The Critical Requirements of a Subscription Management Process

Behdad Banian  

Hello, and welcome to the data for subscriptions podcast where we learn and explore how to run better subscription businesses. I’m your host, Behdad Banian And today, we have the pleasure of welcoming Stephen Hurrell Director of Revenue of, office of the revenue from ISG Research to the show. Steven, welcome.

Stephen Hurrell  

Great to be here, Behdad Thank you.

Behdad Banian  

Today, we have a really befitting topic as, one of the final episodes of the year as well, Stephen, because we’ve been diving into several pieces of the subscription management process with various speakers, over the, you know, the, the episodes that we’ve had during the last, weeks and months of the year. I’m looking forward to discussing the full end to end process with you, and you’ve done a lot of research, looking into the subscription management process with the research report that we are going to lean towards as well. But before we get into both talking about what you see from overall trends and issues as well as some of the details that we wanna discuss, why don’t we share with the audience a little bit more about yourself, what you’re doing at ISG Research, and what led you to become so, passionate about subscription management?

Stephen Hurrell  

Great. Yes. Thank you. So, yes, my name is Stephen Hurrell. I’ve been at ISG as well. I was part of a company called Ventana Research, who was a boutique company started about twenty years ago focused on the application of technology for business, and we were acquired by ISG just over a year ago now. ISG has been around for twenty years.

Many of the audience might know them. They have focused predominantly on research and benchmarking around service providers for enterprises. But what they didn’t have was any in-depth research into software. So they made a strategic acquisition of ISG, I’m sorry, of Ventana Research. So we’re now part of the ISG software research department. Myself personally, I’ve been an analyst for just over four years now. I spent majority of my career, on your side of the fence as it were, but, on the software provider side.

I’ve had jobs at companies like Oracle. I’ve also worked a number of Silicon Valley startups, but the previous or the company previous to joining Ventana was a company involved in subscription management, and billing software. So I led product there and I led the introduction of AI to that product. But one of the things that I found interesting about becoming an analyst was being able to take a 60,000 foot view of the entire software industry and that let that has led us to, what we call the subscription management buyers guide. So as part of office of revenue, I cover subscription management but I also cover digital commerce and technology that supports the sales process. So for us and for me, it’s a continuation of technology that supports revenue generation And as we’ll sure go on to discuss, I’m sure your audience appreciates, subscription management is a is now a fundamental part of what it means for business models of how they revenue generate revenue. So that that caused us to focus heavily on subscription management and billing.

And as you alluded to, last year or this year, sorry, in the summer, we published a comprehensive survey of most of the major players in this space.

Behdad Banian  

Yep. So let’s dive right in. I I mean, whether we call it subscription as an offer or as a service or a digital service, I mean, they come in many different ways and and forms and shapes. But essentially, what we’re talking about, a type of service that rather than a onetime sales and a product we’re speaking about, in this case, we’re referring with the nomenclature of subscriptions. I mean, it’s been debated for a long while. It’s been around for depending on who you ask, at least for the last twenty, twenty five years with the telcos offering us subscriptions for our cell phones and furthermore, the classic examples of the Netflix. But you made a point in the research that you’ve done that it’s a specific point in time where company need to invest in their subscription management processes.

And why is that, Steven?

Stephen Hurrell  

Yeah. I I think if you you know, you’re right to to raise the history because subscriptions are not new. Newspapers have been having subscriptions for a hundred years, magazines, etcetera. But I think what you know? And then, you know, twenty years ago with the launch of digital digital entertainment and digital products, SaaS products especially, the notion of of perpetual licensing and software went away to be replaced by subscriptions. And I think there’s a very good reason for that, not least led by the consumer. This notion that, you know, why should I why should I bear all the risk as a buyer and the seller have no risk?

You know, I worked for Oracle back in the day where it was on premise and you made a sale and the, you know, this, the customer was then committed in a perpetual license. I think the SaaS model lends itself better to a shift in that risk between the seller and the buyer. And I think what it what has been interesting over the last ten years is that it’s moved from being predominantly companies like we mentioned, digital entertainment, we mentioned SaaS, and it’s now been recognized across many different industries. And I’d like to thank BMW for coming up with the example, even though it wasn’t a great example of offering heated seats in their cars on a subscription basis. So but I think it illustrates that many more industries are especially as they introduce, digital products which accompany a physical product. Maybe it’s a vending machine vendor who has a IoT sensor that allows you to have a subscription to have a maintenance or to have, notification when stocks are running low. This is now mainstream.

