Note: We have a growing community of mobile marketers!

 The Mobile Growth Lab Slack: A community that was a part of our workshop series – The Mobile Growth Lab, is now open to the general public. Join over 200 mobile marketers to discuss challenges and share your expertise. More details are available here: https://mobileuseracquisitionshow.com/slack/

If you’re ready to join the growing community, fill this form: https://forms.gle/cRCYM4gT1tdXgg6u5

ABOUT ROBBIE: LinkedIn | Website | The Forever Transaction | The Membership Economy

ABOUT ROCKETSHIP HQ: Website | LinkedIn  | Twitter | YouTube

KEY HIGHLIGHTS

🧮 What it means to “optimize the product for forever”.

🍯 People in an organization will optimize for whatever metric you give them, so it’s important to pick the right ones.

🥢 What made Netflix’s adoption of the subscription model pioneering.

🍀 How Netflix teams reflected their priorities in their internal dashboards.

🍄 The story of how an acquisition team’s strategy hobbled the retention team’s work.

🥮 How critical it is to offer the right incentives to newly acquired users.

🐰 Why pricing is not the most important issue when building a membership model.

🏄🏿‍♂️ Addressing the risk of cannibalization.

🌵 Free trial or Freemium? When to pick what.

🌨 How large companies pivoted their products to subscription models successfully.

🍶 How Adobe approached the transition to subscription models.

KEY QUOTES

Optimizing your product for forever

Somebody in senior management shows up one day and says – “We need subscription revenue, so make our product a subscription.” And subscription is a pricing tactic. But you need the mindset that goes with it, the focus on treating your customer like a member and focusing on the long term. I use forever as a standard for focusing on the long term, it may not mean forever. If you have an app for parents of young children, forever might be three years. If it’s an app for college students, it might be four years. But it’s about optimizing for that longer term. 

The importance of finding the right metric early on

People are smart, whatever metric you give them, they are going to figure out how to move that metric. If the metric is retention, they’re gonna hide the cancel button. If the metric is sign ups they’re going to focus on signups. If it’s cost per acquisition, they’re going to focus on acquiring the cheapest customers. So it’s really important to do the heavy lifting of figuring out lifetime customer value against cost of acquisition as a metric to use as one of the several metrics on your dashboard. Because I can get a very cheap customer that’s not valuable and it’s a waste of my time. I can spend a fortune on a customer that pays me a fortune and it’s incredibly valuable.

How Netflix was different from other companies looking at subscriptions

What I noticed during my time there was, how data driven they were, which pieces of data they were looking at: they were looking at not just cost per acquisition, but also at lifetime customer value. So not just how much does it cost to get someone to sign up for the two week free trial, but how long do they stay? 

And then they were looking at patterns once somebody stayed – what did they do? How much did it cost to serve them? How did that change over time? As you can imagine, when they’re sending DVDs out, during your two week free trial, they’re getting no money in, but they’re physically shipping something, paying shipping costs, cost for the distribution centre, all those variable costs they were incurring. So they really had to understand what the payoff was going to be, because that was not a cheap acquisition.

How different teams can come together to support retention

I worked with this one company. They had me come in, they said, our retention team is terrible, we’re thinking of firing them. We’d like you to come in and help us fix it. And this was a streaming company, not Netflix. Their acquisition numbers were very good. The acquisition campaigns were working great. But people were canceling either after the show trial or after the first period. So that was retention’s fault. But when we looked at what the acquisition campaign was, which was a marketing decision, the campaign was – we have this one movie that everybody wants. So everybody signs up for the movie, you have a free trial, you watch a movie during your free trial, maybe you forget to cancel after the first period and then you cancel. Now, the retention team, the engagement team, they can do a lot of things to expose the customer to all the other benefits. Like Disney Plus – you came for Hamilton, but stay for the princesses, stay for National Geographic, they can surface other benefits to you. And that is a great technique. But if they’re attracting people who have no intention of staying, that is a very uphill climb 

Getting the right people to sign up is more valuable than getting more people to sign up.

