Unknown Speaker 0:11
Hello, and welcome to the data for subscriptions podcast, where we focus on the Data Challenge for subscriptions. And as a service. I’m your host, beta Dorian. And today I have the pleasure of welcoming Andreas, CEO of digital route to the show. Welcome. And thank you very much pleasure to be here. So over the past 10 years, and more on the as we’ve seen, subscriptions, businesses really flourish. We’ve seen brands like Disney, Netflix, or Spotify, really, that most people know of. But we’ve also seen other industries come along, from manufacturing, to mining to agriculture. So the common denominator in all of this is obviously a massive shift in business business model and emphasis on data. So that’s what we’re going to focus on today. But before we get into all the nitty gritty detail, I wanted to get your take on, what’s the overall state of the subscriptions business?
Unknown Speaker 1:04
Oh, that’s a big question, I think. But let me let me try. You know, during the last 10 years, I think we have seen this industry growing rapidly, right. But from very low volumes, of course, I think we’re just about to enter the next phase, the first phase was really about a simple business model. We have seen a lot of b2c businesses growing in this area, right? You mentioned Spotify and Netflix and those things, streaming services, you charge an upfront flat fee, for a very, very strong content, high value, and a lot of people have sign up for that as well. Next phase, is really the b2b boom, I think, and this is all going to be about a different business model. The next phase is all about usage or outcome based business model.
Unknown Speaker 1:53
So for me, one thing that we take for granted today is our mobile phones and our mobile communication services isn’t in effect, so that this whole thing about subscriptions and usage based business that we refer to today started with the telecom operators, and way back in time, really
Unknown Speaker 2:09
happy that you’re mentioning this, because not only for our heritage as a company and so forth, but the telecoms industry, I think it’s super, super interesting for a lot of companies that are moving into the next phase of subscription business, and so forth, because of their state of the art way of managing not only the operations, but their customers and so on. I mean today, no one literally thinking about how we communic how are we consuming mobile services, right. And all of that is really due to a state of the art backend, that makes us feel comfortable, easy to use. So I do think that there is a lot of learnings that we can grasp from that industry.
Unknown Speaker 2:52
Can you mentioned some of the most important learnings that we can take from the telecoms industry as we now move more into the b2b space as well, as you mentioned before?
Unknown Speaker 3:02
I think definitely, you know, first of all, the telecom players, the service providers, they all built a stack that cater for both volumes of data and complexity, a mid size CSP, today, they’re probably operating six 700 have different price plans. And they do so because of their need to tap into new revenue pockets. Right? And this may be connects to another really important question in the subscription economy today around subscription fatigue, and so forth. Right? When you hit the ceiling of number of subscribers, you just have one price plan, it’s impossible for you to grow your revenues beyond that. And this is what I think the telecoms players has done in a very, very nice way, capturing new opportunities in the market by providing different business models, right. Prepaid postpaid tears, family bundles, and if you go to this, the business side of the coin, everything is really usage based.
Unknown Speaker 4:09
That’s a great point. And we’re going to come back to because I want to speak about the theme of subscriptions, fatigue that has been coined basically in the last year, but kind of keeping it to the industry discussion. So I mentioned quickly SAMSA meeting entertainment and we have software as a service as some of the companies that I mentioned, but talk about some of the other industries that you’ve seen that really are flourishing and now showcasing their movement into the subscriptions business.
Unknown Speaker 4:33
I think you know, what, what’s really interesting now and on the horizon is everything from large manufacturing companies, all this this large businesses, they have had their devices, their products, what have you connected for years, and everybody now realise this is a big, big data challenge to take the next step. Because all of these devices products, they produce a lot of raw data era, right? And is completely different to change your movement take on all this data, when you’re going to deal with M customer directly. So more or less, you cut the middle layer, the distribution channel that you build for years, and you’re dealing with the end customer directly. So I think manufacturing is a really, really interesting industry that we’re going to see a lot of growth coming from in the next couple of years. Now,
Unknown Speaker 5:26
you mentioned a little bit about the success of these companies, when you explain what they’ve done and where they’re heading. Talk a little bit about the challenges that companies are facing, either if they’re stepping into Subscriptions business, or if they’re moving from basic subscriptions to something more advanced usage based.
