Joe: Here’s a wild statistic for you. McKinsey found that if a software company grows less than twenty percent a year, it has a ninety-two percent chance of failing. Lewis: Whoa, hold on. Ninety-two percent? That’s not just a high risk, that’s a near-certainty. That’s brutal. Joe: It’s a death sentence. And it points to a massive shift in how business works. The old model of just selling more and more units of a product is broken. The antidote, according to our book today, is a word we see everywhere but maybe don't fully understand: subscription. Lewis: Right, the word is everywhere. I feel like I subscribe to everything from coffee to socks these days. Joe: Exactly. And we're diving deep into the bible of this movement. It's called Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It by Tien Tzuo. Lewis: Tien Tzuo. The name sounds familiar. Joe: It should. He’s basically the godfather of this whole thing. He was employee number eleven at Salesforce, a company that pioneered this model. Then he went on to found Zuora, a billion-dollar company that runs the subscription backend for countless businesses. He literally coined the term "Subscription Economy." The book was even shortlisted for the CMI Management Book of the Year award, so it's got serious credentials. Lewis: Okay, so he's not just an observer; he built the engine. That changes things. So what exactly is this ‘Subscription Economy’ he’s talking about? It feels like it has to be about more than just my Netflix account. Joe: It is. It’s about a fundamental change in our relationship with… well, with everything. It’s the end of ownership as we know it.

Lewis: The end of ownership. That’s a big claim. It sounds a little dramatic. I still own my car, my house, my coffee mug. Joe: For now! But the core idea Tzuo presents is that customers are no longer buying products; they're buying outcomes. We don't want a DVD; we want entertainment. We don't want a CD; we want music. The physical object is just a clunky delivery mechanism for the service we actually desire. Lewis: That makes sense for digital stuff like music and movies. But what about physical goods? Joe: This is where it gets really interesting. Let’s talk about guitars. Fender, the iconic guitar company, had a huge problem. They discovered that ninety percent of first-time guitar players quit within the first year. Lewis: Wow, ninety percent. That’s a massive churn rate for would-be rock stars. Joe: A huge churn rate. So Fender realized their business wasn't just about selling a beautiful Stratocaster. If the customer gives up, they never buy another guitar, they never buy amps, they never buy strings. The relationship is over. So, what did they do? They launched Fender Play. Lewis: What’s that? Joe: It's a subscription service. For a monthly fee, you get online video lessons, tutorials, a whole support system designed to get you through that frustrating first year. They shifted their goal from "selling you a guitar" to "turning you into a musician." They're selling the outcome, the dream of playing, not just the wooden object. Lewis: That’s brilliant. They’re creating their own future customers by keeping them in the ecosystem. They’re not just a manufacturer anymore; they’re a service provider. Joe: Precisely. And if you think that's cool, let's go from guitars to something much, much bigger. Let's talk about Caterpillar. You know, the company that makes those giant yellow construction vehicles. Lewis: Yeah, the ones that are the size of a small house. How on earth do you turn a bulldozer into a subscription? Joe: You stop selling bulldozers. Instead, you sell "dirt removal as a service." Lewis: Come on. You're kidding me. Joe: I'm completely serious. Using IoT—the Internet of Things—they put sensors on all their equipment. They can track fuel usage, efficiency, location, everything. So a massive construction company can go to Caterpillar and say, "We need to move this much earth from point A to point B." Caterpillar uses its data to figure out the most efficient way to do it and charges for the outcome. The construction company doesn't have to worry about buying, maintaining, or even operating the equipment. They just pay to have the dirt moved. Lewis: My mind is officially blown. So the construction company doesn't even own the bulldozer? They're just subscribing to a result. That completely reframes what a company like Caterpillar even is. Joe: It reframes everything. And as you said, it explains our own behavior. We don't own music collections; we subscribe to Spotify. We don't own movie libraries; we subscribe to streaming services. We are all living in the Subscription Economy, whether we realize it or not. We're paying for the ongoing value, the outcome. Lewis: Okay, this sounds amazing for the customer and, in the long run, great for the company. It creates predictable revenue and a loyal customer base. But it can't be that easy. What happens when a giant, old-school company, one that’s been selling boxes for a hundred years, tries to make this switch? I imagine it’s absolute chaos. Joe: Chaos is an understatement. Tzuo has a name for it. He calls it the "WTF Moment."