Another example is – join a bank and get a free toaster. If you open an account, you get a free toaster. So you think, I need a toaster so I’ll come in, I’ll open an account, I’ll get my free toaster, I’ll put no money into my account and eventually close it. If they said instead join our bank and build your credit, join our bank and save money and accrue interest, fewer people will sign up. But the people that sign up are coming for the right reasons. And that is especially important if you’re counting on future revenue, not just first day revenue.

Testing out your new subscription plans

The first thing we look at and say, where can we test this so that we can see what actually happens in terms of who converts: new to us, light users, heavy users. So you do that in a very small market and you would be really clear about what is the worst case scenario of every single person in this market that is a valuable customer to us, which is what is the cost of this big mistake. So that’s the first thing that you want to do is understand those dynamics in a small way. And then once you learn from that you can adjust the offering, so you can raise the price. You can remove benefits and say these benefits or add ons later. You can do a lot of things with the offering and then you can test it again.

Finding your why behind subscription models

I think a lot of times when I ask a company, why are you doing this subscription? Is it for the acquisition of new people? Is it for deepening relationships with light users? Is it for rewarding and deepening the relationship with your best customers? They always say all of those. Those are three different use cases, three different products, three different scenarios. So you’ve got to pick one.

When is a freemium model preferred?

Freemium, on the other hand, is about building habits. The reasons that you use freemium are either you’re trying to change your behavior on an ongoing basis, you want to prove to somebody that they would have this habit. They don’t think they’ll use it very much and you want to show them that it will be a habit. Second thing is, there’s some kind of network effect, meaning that each new person that uses your product for free creates more value for the people who are paying for it, for the premium users. And so they’re part of the product.

How Adobe educated all stakeholders to make their model a successful one

They communicated it really clearly all the way along, they educated the public markets on what to expect and what metrics to look at. Don’t just look at the cost in the first month. But notice the recurring revenue, you have to understand it’s all about recurring revenue. It’s all about retention. 

A big part of this, too, was educating their investors. Today, I personally think investors still need some education on subscription, at least some investors do. But most of them actually, almost blindly prefer subscription models to transactional models. But I think back in the time that that Adobe was making this switch, subscription models weren’t the darlings they are today. I think the CFO and the finance team really did a great job at communicating – Why was Adobe doing this and what the long term value would be to the shareholders?

FULL TRANSCRIPT BELOW

Shamanth 

I’m excited to welcome Robby Kalman Baxter to the Mobile User Acquisition Show. Robbie, welcome to the show.

Robbie   

Thanks so much for having me.

Shamanth 

One of the reasons I’m thrilled to have this conversation is because me and a lot of folks listening, are familiar with subscriptions in the mobile app space. Subscriptions have been around for a very long time and long lasting consumer transactions have been around for a long time and I’m sure you will phrase that much more succinctly than I ever could. You’ve certainly distilled a lot of learnings, lessons and playbooks in everything you’ve spoken about and written. So for all of those reasons, I’m thrilled to have you on the show.

Robbie  

Thank you, I’m really delighted to talk to you. What’s happening in the world of mobile apps is fascinating and changing so rapidly, it’s a pleasure to talk to an expert and exchange ideas.

Shamanth 

One of the things I took away from your book was that to succeed with subscriptions is to, “optimize a product for forever”. Obviously, there have so many implications but what I took away is that subscriptions aren’t just about a monthly recurring price point. Could you elaborate on what you mean, by optimizing a product for forever? And, let’s say a product wasn’t optimized for forever, what are some of the things they could be doing?

Robbie  

I think there are a couple of tendencies that organizations have. One of them is,

Somebody in senior management shows up one day and says – “We need subscription revenue, so make our product a subscription.” And subscription is a pricing tactic. But you need the mindset that goes with it, the focus on treating your customer like a member and focusing on the long term. I use forever as a standard for focusing on the long term, it may not mean forever. If you have an app for parents of young children, forever might be three years. If it’s an app for college students, it might be four years. But it’s about optimizing for that longer term. 

What I think some products do is they’re so focused on the moment of acquisition and what I call acquisition benefits, new and improved, that kind of a thing that gets somebody to actually click sign up or register. But they don’t spend enough time on what happens after the moment of acquisition. How do you onboard a new member for engagement? How do you expand the relationship, ideally, over time, deepening the relationship, giving them more value so that they don’t cancel? 