Unknown Speaker 5:43
Yeah, I think one of the main challenges is that most companies, they don’t think about building for scale from the very beginning. And when we talk about scale, we’re looking on to access volumes to scale, of course, but also the business model complexity to be able to scale. So what a lot of customers we helped over the years have done is that they starting in a corner. And they really cornered themselves as well. They don’t build for scale. And the tried to build a lot of data management by themself as well, you see this as any data integration challenge that you have. And as we know, today, most most companies have Enterprise size, they, they already have a lot of data integration tools. But specifically, when you look at quote, to cash for your subscription business, you need to recognise you’re dealing with a revenue transaction at the end of the day. So the main challenge is really to build a strong background of data management, to support all your applications that are running to support your operations from a call to cash perspective. So I think that’s that’s maybe the main area where we see large enterprises having challenges today to take the next step.
Unknown Speaker 7:03
So when you meet potential customers, is that typically their main kind of challenge?
Unknown Speaker 7:08
Yeah, absolutely. I mean, it’s obvious, right, because we’re a data management company. But But I think this is a general observation. So it’s not only because we are brought into the discussion, but but this is what’s happened most of the time, we help a lot of companies that already have a subscription business, right. And when you haven’t started, you have the opportunity to do differently, of course, but most companies that we are, we’re talking to, and we are helping and working together with long term, they already build something. And it’s all about scaling up volumes and complexity in your business model, because you want to drive new revenue streams out of what you already built.
Unknown Speaker 7:45
So let’s come back to the subscription fatigue point that you raised before, let’s just define what it is.
Unknown Speaker 7:50
Yeah, I mean, that’s, that’s all about hitting a ceiling of revenue growth, right, from the business perspective. And from from the customer perspective, you, you suddenly think that the value that is provided for the price that you’re paying, is not meeting your expectations. So you might overlook all these different subscriptions that you’re signed up to. And you start to reduce that, I think
Unknown Speaker 8:15
that’s a great way to phrase it. It’s the balance of value for money, basically, because what I find intriguing as a consumer of subscription services, as well as working here at Digital route is that when you have a subscriptions model, it’s an amazing setup to have a constant dialogue with your customers, you can say that you’d have that as well when you sell a product, and then see you again in a few years, or if you have a customer support ticket. But this is vastly different. You’re always basically talking to your customers, or you can you can listen and you can tune. And that gives a fundamental shift in basically adjusting value for money. And what I liked about when you talked about the telecom operators is how they, you know, this term, we say personalised offerings, the examples that you gave to me is personalization. There’s not one size fits all, all variations, even within a family package that you mentioned. This, I think it’s something that we haven’t really seen so much in the b2b space. So the subscriptions fatigue and as a consumer, that’s part of the problem from the consumer side. There’s just so many subscriptions and from just looking at the public statements. People don’t even know what they have almost no way to know what they’re using it for.
Unknown Speaker 9:31
That’s totally true. It’s critical for us as a service provider to down to details understand the how our services are used by the customer, right? But it’s equally important for the customer to also understand how their consumption patterns is impacting their cost, right. And this balance between cost and quality provided to them customer is of course key to success,
Unknown Speaker 9:58
right? So we obviously emphasise Data and Data Management quite a lot already. But I want to just make sure we level set what we mean, because data has been a term used frequently for a lot of years. First of all, why do we stress the data being so important when we speak about really succeeding and mastering subscriptions business, and as a service,
Unknown Speaker 10:17
I think we’re coming back to what we just mentioned. And this is an always on tracks transaction and relationship that you have with the end customer, when you’re moving to the to, to service on the subscription, business, and so forth. It’s always on, right, and you need to interact with your end customer in real time. And the core of all this business models, excessive service subscriptions, is usage data, because we fundamentally need to understand how our services are used to be able to maximise and to package the right service for our end customers. Right. On top of that, this is a revenue transaction. At the end of the day, we’re going to price the consumption. Regardless, if we send you an upfront fee, or if we, at the end of the day charge you only for what you used. The core of the business model is always usage data,
Unknown Speaker 11:12
is usage data different than other types of data? And do you need to manage it differently?
Unknown Speaker 11:17
Yeah, obviously, this is what we’re doing right? So we’re only talking about that day out and Day in. But it’s essential to understand that usage data doesn’t come for free. Right, this is something that you need to, first of all go and collect in different disparate systems. And you need to put together this usage data record. So most of the time is also comes out roll. So you need to process and rich and so forth, to create this data record at the quality that the application billing system CPQ system will have you can read and understand and do their job and so forth. And then when we talk about data in general, it could be any data flowing through the operational systems.
