Subscription Models Flashcards
Businesses that employ subscription models are all around us. Nevertheless, this is a relatively new development as we have been living in a product economy for the past 120 years. Which of the following statements regarding the reasons for this change are true/false?
Newer companies like Amazon, Google, Facebook, and Netflix quickly rose to the top because they had much more efficient digital transformation strategies than older companies such as IBM.
Companies realized that they could greatly benefit from reduced production costs by paying less attention to the user experience because of the higher profit margin.
Companies started to establish direct ongoing relationships with their customers.
The emergence of enterprise resource planning (ERP) systems increased the already existing obsession with operational efficiency while lacking to measure user experience.
Newer companies like Amazon, Google, Facebook, and Netflix quickly rose to the top because they had much more efficient digital transformation strategies than older companies such as IBM. FALSE
- They already started as non-product companies and did not require any transformation.
Companies realized that they could greatly benefit from reduced production costs by paying less attention to the user experience because of the higher profit margin. FALSE
- While this could theoretically be the case in special cases, it is not true regarding the big change that has happened. It’s actually quite the opposite; the increased awareness for great user experiences lead to this change.
Companies started to establish direct ongoing relationships with their customers. TRUE
The emergence of enterprise resource planning (ERP) systems increased the already existing obsession with operational efficiency while lacking to measure user experience. TRUE
Digitalization and the increasing awareness for user experience resulted in a lot of changes for the retail landscape. Which of the following statements are true/false regarding these changes?
Physical stores are used as an extension to the online experience, not the other way around.
Companies sell services that accompany their premium product.
In this new era, physical stores become more and more irrelevant and will ultimately perish.
Achieving a great subscription experience has the highest priority. This includes giving the subscribers an easy option to cancel the subscription.
Physical stores are used as an extension to the online experience, not the other way around. TRUE
Companies sell services that accompany their premium product. TRUE
In this new era, physical stores become more and more irrelevant and will ultimately perish. FALSE
- They can still be very important, but their role has shifted. Physical stores are complementing the digital experience and not the other way around.
Achieving a great subscription experience has the highest priority. This includes giving the subscribers an easy option to cancel the subscription. TRUE
The Internet of Things (IoT) plays a vital role in the rise of subscription models in various industries. Which of the following statements are true/false regarding the role and characteristics of IoT?
Leveraging IoT can be especially useful when a company sells physical products that need to be serviced or degrade.
In general, the principal purpose of IoT is to monitor the status of devices and sell additional services for maintaining these devices.
A term that has strong ties to IoT is “Digital Twins.” It describes the ability of companies to create a digital reflection of users through user profiles by analyzing how they interact with smart devices.
For IoT to work properly in an industrial context, the sensor-equipped products require an active internet connection.
Leveraging IoT can be especially useful when a company sells physical products that need to be serviced or degrade. TRUE
In general, the principal purpose of IoT is to monitor the status of devices and sell additional services for maintaining these devices. FALSE
- While this can be a relevant purpose in some settings, it is too specific. IoT can have a variety of such purposes. In general, its principal purpose is to generate new data streams that ultimately help to improve customer experience and enable new business models.
A term that has strong ties to IoT is “Digital Twins.” It describes the ability of companies to create a digital reflection of users through user profiles by analyzing how they interact with smart devices. FALSE
- Digital twins refer to a digital representation of physical assets. They represent how those assets are designed, how they were built, and how they are operating in real-time.
For IoT to work properly in an industrial context, the sensor-equipped products require an active internet connection. TRUE
Google’s mail service Gmail was marked as in Beta for 5 years. When they removed the Beta label, they stated that this does not change anything except the logo. This continuous development mentality involving the users can be regarded as “agile” product development. The iterative nature of agile development and its inherent continuous innovation is also highly relevant for the development and improvement of subscription services. Which of the following values is not one of the four original values described in the Manifesto for Agile Software Development?
customer collaboration over contract negotiation
individuals and interactions over processes and tools
working software over comprehensive documentation
following a plan over uncontrolled experiments
following a plan over uncontrolled experiments
correct would be “responding to change over following a plan”
In his book “Subscribed,” Tien Tzuo describes the annual recurring revenue (ARR) to be an important KPI to monitor subscription businesses. Consider the following example: In the last year company XY measured an ARR of 50 million USD. During this time, they exhibited 5 million USD in churn. Their recurring expenses account for 30 million USD, and the rest is put into marketing and sales. During the last year, they won 10 million USD of additional annual contract value (ACV) when compared to the year previous to last year. What is the predicted ARR for the next year?
Do calculation!
55 million USD
To arrive at next year’s predicted ARR, start with the current ARR, subtract any churn, and then add the new ACV won during the year. Concretely:
- Last year’s ARR: 50 million USD
- Churn (lost ARR): −5 million USD
Net new ARR from additional ACV: +10 million USD
In the lecture, you learned that in a subscription business, you should only invest your profits into marketing and sales to scale up your business. Which of the following statements describes the reason for this BEST?
If you invest in growth too early, you may lack the money to improve your service, which would allow you to retain more subscribers.
If you are not able to generate profits, you don’t know whether people are willing to pay for your service, and you may just scale up your losses.
If you force growth through aggressive marketing and sales before yielding profits, you risk to drive up your churn rate and make your growth expenditures in vain.
If you drive growth by investing your profits, you reduce the risk of having to cut back your recurring expenses.
If you are not able to generate profits, you don’t know whether people are willing to pay for your service, and you may just scale up your losses.