This is now part of almost all industries vernacular, how they deal business. Now that proportion between what is one time and what is subscription may vary, but I think the trend is there. I think customers are used to it. Customers want to it because of back to the idea of this shifting of the risk from these from the buyer back towards the seller. That’s what go on to talk about perhaps with usage. Maybe that risk goes even further back towards the seller.

Behdad Banian  

Yeah. And I would add to it that there is a significant correlation towards technology availability and maturity because you mentioned, for example, IoT sensors. I mean, from, my background having been at Ericsson, we’ve been working with IoT since at least fifteen years back in time where there’s tons of examples, plenty of them in different industries. But it seems like just only in the last couple of years where it’s not so much about the IoT sensors, it’s more about what you learn from the data and what you can do with the data. And you also made a great point in terms of, there therefore, there is an expectation and anticipation from from the buyer whether being on the business side, which is actually, really, really interesting because largely the examples historically that we look at come from the consumer side. Today, we see much more pull from the business side. And as we will get to discuss as well when it comes to AI and some of those areas, we’re just gonna see a rampant increase across multiple industries versus the few that were the front runners.

But let me just immediately go ahead and ask you, where do you believe, if you look ahead three, four years, where subscription businesses and let’s also immediately define them. When we speak about subscription, many different forms. You can speak basic flat fee to subscriptions, but you might, but we might include usage or hybrid where you have bundles and so on. So just to kinda frame that. But in light of that, Steven, where do you see subscription models, go in the next three to four years?

Stephen Hurrell  

Well, I I I just see a continuing trend. And I think what is interesting is that, you know, we talk about subscription, but it’s a it’s a shorthand. I think you mentioned hybrid. Subscription really means it’s a bit like, you know, people read NoSQL. Well, NoSQL doesn’t mean not SQL.

It means not only SQL. That’s what the n o means. And I think, really, what we’re talking about is not so much subscription is not only one time. It’s not as catchy as subscription, so it won’t catch on, but that’s really what we’re saying. And I think what we’re saying what we’re seeing what I’m seeing in my research is just a broadening and a deepening that more organizations, more enterprises, more sellers are saying, well, I have a variety of different pricing models I can use. I can use one time. I can use subscription.

As you mentioned, it could be flat fee. It could be triggered based on, you know, hitting certain volumes and then onto usage. But we’ve also got milestone. You know, if you’re on the construction business or you’re a professional services or you’re project related, then you have milestones in there as well or when people get paid. So I think what’s happening is that more and more organizations is that it’s not only one time. It’s actually now we have a plethora. There’s a multitude of different ways for different styles of products.

You know, if it’s a one time physical good, and you want to deliver it, then maybe that lends itself to a one time pricing. But even there, you know, we’re seeing in the medical profession, medical hardware, which is extremely expensive to buy. You know, we’re seeing, early offerings. I think Philips is offering, some of its medical imaging on a on a subscription basis. So a smaller practice can avail themselves of the latest technology. And, you know, the final point I’ll say, you know, anecdotally, I remember talking to a a German manufacturer who was saying that they see this as a way of competing with perhaps lower priced suppliers from the Far East where they can change their business model to be subscription such that it’s it’s back to this idea of, you know, why do you insist the buyer has all the risk in the sale? Moving to a subscription model makes that a much more digestible from a buyer point of view.

So I think there’s many motivations as to why one wants to move away from not only, or move away from one time, but I think it also adds to, the competitiveness or adds to the competitiveness of organizations, enterprises by being able to choose an appropriate pricing. And, you know, more interestingly, you said how is it going? I think there’s going to be technology improvements and what it means to test different pricing scenarios and then operationalize them quickly rather than the today you come up with a new pricing, you go to IT, they say six months. That’s not gonna work in a more agile digital economy.

Behdad Banian  

Do you see any fundamental differences between b to b and b to c when it comes to subscription offers? And by that, I mean, for example, demand and requirements from customers as well as capabilities that businesses need to have.

Stephen Hurrell  

Well, I think I think the fundamental difference is how you, you know, in a way, how you pay. So typically, a b to c consumer is that the you pay at the point of transaction. Whereas we’re in in the b to b world, there is a concept of negotiated pricing, longer term contracts, and the concept of an invoice. So though fundamentally, the concept of of a subscription between a b to c and b to b on its face is not different, I think there are implementation and the process implications of why it’s slightly different between b to b and b to c. You also get much more complexity in pricing on b to b. You know, b to c, if you think of a Netflix, you know, it’s a single price or two prices or three prices. Typically in b to b, because of the be able to discount and offer, promotions off off list, each contract then becomes personally negotiated as opposed to a standard list price.