Unknown Speaker 11:58
I think that’s important to emphasise, because I think part of the challenge some of the companies have that you’ve mentioned is that you might sit with a generic data integration tool. I mean, that is also why some of the challenges that you talked about before are being faced, can you give examples of when usage data is managed? Well, what the upsides are? And also, conversely, when it’s not, what are the very hard challenges that companies face, then I mean,
Unknown Speaker 12:23
there’s, there’s two sides of this coin, right. And this is what we’re dealing with. First of all, usage data is fundamentally the core of your revenues, right? So you need to get all of this right, to be able to have a revenue transaction in your ERP system at the end of the day. But you also again, need to communicate with them customer around that, because when you get your bill, the worst that can happen is that it’s wrong, or it’s perceived wrong. And if it’s perceived wrong, you need to also go back and prove that this is the consumption pattern that we have, this is what we sign up for. And here’s to charge for that. The other side of this coin is, of course, if you don’t automate this, if you don’t control this process, then you will go you’re going to lose revenues you need, you’re going to have revenue leakage.
Unknown Speaker 13:12
And have you seen ranges amongst the customers that you’ve dealt with it without necessarily naming any names.
Unknown Speaker 13:19
I mean, we can talk about both sides here, because the constraint that you have on the revenue side, if you don’t control usage data is that you’ll have a hard time to repackage and offer new services, new packages on top of the old or the sign up for right, this the agility that the telecoms industry has made so great, right. But on the other side, again, most companies they recognise this is stream of data. And there is always some kind of leakage, we have always some kind of volumes of errors. And most customers that we’re talking to, they think they have to 3%. But at the end of the day, it showed that they have more than 10% Most of them, that is a significant amount of money leakage, I think about turnover several hundreds of million dollars, and then you cut out 10% Just for dripping data.
Unknown Speaker 14:10
So let’s take some more terms in this kind of realm. And then we move to the next section of our conversation. So usage based pricing is something that in the last two years like this, I I would say has become more of a conversation. What is usage based pricing specifically? Yeah, it’s the on what the name obviously says.
Unknown Speaker 14:31
Yeah, but but I think it’s it’s, it’s that’s most of it, right? It’s it’s, you only charge for what your end customer is using. And there’s an end customer only pay for what you’re using, as simple as that or an outcome that we have agreed upon, right. And when we talk about subscription pricing in general, we’re referred to something that is a fixed price.
Unknown Speaker 14:51
Precisely. Sometimes I think we refer to usage based pricing or consumption based pricing or outcome based pricing, but more or less all of them is moving from a flat fee subscriptions that we have gotten used to more to usage based?
Unknown Speaker 15:06
Yeah, again, we come back to the development of this whole economy, right? What what’s the next step? And especially when we’re looking at b2b in the b2c world, we’re all used to this upfront fixed price that we often refer to as a subscription business, right? But in in a b2b environment, there is not going to be a lot of fixed price business that is going to fly at all, because an enterprise will never agree to paying for something that you’re not using.
Unknown Speaker 15:36
Good point. Great point. So we talked about some of the risks and challenges so to say, but if we come back to this question, what are the main risks beyond you mentioned, revenue leakage and beyond the 10%? Obviously, that’s a significant risk and challenge. But what are the most common risks that way you’re facing when you’re dealing with your revenue data and or usage data?
Unknown Speaker 15:59
As you’re saying leakages is the obvious one, right. But a lot of subscription businesses today, they’re also blending in partners. And this partner play as such is a huge opportunity, because you created this nice platform where you have a lot of customers and bringing in partners could be a service, a product, whatever you have is a new opportunity to upsell your installed base as a good example, and so forth. But this creates an additional complexity in your back end, right? You suddenly need to take care of not only partner communication, but partner settlement from a financial point of view. And we come back to the same story that we had with an customer. Also, the partner need to understand what is sold in real time, how are we doing together on this, and at the end of the day, this financial transaction, you need to have full control and full audit visibility, to be able to understand what’s my margin on this partner sale, what’s the end, the end game of this, how it goes into the ERP system, and so forth. So I think when you build out your subscription business at scale, you need to take into consideration the risk of scale. That’s that, I think is a fundamental issue that we’re seeing and that we’re dealing with in the subscription economy today.