What you need to do is to start by thinking about forever, saying, “What is the ongoing problem that your customer is trying to solve? Or the ongoing goal that your customer is trying to achieve? And what are all the ways that I can help them – I being the manufacturer, or the product designer or product manager, that I can do to help them achieve that ongoing goal on their journey?” And I think that, that distinction between what can I do to get them to buy my product in hopes that it will help them on their journey versus what can I actually do once they’ve bought it to continue to help them on that journey that really distinguishes the great subscription products from the so-so ones?

Shamanth 

That’s very much a mindset shift because you’re not focused as much on acquisition, or just getting them in the door. What you said also reminded me of a game I worked on, where we thought, “Oh, the game isn’t profitable, the acquisition isn’t profitable.” That’s what it looked like on the surface until we looked at the data and we realized a lot of the users are spending most of their money in the second year and the third year, after the install. That just wasn’t showing up in our dashboards. Now, this wasn’t a subscription product, but it ties into what you said about forever.

Robbie  

Absolutely. In fact, my first book is called the Membership Economy, not the subscription economy. The reason is, it’s about treating your customer like a member. So in the case of your game design, it may be that there are micro-transactions throughout. But the important thing is when they sign up, you’re thinking about their whole journey, and how you can optimize value for the long term – customer lifetime value is, as they call that metric. And it takes very different product design thinking.  I’m really glad you brought up your point because it also takes different metrics. 

People are smart, whatever metric you give them, they are going to figure out how to move that metric. If the metric is retention, they’re gonna hide the cancel button. If the metric is sign ups they’re going to focus on signups. If it’s cost per acquisition, they’re going to focus on acquiring the cheapest customers. So it’s really important to do the heavy lifting of figuring out lifetime customer value against cost of acquisition as a metric to use as one of the several metrics on your dashboard. Because I can get a very cheap customer that’s not valuable and it’s a waste of my time. I can spend a fortune on a customer that pays me a fortune and it’s incredibly valuable.

This just goes to show you if you’re moving to subscription, it’s going to impact everybody – the product team,  the data analytics team, and what metrics are being used by the leadership team. It’s also going to change how operations work, how support works, how you market, a lot of the marketing happens after the moment of transaction, not before. That’s a very different world for your marketing team as well.

Shamanth 

Certainly, that organization-wide dynamic could perhaps be a good segue into my next question, which is about one of your first engagements as a consultant at Netflix. You worked with them at a point when they had gone public, but they were still building out a national footprint and they were very much pioneers in what has since then come to be known as the subscription model in the digital space. So help us understand what the landscape was around subscriptions at the time. And if you can set the scene, tell us a little bit more about what made Netflix unique. Like you said, it takes an entire team, company wide cultural change. Is that something you saw within Netflix? How did you see the culture being unique or interesting?

Robbie   

I worked with Netflix before they were even able to serve the entire United States. Now obviously they are a global powerhouse. But at that time, it was still three DVDs out at a time and they were promising a turnaround in three days. So they could only serve markets where they had distribution centers, and the mail could work in a predictable way. This was quite some time ago and just to set the scene,there was no competition. What comparable companies were using subscriptions? Newspapers – not exactly like Netflix, not very digital, not a lot of data and very heavily dependent on advertising. 

The telephone companies paid a monthly fee to access our telcos. Again, a very different model, you didn’t really have a lot of choice. Then maybe like the HBOs of the world, which at the time were going through cable companies or third parties, they were not direct to consumer. So they had very different dynamics. HBO was much more judged on their big partnerships than they were on their relationships with individual consumers. So Netflix was really having to forge a new path.

What I noticed during my time there was, how data driven they were, which pieces of data they were looking at: they were looking at not just cost per acquisition, but also at lifetime customer value. So not just how much does it cost to get someone to sign up for the two week free trial, but how long do they stay? 

And then they were looking at patterns once somebody stayed – what did they do? How much did it cost to serve them? How did that change over time? As you can imagine, when they’re sending DVDs out, during your two week free trial, they’re getting no money in, but they’re physically shipping something, paying shipping costs, cost for the distribution centre, all those variable costs they were incurring. So they really had to understand what the payoff was going to be, because that was not a cheap acquisition.