Behdad Banian  

Let’s talk a bit more about trending topics when it comes to, subscription management. So if we go back about two to three years, all the rage was about usage based pricing. Today, it’s largely around AI monetization. My question to you is, what what would you say are the predominant underlying, let’s say, reasons for these trending topics? What is actually driving usage based pricing and AI monetization?

Stephen Hurrell  

Yeah. I think we have to take a step back and talk about why usage has not, been such a, a why it hasn’t taken off. Because if we go through our our, you know, discussion points we had about, you know, who who bears the risk, you know, anecdotally, I can remember 30 ago, working with a a large CPG company and the person I was talking to said, but why can’t I only use I why can’t I only pay for what I use? So I think this concept has been there all the time. I think there have been some fundamental technology issues as to why why it hasn’t really taken off. But I think, you know, I think and some of those obstacles have been around predictability, you know, from both the buyer and seller. So I think what is interesting about this move in AI is, you know, is I is AI going to be the driver that really makes usage more prevalent across the industry?

And I think, you know, one of the reasons for that is is basically a cost basis that that, you know, AI transactions are not free. They’re very resource intensive, and I think a lot of providers of AI are, in a sense, trying to make sure to ensure that their business models cover their costs. And if they were to offer a onetime or a flat fee, there is no real way of of assuring that they’ll cover costs because the costs are very much dependent upon how much a particular consumer or or business buyer is using. So I think there’s a real economic driver here that’s now starting to parallel the consumer’s desire to only pay for what they use with the supplier or the vendor side is saying, you know, to make sure to ensure that I have a viable business, I need to ensure I’m covering my costs. So I think this is driving, and it’s and it’s very interesting as you say that is is usage AI usage pricing going to be the real driver that breaks out or that causes usage pricing to break out into wider audiences.

Behdad Banian  

I second your thought there because I I do believe that, usage based pricing initially when it became a hot topic, it sounded almost like it would be the medicine to fight what we also saw about the same time frame two to three years back, something referred to as subscription fatigue. Basically, mostly on the consumer side, whoever was paying was feeling that we’re sitting here with maybe ten, twelve different subscriptions. I’m not even using half of them. Why am I paying for this? So what happened, what I refer to is that we got a imbalanced value equation. And it really doesn’t matter if you’re in a classic one time purchase model or if you’re a subscription model. If you feel that the what you pay for and the value balance is off, then you will be unhappy.

Usage based pricing came along as a means to kinda fight that off. I believe that unless there is a strong value proposition, which makes sense and is understandable for why you should have usage as a pricing model, it will not work. I’ll give you one good example of if you rolled back the time five to ten years versus today, it’s energy consumption. Because of energy and the price of energy has become a hot topic and a big topic for most countries around the world, today, everybody is fairly accustomed to you pay for the kilowatts that you use. And we have the right type of support technology applications to kinda see that. That’s a good case, where in many cases, there’s been less good cases. My view and then maybe a question back to you on AI monetization is we have seen some good examples of where pay for what you consume on AI applications seems to work.

Can you share with us which ones you see that you feel are good, and have you also seen some examples where you see that it doesn’t make complete sense, again, from a value standpoint?

Stephen Hurrell  

Yeah. I mean, I think, you know, to again, to step back a little bit, you know, we have to think about how it’s it’s you know, in the technology industry and in the analyst industry, sometimes you you forget some fundamental basic organizational principles. And, you know, businesses work on fixed accounting periods, typically 12, you know, monthly periods. And they have the concept of budgeting, which is some pre estimation of how much you’re going to spend on a particular, you know, activity. You know, it could be salaries. It could be buying desks. It could be buying technology.

And, of course, it includes buying AI. Likewise, as a consumer, you know, we get paid weekly, biweekly, monthly. There is a real economic psychology here is that we’re used to having fixed fixed sums of income, which we then spend. And one of the interesting aspects of usage is a priority. You don’t know how much either you’re going to be spending or if you’re on the selling side, how much you’re going to be earning. So I think there is some quite complex thinking that has to go into, you know, I can’t offer AI at a price point that if somebody really enthusiastically uses it, they’re going to be spending 10 times what they anticipated. You know, you can’t you can’t meter things in the same way that said, oh, you’ve you know, if you have a purchase order for a hundred units and you run out of a hundred units halfway through the month, what do you do?