Unknown Speaker 17:17
So let’s now switch fi to how we solve this. So you already gave away some insights in terms of how it’s been done today. But let’s kind of take it from the first question is, how are companies solving for this today,
Unknown Speaker 17:27
most of our customers, they already build something, right? They have a subscription business, and they want to scale it out. Most companies, they create a solution based on a data integration framework of some time and iPass solution sound kind of tool to take data from one source and integrate it to the other. And coming back to risks. This is where you have a huge risk of not capturing all the consumption, and all the other data points that you need in order to be able to understand how should I price, this event or this transaction, this interaction with your end customer?
Unknown Speaker 18:09
So obviously, what’s the best practice and best way to do it? In your view?
Unknown Speaker 18:12
This is a core question for us, of course, and we spent 20 years of building a purpose built technology to solve for these challenges. I think, again, coming back to the telecoms industry, it’s super, super interesting to look at how the industry build the state of the art stack, to control to orchestrate to automate this whole quote to cash process, and also how to capture the value of this data, that that that your service reliable.
Unknown Speaker 18:44
So if I have any of these generic data integration tools, why is it so that I cannot really use that tool to achieve what I need to do in terms of scale and manage complexity?
Unknown Speaker 18:56
You know, we’re coming back to the core of the sub subscription business, which is usage data, and usage data should become a revenue transaction. So you really need to understand and cater for the fact that this is a revenue transaction. That can’t be wrong, right. So there are numerous of steps of collecting, processing, and reaching, communicating with the end application. And at the end of the day, and in the backend, orchestrate this whole processing of data for the full quote to cash process. It’s not only billing, it’s to communicating with the end customer we mentioned before, it’s your operational system that needs to understand the know how your services are used. And then loop this, these data points back again to steer to orchestrate to manage and so on. And you need to have a purpose built platform technology to master all All of this data integration tools are great for integrating data. But we’re dealing with something that is different. We talked about before usage data, how that’s different from just data,
Unknown Speaker 20:12
right? So as a, as an enterprise, how do I make the judgement call on return on investment, when I maybe have a generic data integration tool, and I’m looking at something more purpose built,
Unknown Speaker 20:22
I think it’s easy for me to say just coming back to 20 years of experience, where most of the customers enterprises that we’ve been dealing with, they have an idea that they are leaking two 3%, and everything, everybody thinks it’s normal. But in reality, it could be 10 to 15%. And if you just take that sum, again, you’re paying for a software, the implementation services, or why is most often less than six months is a really, really large project. So I think that speaks for itself, it just just cut down on the leakage will pay for itself. And
Unknown Speaker 21:00
that’s even before touching any of the other aspects and upsides that you talked about anything from how you manage your partners and settle the agility, business, model innovation, new services.
Unknown Speaker 21:12
I mean, we haven’t touched upon that we were talking now a lot about the difference play right exact how you cut down on and completely close your revenue leakage. But the real aspect of value creation is to create new revenue streams, right? How are you agile in your interaction with your end customer? How fast can you package in your business model? How fast can you push the button to provision that service and be able to orchestrate the data in the backend, send the correct invoice to the end customer, which is really the key of communication here in the financial transaction.
Unknown Speaker 21:45
But in a nutshell, the ROI is pretty simple. Even solving for the first step, you have an ROI in about six months, if not less. And then you’re really set up for more the offensive play, which obviously is most companies, even those that we’re looking at now. They’ve kind of hit the ceiling with their subscriptions business are looking to how do I evolve back to your mentioning of subscriptions? Fatigue, for example, is usage based pricing, something that is more for complex and mature businesses only? Or is this something that smaller businesses, maybe as the ramping up could benefit from?
Unknown Speaker 22:23
You know, I think this is a great question. And this is something that we are discussing in detail right now. Because, again, coming back to what we learned so far, and what we may be are seeing as the normal in subscription business, people most often refer to be b2c situation, right? Everybody knows about the streaming services and so on. But if we look at to software as a service companies today, I would argue that most of software service companies today that are starting up that are building new revenue growth and software, they do that usage based, why? Because it’s a much better deal for the end customer. It’s the way of onboarding fast, it’s the way of short time to value with your end customer, and then upsell and grow together with your customer. And the most amazing growth numbers come from SAS companies today. And they’re all usage based. What are
Unknown Speaker 23:21
the typical use cases you see today, irrespective of industry,
Unknown Speaker 23:26
you know, I think very, very exciting. Use cases is around mobility as a service for various reasons. Now coming back to the end customer value, we see. And it’s interesting, because here in Stockholm, specifically, we have Volvo, providing their subscription businesses, right, their subscription services course as a service or streaming core like history, music as their core messaging is. And I think this is so exciting, because everybody knows owning a car is insanely expensive, right? But it’s also something that is very close to us. We are very attached to a car brand. In general. It’s also something that we’re using. Very often it’s attached to our family or our business. But this change in the industry is massive. Let’s just look at how the structure built for hundreds of years, right 100 years of car industry and the distribution channels and suddenly, you’re as a car manufacturer going to deal with an customer directly. And for the end customer. It’s massive value to subscribe to car instead of owning it right. And it’s also a great value to be dealing with the car manufacturer directly can just see the cycles of innovation coming through in a much much faster mode and so forth. And maybe most important around this business model is this is going to be great for them. environment, I think Volvo is saying that on every core subscription, that they sign up, they reduced by nine own car. So it’s almost a 10x factor, which is going to be a massive impact on the environment going forward. So better deal for the end customer, better deal for the service provider, and also greatly impact on the environment.
