Subscription Commerce:

Navigating the Solutions LandscapeEvaluating the three different solution approaches foryour subscription business

The subscription business model has gone mainstream with companies like Dropbox, Netflix, Adobe and Zipcar because it offers a predictable, recurring revenue stream.

However, in their eagerness to earn more revenue and keep up with trends in global ecommerce, too many businesses want to dive headfirst into the subscription commerce pool. With the dizzying array of subscription commerce solutions available, it can be easy to get locked into a provider that doesn’t meet your company’s specific requirements. Or, even worse, the wrong solution can become a limiting factor in responding to future shifts in products/services, pricing or market opportunities.

Commerce platforms not designed for the selling of digital goods are unable to cater to the evolving business models and specific features needed to sell digital goods and services online. eBusiness firms with the constraints of an ill-suited technology will lag behind customer needs, miss out on monetizing digital content, and neglect launching new product offerings. 1

1. “Market Overview: Commerce Solutions For Digital Products And Services, 2015” by Lily Varon

Be wise:Before you take the plunge, let’s evaluate the three different solution approaches for recurring billing and subscription businesses. There are relevant use cases for each approach. At the same time, there are pros and cons inherent to each option.

Already selling through an existing solution?This could be a good time to reevaluate a billing solution because it’s likely that there may be areas lagging behind industry best practices.

Category A

Billing / Payments Solution

Pros:

• Typically the cheapest option to get you up and running accepting basic recurring payments

• Often includes both a merchant account and a payment gateway

• Takes on the responsibility of PCI compliance, when implemented correctly

Cons:

• Subscription and recurring revenue capabilities are not core functionalities, which will require a lot of custom development on your end

• Won’t handle trials or semi-complex renewals

• Only accepts payments via credit card, Paypal and/or Automated Clearing House (ACH), which can charge global customers foreign transaction fees or block them from paying. If you want to have global reach and provide your customers the best localized experience, you will need to sign up with additional gateways.

A payment gateway provides the technology to securely capture and transfer credit card information from a website shopping cart to the merchant account. A merchant account handles the financial processing of the credit card transaction with the banks and card brand (VISA, MasterCard, etc.). It is very typical to have one company supply the merchant account and another supply the payment gateway because very few companies supply both services under the same roof. Some payment gateways have even evolved to offer simple recurring billing features.

Category A — Billing / Payments Solution

Many payment and billing platforms have been fine-tuned over decades to support the core commerce management of one-time purchases of physical goods.

Some of them have even evolved and launched simple recurring billing modules on top of their payment gateways. This solution can be the best option for small businesses and startups that don’t have the volume to obtain a merchant account or have simple subscription needs, or for a company largely selling physical goods looking to experiment with simple digital business models.

Unfortunately, the management of subscriptions can be quite complex in the digital world.

Subscription models used by companies like Salesforce offer customers different levels of functionality for a variety of prices per seat, per month. That in and of itself might not be too complicated to calculate, but what happens when a customer adds or cancels seats in the middle of the billing period and prices need to be prorated for partial months? Or the credit card on file expires and renewal billings fail? How do you bill customers for actual usage? What’s the tax rate on your product? Can you track each product’s churn rate?

This solution can be the best option for small businesses and startups that don’t have the volume to obtain a merchant account or for companies with largely physical goods looking to experiment with digital business models. If you’re doing simple plan-based billing, then you’ll be pleasantly surprised at how quick and easy it can be to configure one of these gateways to do just that.

Use Case:

Moreover, usage-based subscriptions require billing unique amounts with each renewal.

Base+overage pricing requires an overage charge to be computed and billed each period. Manually-renewed subscriptions require advance customer notifications in order to reduce churn and keep cash flowing. As you can probably imagine, the complexity of managing subscription information for thousands - or even millions - of customers increases exponentially.

In these cases, a payment or billing platform falls short.

Because many of these solutions were born out of the one-time purchase world, they can lack the specific or robust subscription capabilities to support business models built around digital goods or services. If you’re not looking to develop those capabilities in-house, the next two solution offerings might be a better fit.

A billing/payment solution can be the best option for companies of all sizes with simple digital business models as it’s the cheapest option to get you up and running accepting basic recurring payments. However, if you’re going to offer a complex or high volume subscription product which requires robust subscription and recurring revenue capabilities, you will be better served with one of the two following options.