Do you stop offering the service? Does the customer or does the customer get overages? You know, there are it it’s not quite though fundamentally, it’s a simple concept in the actual implementation of it because of the nature of how businesses operate and how consumers think about spending, You do need to think more closely about, you know, when I’m pricing, you know, is is it going to be such that anybody who enthusiastically uses it is gonna blow through their anticipated spend very early on in the accounting period. So those are the thing those are the some of the thinking and, characteristics that people need to consider. It’s not just I’m gonna charge on usage basis. It’s what is the propensity of my buyers? What is their propensity to buy?

What are their constraints organizational constraints in terms of budgets? You know? And we’ve seen this with cost you know, some vendors are now offering the, you know, digital wallets where you can draw down on a digital wallet. And and we’ve seen this in consumers as well.

You can top up. You know? As as you’re progressing through the period, if it looks like your, usage is gonna be more than you can top it up. But that again, you know, most organizations, most business organizations are not used to this concept of topping up. It’s it’s there in b two c, less so in b two b. So I think early days, lots of things to work out, but I, you know, I think they can be worked out, and I think technology can really help here as well.

Behdad Banian  

Stephen, going back to to, the question about the AI and if you’d seen any examples, I’ll just toss in two of the ones that I see that I think makes sense so far. And still we we are extremely early on when it comes to the whole AI monetization question. But some of the cases that, that I see is just that you get a number of credits for, the the number of queries or searches or the specific tool that that application allows you to do. So suppose you pay a fee and you get, a thousand credits, then you use that application, then you eat into your application. So it’s very intuitive. You can basically see as a metered service how much you’re, consuming and when you’re reaching, an empty, bag basically for yourself, you can choose to top it up. So it’s very simple, very rudimentary, but works.

Some other, AI monetization cases in the case of, for example, chatbot services or, let’s say, customer service that are AI driven where you pay for number of customer questions or queries that are being solved. So you’re not paying for anything more or less than that. So here here we’re Yes. Flirting a little bit with more of an, let’s say, outcome based pricing. Yeah.

Stephen Hurrell  

One of the answers. Yes. You know, I apologize if I didn’t directly answer your question, but but you’re absolutely right. You know, a number of vendors, have launched the concept of, as you say, you get a set number of queries, AI based queries for a fixed price, and then anything over it, you start paying overages on a sliding scale. Obviously, agents are a big topic at the moment, and there are a number of monetization methods put forward for agents. One of them is on a per transaction basis, which interestingly enough is the way that a lot of call centers work. You know, call center providers, a lot of it is outsourced, and it’s outsourced on a cost per call center or a price per a price per query answered.

So, you know, I think there are there are good analogies that people can pull from existing. You know, you mentioned telcos, you know, utilities. There are lot of these things have been come across before and solved in different ways. So it’ll be interesting to see how much organizations look to perhaps previous examples and then use those as methods of monetizing. But, yes, I mean, fundamentally today, there seems to be two or three emerging. There’s the what I’ll call the digital wallet, where you basically get a preset amount and you prepay, and then you draw down, and then you have overages, or there’s a cost per transaction or a price per transaction, price per query answered, price per call answered. You know?

Those seem to be the main methods, and we’ll see over the years whether those actually work because, again, you know, to reference what I was saying, it isn’t just that the how am I pricing it, is how does that fit in with the way the organizations typically work? And maybe there is a point at which, you know, agents really do take over the world, and organizations have to rethink what it means to have budgeted finances for the following year. You know, maybe we’ll see some rad some changes there. You know, it’s early days yet. I’ve not had any conversations with on the procurement side or the financial side, but that would be an interesting conversation with them to understand, are they aware of how their, the vendors that they use may be shifting their pricing? I think lot of things to work out here, but it’s very interesting always. And as a technology analyst, I’m always thinking, how can technology help this?

Behdad Banian

Yeah. I’m really excited personally about AI monetization for the simple reason that I think it could be, the door opener for the, question of outcome based pricing. I mean, for many of us have been working with pricing for many years. Outcome based pricing is nothing new like many of the other topics we spoke about today, Steven. But the fact that with, with the advent of the Verizon services that we anticipate is is gonna come fueled by AI, it could be, the road we’re going. And that to me is very exciting. But as a bit of a a bridge towards another topic that you raised in your buyer’s guide, data mediation.