Of course, the other thing that happens is the first time you get that kind of a subscription, you use it like crazy, you take two weeks off of work, and you’re like, I’m just gonna watch every movie that I’ve missed for the last 10 years and just keep flipping my three DVDs out at the time. So it’s actually those early users that were most likely heavier users. So you had to be confident that it was going to pay off over the long term. That’s what I really noticed was the balance of their dashboard, the clarity of their metrics, the understanding they had about their customer and how they behaved on day 1 and day 30 And day 90. 

It was a lot more complicated and integrated than I think I expected. And even today, I think a lot of people don’t fully understand the impact of one metric on another, one team on another. 

I’ll share a story –

I worked with this one company. They had me come in, they said, our retention team is terrible, we’re thinking of firing them. We’d like you to come in and help us fix it. And this was a streaming company, not Netflix. Their acquisition numbers were very good. The acquisition campaigns were working great. But people were canceling either after the show trial or after the first period. So that was retention’s fault. But when we looked at what the acquisition campaign was, which was a marketing decision, the campaign was – we have this one movie that everybody wants. So everybody signs up for the movie, you have a free trial, you watch a movie during your free trial, maybe you forget to cancel after the first period and then you cancel. Now, the retention team, the engagement team, they can do a lot of things to expose the customer to all the other benefits. Like Disney Plus – you came for Hamilton, but stay for the princesses, stay for National Geographic, they can surface other benefits to you. And that is a great technique. But if they’re attracting people who have no intention of staying, that is a very uphill climb.

Different parts of the organization really depend on each other. And that was something I saw in great effect at Netflix.

Shamanth  

That’s a crazy anecdote that you just shared. I’ve seen similar things where you acquire users that have basically been incentivized to install an app. And then the game design team wonders, why these people have not continued to engage and play just because they have been incentivized. And once they’ve got the incentive, they just have to go away. So I think the broader point is really not to look at these in isolation, retention and acquisition. They can both be focused on the long term value.

Robbie   

Exactly. And in the case of the game, you can attract them, by giving them an incentive, you can attract them by offering them one particular element of a game that might keep them for a very short duration. But if you are more choosy about who you attract, you might have fewer people that join, but they’re going to stay longer. And they’re also going to give you a much cleaner read on what’s working and not working. Because if you have all this noise of people who came in for promotions, or people who came in for other reasons.

Another example is – join a bank and get a free toaster. If you open an account, you get a free toaster. So you think, I need a toaster so I’ll come in, I’ll open an account, I’ll get my free toaster, I’ll put no money into my account and eventually close it. If they said instead join our bank and build your credit, join our bank and save money and accrue interest, fewer people will sign up. But the people that sign up are coming for the right reasons. And that is especially important if you’re counting on future revenue, not just first day revenue.

Shamanth  

Speaking of economics, you’ve written in your book – “people ask me more questions about pricing than just about any other topic. Although I don’t see pricing as the most important issue when building a membership model.”

 Can you elaborate on this and tell us why this is the case?

Robbie   

People are always asking me things like, “Hey, I hear 9,99 is the right price. 9,99 a month? Or should it be 9,97? Is seven a better number, psychologically speaking?” I’m thinking, that is so nuanced. Let’s just start with, do you have $10 worth of value? Do you have enough value upfront to get someone to sign up? Do you have the right message to get them to sign up? Once they sign up, are you onboarding them? Are you making their first seconds, minutes, days after they’ve signed up an opportunity for them to recognise value from you? So they say, “Hey, this is working, I’m getting something.” 

To expose them to all the other ways they can get even more value from you without paying more, like that Disney example, “Here’s Hamilton, we know that you’re here for Hamilton, we’re going to play Hamilton. But at the end of Hamilton, we’re going to show you all the other things that you can watch that you’re entitled to because you’ve got this for a month, you might as well enjoy it.” Onboarding becomes really important. And then engagement because if somebody stays for three months, who cares if you got 97, 98 or 99 cents? What we care about is you got that extra month of almost $10. And so it’s not that pricing isn’t important, but I think sometimes organizations focus too much on the nuances of pricing without really understanding. 

Shamanth  

Yeah. If they’re not gonna buy, it doesn’t matter what price you’re gonna set.