Solution Summary:

Category A — Billing / Payments Solution

Category B

Subscription Management Point Solution

Pros:

• Provides comprehensive management of subscriber (profile data) and subscription details (when it’s time to renew), associated calculations for different scenarios, etc.

• Can trigger other integrated, third-party solutions to handle subscription activities such as billing customers and collecting payments, sending emails to your customers, pro-rating upgrades and downgrades, and managing the dunning process (e.g., communicating with a customer when a credit card has expired or rejected a charge)

• Can offer deep financial reporting on your performance, tracking important sales metrics such as number of users, churn rate, etc.

Recurring billing and subscription management point solutions focus on the function of managing when each customer is due to be billed and for how much.

Cons:

• Typically doesn’t include core commerce services (cart/checkout, pricing rules, product recommendations, product configurations, payment processing, tax and fraud management, multivariate testing, product catalog, etc.) in the solution. To have access to all these features, it seems you would have to mix and match several vendors and rely on the connections between them (or build the capabilities yourself) to achieve complete coverage.

• The initial cost is often significantly less than your final bill after adding in all necessary costs for development and other third-party vendor services.

• Must have knowledgeable in-house developers to integrate the APIs into the internal systems. Outsourcing this to commerce service providers (i.e. external dev shops) costs major dollars.

• Won’t handle mixed shopping carts (i.e. additional one-time purchases in addition to a recurring subscription)

Category B — Subscription Management Point Solution

Think, for example, of a newspaper or magazine subscription where the publisher needs to know when a subscription is expiring.

The vendor either collects the annual/monthly fee or stops delivering the publication if the customer doesn’t pay by a certain date. A recurring billing platform will manage this information for the vendor, though they won’t necessarily act as the merchant of record and collect payments.

If you’re going to offer a complex or high volume subscription product, this solution can offer relatively simple integrations and quick time to market. While it requires you to have the resources or expertise to build or source the other pieces you will most likely need, this is a great fit for many companies.

Use Case:

Category B — Subscription Management Point Solution

While many subscription commerce/billing platforms are great if you offer a complex or high volume subscription product, or are looking for quick time to market, the challenge some companies discover is that most of these solutions only support a fraction of the capabilities that your business might require.

To have access to all these features (payment processing, multivariate testing, localization capabilities, marketing capabilities, fraud prevention, affiliate and reseller support, customer support, etc.), it seems you would have to mix and match several vendors to achieve complete coverage. This also leaves you at the mercy of the quality of connections between your subscription management solution and the various third-party vendors.

Ultimately, subscription management is only one part of a much larger picture. If the subscription management layer is all you are looking for and your existing systems can handle the integrations, this is a great fit for many companies. However, if that’s not the case, and you don’t have the resources for the development and integrations, a full-service digital commerce solution might be your best play.

Solution Summary:

Category C

Full-Service or Integrated Solution

Pros:

• Delivers all subscription and ecommerce capabilities needed (more or less) out-of-the-box, allowing you to focus on your core business

• Enables you to go global fast with new product or services releases, because localization capabilities are built in

• Typically, but not exclusively, acts as the merchant of record on your behalf

Cons:

• Because more ecommerce and subscription capabilities are built into the solution, you may experience sticker shock when compared to payment/billing platforms and subscription commerce/billing point solutions

• Not the best fit for really obscure digital services, which requires a lot of custom development, or for companies not needing additionally core commerce capabilities

Full-service or integrated solutions have subscription management, but also core commerce capabilities (payment processing, multivariate testing, localization capabilities, marketing capabilities, fraud prevention, affiliate and reseller support, customer support, etc.).

Category C — Full-Service or Integrated Solution

If you a) think that your market will extend beyond a single region; b) you do not want to custom develop core commerce services; and/or c) you do not want to mix and match several vendors to achieve complete ecommerce and subscription capabilities coverage, a full-service or integrated solution is probably the best fit for you.

Use Case:

When it comes to penetrating global markets, things become even more complicated as webpages, payments options and currencies must all be localized – not to mention the complexity of taxation and compliance in various countries.

The benefit of partnering with a full-service or integrated solution is that they handle all of these activities on your behalf, freeing up numerous resources for product development that would have been otherwise occupied by ecommerce and subscription activities.

