstrated that a “paywall” works and has turned industry skeptics into copycats. In March 2014, The Times announced a new mobile product for $8 a month and an even higher subscription package for $45 a month. The newspaper is also work-ing on lower-priced subscriptions for opinion and food content.

To boost revenues and maintain paying readers as news on paper fades.

NYT anticipates millions from new revenue streams.

—Mark Thompson, CEO, New York Times Co.

MILLION“Our goal with this next phase of our paid products strategy is to satisfy the demand for Times journalism by giving new sub-scribers the ability to choose the amount of access they desire at a price point that suits them, and to enhance the value we offer our current loyal subscribers.”

Results: In 2013 the NYT boasted 620,000 paid online subscribers, only trailing the 690,000 for the Wall Street Journal. The Times is on pace to generate $160 million from online subscriptions.


The Opportunity:

37

Appendix Reference Links

Apple App Store subscriptions press releasehttp://bit.ly/1oWTKVn

Apple Match, Nov of 2011http://bit.ly/1mrehTg

Subscriptions Feb of 2011http://bit.ly/1rqU0hn

Metricshttp://bit.ly/1dqIrmR

ESPNhttp://bit.ly/OPnyGv

GoogleAll Accesshttp://bit.ly/1ivyCTi

Music Passhttp://bit.ly/1ptYjog

Titleshttp://bit.ly/1mrg9eK

Ingersoll Randhttp://bit.ly/1dIJl8N

http://amzn.to/OTubYa

http://bit.ly/Q9l2vR

MicrosoftAzure $1 Billionhttp://bloom.bg/1ivyROv

Office 365 $1 Billionhttp://bit.ly/1ivyVxy

Lync $1 Billionhttp://ubm.io/OTuJgL

Quotehttp://bit.ly/1dIJLMq

PhilipsCommunity Without Wallshttp://bit.ly/1mrgI8h

Auto Alerthttp://bit.ly/1dIK7mm

SonySubscription Model Pricehttp://bit.ly/1gTpSCd

Toyota Europehttp://bit.ly/1li4Tko

United Airlineshttp://bit.ly/OPpdvZ

Metrichttp://bit.ly/1gkgbSf

Subscriptionshttp://usat.ly/1joByoD

BarkBoxBarkCare, Feb of 2014 http://tcrn.ch/1eeMpKa

PuppyFeed, Nov of 2013http://bit.ly/1senGPe

Mobile e-commerce app, Nov of 2012http://tcrn.ch/Pt5GBx

Revenue, June of 2013 http://read.bi/1i5rYjT

General, Nov of 2012http://tcrn.ch/1lsxP6S

BirchboxBirchbox, Feb of 2014http://bit.ly/PtgEXt

Blue Apron Generalhttp://bit.ly/1fCKZwK

FAQs http://bit.ly/1ovU5S9

Funding, Aug of 2013http://tcrn.ch/1q0MoR1

Quote, Dec of 2013http://bit.ly/1k5iI6i

Metric, Dec of 2013http://bit.ly/1kw9Cer

Entitle Dec of 2013http://tcrn.ch/1jH0dSO

Quote, Dec of 2013 http://on.mash.to/PoSxcL

Metric, March of 2014 http://bit.ly/1i5sFcS

GlobalstarDec of 2013 http://bit.ly/1jH0xB9

Quote, Jan of 2014 http://bit.ly/Og9DIQ

Jan of 2014 http://bit.ly/1dWq21a

The Global Giants

The Emerging Leaders

http://bit.ly/1oWTKVn

http://bit.ly/1mrehTg

http://bit.ly/1rqU0hn

http://bit.ly/1dqIrmR

http://bit.ly/OPnyGv

http://bit.ly/1ivyCTi

http://bit.ly/1ptYjog

http://bit.ly/1mrg9eK

http://bit.ly/1dIJl8N

http://amzn.to/OTubYa

http://bit.ly/Q9l2vR

http://bloom.bg/1ivyROv

http://bit.ly/1ivyVxy

http://ubm.io/OTuJgL

http://bit.ly/1dIJLMq

http://bit.ly/1mrgI8h

http://bit.ly/1dIK7mm

http://bit.ly/1gTpSCd

http://bit.ly/1li4Tko

http://bit.ly/OPpdvZ

http://bit.ly/1gkgbSf

http://usat.ly/1joByoD

http://tcrn.ch/1q0MoR1

38

Appendix Reference Links (continued)