Again, just before I before I let the word over to you to kinda go through some of the key points here is for a very basic subscription, of course, you might not need to be thinking so much about how do you manage the data behind the usage data, so to say, regardless of how you price. But for all of the exciting topics we’ve discussed here and now today, it’s largely dependent on, let’s say, meticulous and when well handled process for the usage data. So by that data mediation, before we jump into the topics, why don’t you just help us define what you mean with data mediation when you refer to it?

Stephen Hurrell

Right. So so I think, you know, I think you actually have given the answer. Okay. The the you know, data for the purpose of rating. And and I would also add in there, it’s not just for rating. So, you know, you use the Netflix example.

Netflix is very simple. You know, you use or you pay whatever it is, $19.95 a month. But they actually use data mediation not not for pricing per se, but for actually understanding how people use what what they’re watching. So the transaction there has two purposes. Yes. In a sense for, you know, pricing, but not really for pricing. But it’s there is much more people are using it for, well, what are people watching?

So, you know, when we’re thinking of data mediation, I think there’s a danger in thinking of it purely in the application of deriving a price. I think it also has other purposes, which I think lends itself to, you know, you you must treat data mediation as the serious topic that it is. And I think, you know, the more the more complex your pricing gets, you know, when you’re into tiers, maybe your price arrangement says that if you hit a certain volume target in a particular period, the per transaction price goes down. Well, you can only do that if you’re accumulating the data to be able to understand to do it. Now you introduce, well, when do you actually rate it? You do you wait till the end of the period and do it on mass, or do you do it incrementally, you know, for performance purposes? Then that relates back to, well, how are we charging?

Are we charging monthly or weekly or daily? All these all these things lend them, you know, our characteristics of data mediation being not just here’s a transaction, let me price it. You may have to normalize it. You may have to aggregate it. You may have to aggregate it for purpose one, but not not aggregate it for purpose two. You know, we look at data for usage, usage patterns, and as we’ll come on to talk about usage patterns are gonna become increasingly important. You know, so so data mediation is not a one to one mapping.

It is a very complex mapping between the source data. And now as we get into you alluded to, you know, are we talking about outcome pricing when it comes to usage pricing? Well, outcome now is I’m measuring not the initial activity. I’m now measuring did the activity achieve the outcome for which I’m pricing for. So now you have the need to pull data from different sources because the initial activity data, I’m sure, is captured in one system, but the outcome is captured in another. So now we’re pulling in data from different sources. We’ve gotta match them.

We gotta match them at the right level, the right time period, the right person, the right you know? So it now becomes very, very complex or potentially a complex way more than just single data data mapping.

Behdad Banian

From your vantage point, Steven, how are you seeing businesses today manage usage data or data mediation today?

Stephen Hurrell

Well, yeah, that’s a that’s an interesting topic because I think there’s two sides to it. So as part of my buyer’s guide, I was looking at a lot of vendors who say we handle usage. And I was very careful when I was looking at how they how they position things. What do they do about data mediation? And a number of them said, you know, I’m paraphrasing, but, you know, we assume you have the data organized for us to be able to rate it. Well, I think that’s a very big assumption. So that led me to think about, well, how are other organizations doing it?

And I see movements around using a data warehouse or a snowflake to do this, which, you know, to me, maybe I’m a you know, maybe it’s because I’m an ex product guy. I feel like that’s off off offloading that that resolution to somewhere not necessarily in the right place to resolve. I think there is real value in resolving that at the same time as you’re thinking about rating. So, you know, I see people doing spreadsheets. I see people doing in data warehouses. I see people doing it in in commercial, denormalized databases like Snowflake. But that’s putting a lot of work onto teams of people who are not actually involved in the pricing and rating side of things.

So now I think, you know, I started off my career in BI analytics. It wasn’t called that then. That tells you how old I am. But, you know, there’s an inherent history of people putting together data into denormalized warehouses and then saying, okay. What do you wanna do with it? And I think that that route will miss the point of in fact, it should be inverted the other way. This is my business model.

What data do I need to be collecting? So it’s driven by the use, not this idea of we’ll put all data together and then say have it, you know, go use it. I think that that will be that will lead people down the wrong path when it comes to this through process of what it means to monetize your your information.