Unknown Speaker 25:23
So if you look towards the horizon, is there any use because that really makes you excited? And so what use what you see coming next?
Unknown Speaker 25:30
Yeah, I mean, I’m, for me, personally, I’m coming back to all this heavy machinery manufacturing companies, which is, you know, on the back of I would say what we just talked about, also going to make a huge change, from an industry point of view, connecting with the end customer directly. And also being able to offer a lot of new different services that will make them interesting from the perspective of growing their revenues in a different way that they been doing for the last decade. So it’s a big shift coming here.
Unknown Speaker 26:06
Now, I’m personally super excited about this transmission to be specific about it. Because I don’t know for how many years we’ve been talking about IoT Internet of Things, putting sensors everywhere and get data. To be honest, most people I’ve spoken to, has been entirely clear what to do with the data. But it’s good being good to get the data. That’s been basically the agreement amongst all if we compare the manufacturing industry compared to like the mobile telephony industry that we started off, or the entertainment industry with the Netflix and the Disney, this is an industry that goes back, I don’t know, centuries, this is a massive shift for them. And connecting it to all the IoT and the sensors and the data that’s going to pour, I think this is going to be a bigger shift than any of us anticipate to be frank.
Unknown Speaker 26:56
Yeah, for sure. Another area that we can just touch upon, because it’s fun to, to discuss different use cases. And so for hospitality, again, coming back to an industry that have been around for a long, long time that I think are a little bit stuck in how we’re thinking about that, we’re actually building an extremely interesting use case, together with some partners around the huge amusement park in Asia. And the whole idea here is everything about the subscription economy, putting the end customer in, in the centre of everything. So instead of, you know, buying a ticket to go there, hiring a car, signing up for a hotel, buying all your tickets on the amusement park, standing in a queue, and so forth, you are going to just be in the forefront of the experience. So everything packaged for you focusing on this experience that you’re going to have with friends and family. And then you go to this amazing amusement park, you’re just consuming. And in real time, everything you do is available for you in your mobile phone. And then your charger, then based on your consumption, including everything
Unknown Speaker 28:16
or so from use cases, existing now and the ones that are coming to back to execution. Let’s just end on that note is digital routes usage portfolio, the only option in the market?
Unknown Speaker 28:30
You know, we were for a long time. But today there are new companies coming into this space. And we’re welcoming that of course, because many times companies customers don’t know this technology exist. So it’s great that we have new competition coming in because it kind of create a new category as part of this larger data integration framework where we are operating so so we’re welcoming that and we’re super happy for that. And so forth. Yeah,
Unknown Speaker 29:03
I agree. I think the awareness in the marketplace, which is also why we’re running this podcast, as well, it’s quite important. So with new entrants, obviously raises the awareness, potentially. But let’s come back to if you put yourself in the shoes of a customer, why would I as a customer see digital routes using portfolio as the best option?
Unknown Speaker 29:21
That’s very clear to me. I mean, we’re the only one that is providing battle proven technology, as we say, right. We’re born and raised in the most complex environment, coming back to large volumes, complex business models, and so forth. Moving into b2b for subscription economy, this is what it’s going to be about. Right? So I believe, and I think we’ve proven over and over again, we’re the only one providing a purpose built platform, managing data for excess service and the subscription economy. We help the largest telecom operators grow the revenues and control their subscription business. We were part of helping pioneers like Adobe, Lexmark, other great brands take on this journey. And this is also why we are at the table today when fortune 500 companies are moving to the next phase of their subscription business.