Lewis: The WTF Moment. I love that. It sounds painfully accurate. Joe: It is. Because this isn't just a pricing change; it's a cultural earthquake that rocks every single department. Tzuo illustrates this with a brilliant thought experiment in the book. Imagine a successful video game company that makes a game called "Starship Blasters." Lewis: I'm with you. Starship Blasters 1, 2, 3... the classic model. Joe: Right. They release a new version every two years. It's a huge launch, a big marketing blitz, and then they count the sales. But the sequels are getting more expensive to make and are selling less. So a smart product manager says, "Let's stop selling boxes. Let's make Starship Blasters a subscription service. Five bucks a month for continuous updates and new content." Lewis: Sounds like a great idea. The board loves it. Joe: The board loves it. They send out a company-wide email announcing the new direction. And then… the WTF moment hits. The marketing team is furious. Their entire job was built around the big, splashy launch event. Now what do they do? The engineering team is having a meltdown. Their two-year development cycle is gone. They have to release updates constantly. The IT department is livid because the multi-million dollar ERP system they just installed is built to track units sold, not monthly subscribers. It's instantly obsolete. Lewis: And the finance team... oh, the finance team. Their beautiful, predictable quarterly revenue from box sales is about to fall off a cliff. Wall Street is going to crucify them. Joe: Exactly. The revenue tanks. This is what Tzuo calls "swallowing the fish." If you graph it, the old revenue model is a straight line. When you switch, your revenue line dips way down as you build up subscribers, while your costs stay high. Then, eventually, the recurring revenue line crosses back over and soars upward. That dip in the middle looks like the body of a fish. And you, the company, have to have the courage to swallow it. Lewis: That's a fantastic visual. And it's not just a thought experiment, is it? This happened in real life. Joe: It happened in the most dramatic way possible with Adobe. For years, Adobe made a fortune selling its Creative Suite—Photoshop, Illustrator, etc.—in a box for thousands of dollars. It was their cash cow. Lewis: I remember that. You’d save up to buy the box, and that was your software for the next five years. Joe: And in 2013, they killed it. They announced they would no longer sell the box. The only way to get their software was through a monthly subscription to the Creative Cloud. People were outraged. Professionals who relied on their software felt betrayed. Their stock took a hit. They had to swallow a very, very big fish. Lewis: I can imagine the internal meetings. It must have been their own "Starship Blasters" moment, but with real jobs and billions of dollars on the line. Joe: Absolutely. But they held their nerve. And what happened? Today, Adobe's revenue is higher than ever, their growth is predictable, and their stock price has skyrocketed. They have a direct relationship with millions of subscribers, getting constant feedback and data to improve their products. They proved the model works, but it takes incredible guts. Lewis: Okay, but this is where some people get skeptical, right? The book is fantastic at laying out the vision, but the author, Tien Tzuo, his company Zuora sells the very software that helps companies manage subscriptions and 'swallow the fish.' Some reviews I've seen suggest the book is just a brilliant, book-length sales pitch. Is there truth to that? Joe: It's a completely fair point, and one he doesn't really hide. The book is, in part, a manifesto for the world he is helping to build and sell. But I think that's what gives it its power. He's not an academic theorizing from an ivory tower. He's in the trenches, building the tools and watching hundreds of companies go through this painful transition. The case studies, like Adobe, Fender, and Caterpillar, are real. He's selling a solution to a problem he convincingly argues is real and unavoidable. Lewis: That’s a good way to look at it. He has skin in the game. So, for a company that has the courage to swallow the fish and survive the WTF moment, what’s next? They can't just go back to their old ways of thinking. Joe: Exactly. Once you get past that moment, you can't just go back to business as usual. You need a whole new playbook. The old rules of business don't just fail to help; they actively hurt you.

Lewis: A new playbook. What does that look like? If the old rules are out, what are the new ones? Joe: It starts with how you measure success. The old world was obsessed with unit sales and profit margins. In the Subscription Economy, those metrics can be misleading. The new king is ARR—Annual Recurring Revenue. It’s the predictable revenue you can count on from your subscribers every year. Lewis: Right, because a company with a hundred million in ARR is in a much stronger position than a company that hopes to sell a hundred million worth of products next year. One is a reliable stream; the other is a gamble. Joe: A perfect way to put it. And it leads to new ways of thinking about growth. For example, Tzuo introduces a metric called the GEI, or Growth Efficiency Index. It basically asks: for every dollar you spend on sales and marketing, how many new dollars of recurring revenue are you generating? Lewis: Huh. So it's not just about spending money to make a sale. It's about spending money to build a long-term, profitable relationship. Joe: You got it. And this changes the role of every department. Take marketing. The old model was the big launch campaign, the Super Bowl ad, the big firework display. Lewis: It’s like a movie premiere. All the energy is focused on the opening weekend box office. Joe: A great analogy. But in the subscription world, the "premiere" is just the beginning. The real work is keeping the audience engaged for season after season. So marketing becomes less of a firework display and more like… Lewis: Tending a garden? You have to water it constantly, prune it, give it attention every single day. Joe: That's it! It's about continuous engagement, not a one-time blast. And sales is no longer about closing a deal and moving on. The first sale is the start of the relationship, not the end. The real growth comes from what the book calls the eight new growth strategies, which are all about deepening that relationship: upselling customers to better plans, cross-selling them new services, and above all, reducing churn. Lewis: Churn. That’s the big scary monster in the subscription world, isn't it? The customers who cancel. Joe: It's the silent killer. A high churn rate is like trying to fill a leaky bucket. You can pour new customers in the top, but they're just flowing out the bottom. The most successful subscription companies are obsessed with customer success. They know that their own success is directly tied to the happiness and success of their customers. Lewis: That feels like the biggest philosophical shift of all. It’s moving from a transactional relationship to a symbiotic one. If the customer wins, the company wins. Joe: That's the entire thesis of the book. It's a fundamental alignment of interests.

Lewis: So when you pull it all together, from Fender to Caterpillar to Adobe, what's the single biggest takeaway from Subscribed? Joe: Ultimately, the book argues this isn't a business model trend; it's a relationship revolution. For the last century, businesses were built like assembly lines, pushing products out to anonymous customers. The power was with the seller. Now, thanks to digital technology, the power has shifted entirely to the buyer. We, the customers, have endless choice. Lewis: And we're choosing services and experiences over static objects. Joe: We are. And the only way for a company to win in this new world is to align its entire organization—from engineering to finance to marketing—with the ongoing success and happiness of its customer. Your customer's success is your business model. It's no longer about what you sell; it's about the relationship you build. Lewis: That's a powerful idea. It makes you look at your own wallet and your own subscriptions differently. What are you subscribed to, and are you paying for a product, or are you paying for an outcome? And for the businesses you run or work for, what outcome could you be selling that you aren't right now? Joe: A perfect question to end on. It challenges you to see the world through a new lens. Lewis: This is Aibrary, signing off.