Behdad Banian

So if you would take, you know, two minutes and give us, and everybody who’s listening, a bit of advice on what should one think about when one wants to set up data mediation in a good way. So we’re not after about pointing to specific software tool, but if you would say, think about these five or six or seven factors and capabilities that you need to ace, you need to do really well.

Stephen Hurrell

Well, I think it starts with it’s a data pull model not a data push model. So you have to start with the business concepts. What, you know, what business models do you need? What pricing models do you need? And not just, you know, don’t just set it today. You know, if if you’re going down usage, well, think about usage in its all its permutations. If you’re in subscriptions, you subscriptions in all their permutations.

Because it should be the data the pricing data model determines what data you need to collect and the velocity of the periodicity of the data and the level you need data. You know? So that’s that’s the requirements driving the capture. And and it’s interesting that there, some vendors are now thinking, well, could I use GenAI to basically determine what data I require to populate to make this business model work? You know, that to me is the fundamental thing that I recommend everybody. Start from the business models. Don’t start from data sources.

Don’t start from the typical, data management IT. Let’s get all the data and work out how that’s the wrong way to do it. You’ll probably fail that route. If you start from the business model, that satisfied just not just today, but also a degree of future proofing as business models change, it it it it’ll then be much easier to have that I’m changing the business model.

Oh my gosh. Six months we have to wait to get new data. No. No. No. It can’t it can’t work like that. It has to be much more agile and quicker than that.

Behdad Banian

Yeah. I second that. I think it’s, I would definitely say I think the typically, the examples that I’ve seen where a company starts from the IT side, you often end up with, not an ideal solution if if I keep it constructive. In fact, more often than not, quite poor solutions that end up being quite costly, never ending, let’s say, IT project systems where you have to constantly make amendments and changes. You mentioned something really important, as we’re speaking early on. You said it’s really important for businesses and systems to be agile. Now with the risk of, you know, being a, let’s say, a buzzword in terms of things being agile, but I think it’s really important because what you need from your, let’s say, your subscription management process or your quote to cash environment is that it is able to quickly adapt to your business needs and your customer’s needs.

And if that is that you need to do bespoke pricing, as you mentioned, for business to business environment, specifically for every customer having their own specific pricing, or if you need to change and have different bundles, all of that speaks flexibility that you’re adaptable and the fact that it shouldn’t slow down your business processes. Right?

Stephen Hurrell

Oh, absolutely. I have I have a maxim that if your technology is preventing you to run the business the way you want to, you have the wrong technology. It’s very simple. And I, you know, I think I’ve shared with you an anecdote that I worked on a project for a property and casualty insurance company in South Africa. And I think it’s illustrative. It’s, you know, it’s an illustrative anecdote that that, you know, in in in African countries, you know, insurance works slightly differently from perhaps in the West where you’re insuring a house and a swimming pool and a car. You know, that’s not how things work in in in other countries.

And it’s insurance companies are much more innovative and come up with new products all the time, and they test market it. And, you know, perhaps it’s running on a spreadsheet, and then they want to operationalize that quickly. And, you know, in this particular instance, as a real life example, they said to IT, you know, we need to operationalize this, and IT said six months.

So I’m not trying to knock IT. I’m just saying that if that’s your process, that’s going to defeat your ability to innovate.

You know, you mentioned bundles. The whole point of bundles is you can combine almost a, you know, not a whim, but you can combine very quickly different bundles to for different audiences or different markets. And you need to be able to do this quickly because if you’re not doing it quickly, if you can’t react to market conditions, to customer demands quickly enough, you’re going to be, left in the dust, basically.

Behdad Banian

Steven, as a bit of a final segment, of our dialogue here, I’d like to kinda move back to some extent to the forecast and discussion, but more the topic is from a financing perspective or financial process. Forecasting is a obviously a concern when we speak about usage based, but do you have an idea perhaps that with better usage data management or data mediation capabilities that one can mitigate some of the forecasting concerns that companies have?

Stephen Hurrell

Yes. You know, let’s let’s let’s deconstruct that a little bit because Yes. You know, you talk about forecasting for finance purposes, and that is true. But I think also and I, excuse me, I alluded to in my preamble around the history of usage. Why hasn’t usage taken off? You know, intrinsically, it makes sense. I’m only paying for what I use.