Hearsay SocialMetric, Sept of 2013 http://bit.ly/1dRMglo

Quote, Nov of 2013 http://bit.ly/1setRCT

Issuu Pricing, March of 2014 http://bit.ly/1fPPv7H

Background http://bit.ly/1lsCIgq

PeopleMatterMetrics, Jan of 2014 http://bit.ly/1hlKpzQ

March of 2013 http://bit.ly/1dRPhSD

Quote http://bit.ly/1mFTcSj

Red HatSubscriptions, March of 2014 http://red.ht/1j77wSM

Earnings, Dec of 2013 http://red.ht/1kwdiwJ

Investor fact sheet quote http://red.ht/1sewDIf

ShoeDazzleMerger, Aug of 2013http://prn.to/1ha0mih

Aug of 2013http://bit.ly/1grQx9A

Metric, Aug of 2013http://lat.ms/1dRNYTK

Adobe Quote, Sept of 2013http://adobe.ly/1gMLgtc

Results, March of 2014http://adobe.ly/1n5t57j

Amazon Quote, Nov of 2010http://buswk.co/PT53l6

Results, August of 2013http://bit.ly/1iyNDCj

HootSuite Results, Jan of 2014http://bit.ly/1sCAj6T

Quote, Oct of 2010http://bit.ly/1oNIkX8

NetflixGeneralhttp://nflx.it/1sCBjbk

Quote, Aug of 2013 http://bit.ly/OFG6Zh

Metricshttp://bit.ly/1ivRPl8

http://usat.ly/1mYvdR5

North Carolina Education Lottery

State Lotteries Results, Sept of 2013 http://bit.ly/1iyQ6Nb

Quote, Dec of 2013 http://bit.ly/1k5XcMa

General, Sept of 2013http://bit.ly/1kMsdmH

PandoraMetrics, March of 2014http://bit.ly/1hug483

General, March of 2014http://bit.ly/1ivStPw

Metrics and quote, Feb of 2014http://bit.ly/1esgjdP

Stitch Fix Quote, May of 2013http://bit.ly/1g90B80

Resultshttp://tcrn.ch/1emoWwe

Surf Airwww.surfair.com

Feb of 2014http://tcrn.ch/1hiBMuG

Aug of 2013 http://bit.ly/OFL8F3

Quote, Feb of 2014http://bit.ly/1g92cuw

The New York Times Quote, March of 2014 http://bit.ly/1lLhWZs

Metrics, March of 2014http://bit.ly/PT8SH8

Metrics, March of 2014http://bit.ly/1sCKet6

The Emerging Leaders (continued)

The Revolutionaries

39

Copyright © 2014, Aria Systems, Inc. All rights reserved. Copyright © 2014, the FactPoint Group. All rights reserved. Aria Systems and the Aria logo are trademarks or registered trademarks of Aria Systems, Inc. All other trademarks shown are property of their respective owners. This e-book is for informational purposes only. The companies profiled in this e-book were not involved in its creation, and do not

necessarily sponsor, endorse or affiliate with the FactPoint Group or Aria Systems, or their respective products or services.

The FactPoint Group The FactPoint Group is a boutique market research and consulting firm based in Silicon Valley that has been helping customers use and sell technologies since 1993. FactPoint and Tim Clark have been key research and content providers to Aria Systems since 2007. Learn more at www.factpoint.com.

Aria Systems Aria Systems delivers an enterprise-grade, recurring revenue management solution so businesses can grow new revenue streams and optimize the lifetime value of their customer relationships. Industry leaders like Pitney Bowes, Experian, AAA NCNU, VMWare, HootSuite and many others have chosen Aria to grow their recurring revenue business. Learn more at www.ariasystems.com.

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the big book of rr_innovators by marie martin

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