Category C — Full-Service or Integrated Solution

Here’s how Forrester describes commerce platforms for digital goods and online services:

Digital commerce platforms natively support the unique set of functions needed to sell digital goods like enhanced merchandising, flexible business model support, entitlements, and asset protection. The digital commerce platforms have been used by software and gaming companies to satisfy requirements around geographies, channels, and customer segments where complex relationships between product versions, upgrades, and add-ons exist. Increasingly, these vendors are adapting their solutions to meet the digital commerce needs of a broader set of verticals, like media,publishing, and education. These vendors differ from subscription platform vendors in that they typically (but not exclusively) act as the merchant of record for their clients. Commerce platforms, for digital or physical goods, typically also provide comprehensive management tools to drive consumer engagement through web and mobile channels1.

1. Peter Sheldon with Zia Daniell Wigder, Diana Gold, Forrester Research, Inc. May 27, 2015

Category C — Full-Service or Integrated SolutionCategory C — Full-Service or Integrated Solution

In short, full-service or integrated solutions have subscription management as one component of the entire ecommerce picture. They eliminate the need for you to possess the long list of global online sales capabilities and personnel must-haves, which can include:

Solution Summary:

Knowledgeable developers – Integrating various third-party APIs with your internal CRM, ERP, web analytics, email platform and other applications can take time and slow your time to market.

Financial experts to handle payment system implications – Knowing the impact of selling your product cross-border does not happen overnight or even in six months.

Revenue recovery experts – People whose job it is to focus on customer lifetime value to ensure that money is not being left on the table.

Legal experts – Managing the customer data according to local privacy laws and staying abreast of the ever-changing taxation laws around the world are not simple tasks.

Customer-facing subscription process – Analogous to the “shopping cart” experience, you need to build the subscription and cancellation process yourself. This requires more developer resources as well as customer experience experts who have learned how to optimize the customer experience.

Export compliance – You need to comply with the requisite government regulations for not selling to people, entities or countries that your government doesn’t allow.

Affiliate management platform – Affiliates represent a significant revenue opportunity for your business, but accepting affiliates, tracking their success, managing their payouts and providing campaign creative materials all take time and resources.

Integration with third-party systems – Solutions such as CRM, email, ERP and support all require you to not only have developers available, but also to define how you want to translate the data from one system to the next. Why reinvent the wheel and be required to implement upgrades to the different APIs whenever a new one is published?

Supporting your other sales channels with the right technology – To maximize the benefits of inside sales, affiliates, resellers and other channel partners, you need to provide them with the right technology functionality and access to marketing materials, reporting and other information in order to sell effectively on your behalf.

As you can see, each solution has their place and serves different purposes. The right solution will address your unique business needs and capabilities as well as the needs of your customers who will be interacting with it. Analyze your business needs for today and anticipate for tomorrow before evaluating providers to ensure the correct solution is implemented. To help, we’ve included some questions to think about when it comes to your own business, as well as questions to consider asking potential subscription solution providers.

Questions to ask yourself:

• Do I plan to expand my market beyond a single region?

• What internal resources do I have to devote to the development and/or integrations of an outsourced provider?

• Am I selling multiple product or service types? (I.e. maintenance packages, backup CDs, etc.)

• Am I just looking to augment my existing ecommerce infrastructure, payment contracts, customer service and/or on-staff developers?

• What upcoming products or services could I test with an outsourced provider?

Questions to ask potential subscription solution providers:

• How much do you cost? What does that include/not include?

• How long will it take to implement your solution?

• Are you flexible enough to meet my current and future products or pricing models needs?

• Are you scalable enough to cope with my anticipated business growth?

• Do you comply with the regulations that are relevant with my business?

• How well do you integrate with my existing sales management and reporting systems?

• Can you support my indirect sales and channels strategy?

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Our capabilities go beyond traditional ecommerce needs with comprehensive functionality to manage dynamic customer lifecycles in a way that reduces churn and maximizes customer lifetime value. With cleverbridge’s subscription management capabilities – including recurring billing, real-time marketing, centralized customer data, advanced reporting and analytics, customer self-service and seamless integration – clients have a full set of tools for building customer relationships and driving more revenue.

To learn more about cleverbridge, please contact inquiry@cleverbridge.com or visit www.cleverbridge.com.