Why would that not be attractive? And it, you know, and it goes back to what I was talking about. Well, yes. But the way that organizations and people think about money is on a periodic basis. So, you know, I’d also I talk about forecasting not just in I’m a CFO, I need to know where the revenue’s coming from this month, next month, or next quarter, but also for the fundamental, how do we get acceptance of usage? And forecasting is going to be absolutely fundamental to understand what it is that the customers are likely to be using in any particular period, both for the company that’s selling, but also the company that’s buying because they need to have a handle on, you know, you know, I I I worked in usage situations where the company I’m selling, it wasn’t me, it was a customer, Had a purchase order. Well, a purchase order is a fixed amount of money Yeah.

And it’s allocated by finance. And it’s much easier to have that PO adjusted prior to breaching it than it is after the event. So here is where forecasting enables both the buyer and the seller to understand from a organizational constraint point of view how to make that work. So that’s one facet very important. And then, obviously, the other facet, as you said, and and thought if you look at revenue recognition rules, revenue recognition rules now require you to have some concept of an expected average usage to be able to measure against, well, how do you know what that is? You know, you don’t know until you actually do some analysis. So that’s where, you know, if if you remember, we talked about patterns of data in in in in data mediation.

It’s not just for pricing. That pattern of usage, it also is going to be extremely valuable resource for organizations to be able to forecast both for the both to share with their user so their users can understand what usage patterns are and when they’re likely to breach, limits. But also, as you say, for the CFO, who if you’ve ever met a CFO, the one thing that keeps them up at night is, you know, where are we going to be next month, next quarter, next year? You know, doesn’t matter whether you’re a public or a private company. That’s something that the CFO is really, really focused on. So this is going to be a very, very crucial step that makes usage work across the board. And I think, again, it leads you to think, well, you know, data mediation is not just for pricing.

That data mediation can also have dual, if not triple use to understand pattern usage, to be able to forecast what is the likelihood in the next period or the next quarter. Maybe it’s seasonal. You know, maybe there’s seasonality wrapped in there.

Maybe it’s driven by events. You know? So again, very interesting. Well, interesting to me and probably hopefully to you too without about how technology can help move this business process forward.

Behdad Banian

That’s quite clear. I think neither the paying customers or the solution providers are are comfortable and comfortable and willing to operate, in blind. Meaning that you don’t wanna you don’t want you it’s uncomfortable to not know what you’re paying for, how much you’re gonna consume. Again, I’ll bring this fairly complicated discussion into something easy to understand with the reference I’d made to the energy consumption. And I do think that what you’re pointing to is absolutely correct in terms of handling usage or data mediation is actually the common denominator for all of the findings that you’ve shared with us today, meaning access to structured quality usage data can unlock multiple things. And to bridge now to what you mentioned is with the energy companies, today, at least in Sweden, based on you your usage data, I, as a consumer, can see what I’m forecasted to consume for the month as well as for the day that I’m in. So it’s broken down down to the day, twenty four hours.

So I can see that literally and but that’s because the energy providers here in Sweden, Steven, they’ve been collecting my usage, electricity usage, for years before stepping into pay for usage. Therefore, with that structured data, they’re able to forecast my consumption. So I’m happy to your point about transparency. I can see where I’m heading. I can make my own calculations. They are probably happy from their side because they can do their forecasting based on how much or how little. And while this is might sound simple, I don’t think it was so simple seven, eight years ago.

But today, with everything being in hand, we look at it as, yeah, that makes quite a lot of sense. But I take with me from our discussion that companies need to really be on top of data mediation or usage data mediation to unlock basically their business models regardless of what variation that is.

Stephen Hurrell

Absolutely. I mean and this is and this is, you know, again, you know, if your technology is preventing you from exercising a business model that you think is appropriate for your business, you know, you either don’t do it or you try and do it in a spreadsheet or some hacked together, you know, ad hoc solution, which then prevents you from doing some of these very value added things we talked about. You know? You mentioned the electricity usage in Sweden. I’m also sure it’s correlated with weather forecasting. So they will know that given a cold spell or a warm spell, what demand is gonna be down to your personal preferences. Some people will be happy at, I’ll use Fahrenheit, you know, but happy at 64 in their room.

Some people need 72. So it’s not just a factor of what is the general temperature. It’s also how do you personally react to it. So there’s, you know, there’s a lot of really interesting personalized information we could get out of there. And then if you extend it further into into payment models, this is how you can get to balance billing. If you understand what your usage across a year is, then a provider is gonna be much more comfortable saying, well, don’t pay us, you know, on this volatile basis, pay us $120 a month. You know?

So, again, a lot of things are driven. You know? As a business model, that helps the utility because they know independent of usage, this is the money they’re getting each period. But you can only do that by having this advanced understanding of patterns of usage, how that correlates with externalities like weather temperatures and weather forecasts. So again, really, really interesting applications of data to help drive for business driven by the business model, as opposed to how I think some people think of things as just, oh, you got a piece of data, you price it and move on.

Behdad Banian

Yeah. Just wanna confirm that, you read the situation absolutely correctly. First and foremost, they correlate bunch of different data points based on weather and other factors.

Two, it’s fascinating. They move from once upon a time fixed yearly annual subscriptions to usage based. Now because of all of the data that they have, they do exactly what you said. Meaning, they can reverse it back to. But if you want to have a special deal, if you can wanna kinda contain your cost at a certain level, you can tie it up to this and that model. It’s fantastic. Now I’m also, again, just had to put a bit of a cherry on the top here as we spoke so much about outcome based pricing.

What we’re seeing the advent of some of the utility companies are saying, what temperature would you like to have within your facility or in your house or apartment? Pay for that temperature, forget electricity whatsoever or the hardware that’s needed. So it’s interesting as we were discussing outcome based pricing with AI monetization. But again, in here in this example, it’s a very good one in terms of coming from basic subscriptions, manage that data, go into much more sophisticated, let’s say, offering models, and now flirting with outcome based even.

Stephen Hurrell

That’s that’s really fascinating. And as we know, you know, outcome based again is not new. But one of the struggles that people have had trying to implement outcome is attribution. What do you attribute that outcome to? And I think the more defined data you have, the clearer the ability to delineate that attribution becomes. And I think it makes outcome again. Outcome is, you know, on the face of it, a very desirable situation to be in.

I only pay for what I achieve. But the impediment to that has not been the concept. It’s been, do we have the data and technology to support that? I think we’re now getting to the stage where we do have that data. We do have the technology to be able to support and have that clear delineated attribution of what achieved that outcome. And if it’s your product, then you can charge for it accordingly.

Behdad Banian

Steven, as we’re gonna wrap up now today’s discussion, for anybody who’s listening to us and to you and they wanna really level up their subscription management process, What is your advice that we should do tomorrow? What are the two to three things that we need to grab a hold of and do right?

Stephen Hurrell

I think, you know, central theme of what I said, I think two major themes here is one is always be thinking of the business model. Don’t be thinking of technology and data and infrastructure. What is the business model that your business requires, not just today, but potentially in the future? And have that as the driver of what now is the technology I use. You know, I think too many times we invert the process. Let’s go buy a subscription product and then we’ll try and implement it. No. No. No. Think about what it is you’re really trying to achieve for today and that will determine, you know, it’s a it’s a bit of a chicken and egg situation.

I know because I talk to companies that they don’t do things they’d like to do because the technology doesn’t support it. Well, I mean, that that almost almost brings a tear to my heart. You know?

You’re a business. You’re supposed to be operating the best way that you can to achieve returns for your employees, for your shareholders, your stakeholders. You know? Why are you letting technology limit yourself that way? So I really would encourage people to really think about the business and then work backwards. And then the other thing I encourage people to do is, you know, don’t take at face value necessarily what providers say. You know, you should really use your research to understand.

I want to do usage, but as we’ve hopefully, we’ve touched on topics today, but that that cause people to think, oh, well, maybe I need to think about usage. Not that I don’t want to do it, but there are characteristics about this that I really need to make sure that I fully understand before I go down the path of expensive data mediation, data integration, buy a new product to do it, really do and seek advice. I mean, none of us know everything. Always look to seek advice from other other sources, whether it’s research analysts like myself or it’s published information about, you know, what are some of the things you don’t know? It’s the things that catches out are not things that we don’t that we knew and ignored. It’s things that we didn’t know And we didn’t know that we didn’t know. So that’s that’s what I hopefully would leave the audience with.

Behdad Banian

Thank you very much. And, also, thank you to everybody tuning in today and listening to us. If you’re interested to learn more about subscription management, my simple advice is just drop a comment, subscription management into the comment field for this event, or you can reach out to us in any other channels that you prefer, and we’ll make sure to connect back with you. There’s tons more we can share, and we’ll for sure share the buyer’s guide as well and information about Steven so that you can read the full report, and also get in touch with Steven if you would so like. Again, thank you so much for your time, Steven. I’ve really appreciated this conversation.

Stephen Hurrell

Yes. It’s been great. I’ve really enjoyed it. Thanks,