Robbie   

And if they’re not going to stay, it doesn’t matter either. If you haven’t invested in retention, and it sounds silly and I know people listening may think Robbie, that’s totally obvious. But many, many organizations spend so much time optimizing pricing before they have a good product that people want. Often a subscription product is taking the features and benefits that we already have put them together and putting it out there, and not thinking about how we redesign in light of subscription? Or how do we optimize not just for our customer today, but for them if we want them to stay for six months, do we have six months of value? Are we still relevant to a person three months in?

Shamanth  

Yes. And you talk about how companies want to switch over to subscription models because certainly it can come across as sexy and they see Netflix investor reports and say oh, we want one that. So one of the things that a number of companies would worry about will be cannibalization. Very specifically, transaction based products. There’s no ceiling to how much a user can spend. We’ve seen in games where users spend 1000s, sometimes 10s of 1000s of dollars the first week. Now, if these games were put in a subscription model that said, 9,99 a month, obviously, the game developer would say we just lost the $10,000 that we would have gotten. So cannibalization tends to be a concern, at least in my experience. How would you recommend thinking about this if someone is contemplating switching?

Robbie   

I think to make this change, it is scary. And you have to understand customer behavior and customer spending and how subscriptions are going to drive behavior changes. For example, let’s say that you have a game that costs $60. Let’s say you have a whole bunch of games, and they’re $60 each. And each game, let’s say, has additional in-game purchases that you can make. The question, the biggest risk on people’s minds is what if, here’s the worst case scenario, what if only our best customers moved to the subscription, and nobody else did. Because usually, the reason that companies add in subscription is they say, we’re going to maybe reach newer subscribers who aren’t quite ready to commit or don’t know our games or are lighter subscribers, that’s who we want to bring in. And we want to keep people between releases. We want to engage them, we want to expose them to other products, we have other games we have, we want them to prioritize our game. They’ve already paid so they’re going to be with us, they’re not going to go somewhere else. But the worry is what if the only people that signed up for the new subscription offer were the people that were paying the most. 

So let’s say that just to keep numbers easy, let’s say that your subscription is $100 a year, your games cost $60, a flat fee. And your average customer buys one game or less per year. But there is a group of people that buy two or more games per year. So the question is, what if the only people that move to the subscription are people who are paying at least $120 and they all go to 100. And zero new people sign up, zero people that buy one game a year sign up, what is the risk? So that’s

The first thing we look at and say, where can we test this so that we can see what actually happens in terms of who converts: new to us, light users, heavy users. So you do that in a very small market and you would be really clear about what is the worst case scenario of every single person in this market that is a valuable customer to us, which is what is the cost of this big mistake. So that’s the first thing that you want to do is understand those dynamics in a small way. And then once you learn from that you can adjust the offering, so you can raise the price. You can remove benefits and say these benefits or add ons later. You can do a lot of things with the offering and then you can test it again.

 When Electronic Arts was experimenting with subscription way back around 7 years ago, they started with their older games, not their newest games. The subscription was on old games only, not frontline games. And it was only games on the PC, which was a smaller segment. It wasn’t console games. Certainly risky, plenty of customers there. But if you mess up there, it’s not going to destroy your business. You can learn and see those different segments. What is the actual behavior? And what is the actual impact, which gives you a lot more confidence before you roll out your mass offering?

Shamanth

What you’re advising is really to treat it as almost a new product launch, take baby steps at first, then run. 

Robbie

I think the other thing is that when you have that situation where let’s say that you have a pay as you go kind of model or a buy it and own it model, and then you’re adding in your layering in a subscription model. The first question to ask is what is the subscription model doing for our larger ecosystem for our larger business model? Is it for awareness? Is it for protecting against competitors, sometimes the subscription is for the heaviest users. You continue to pay for everything but you get a little bit of a VIP status, you get things early, you get access to the developers, you get invitations to big conferences. That’s a different subscription than the subscription that I was describing before, which was for a light new, light customer. So knowing that, too, I think is really important.

I think a lot of times when I ask a company, why are you doing this subscription? Is it for the acquisition of new people? Is it for deepening relationships with light users? Is it for rewarding and deepening the relationship with your best customers? They always say all of those. It’s three different use cases, three different products, three different scenarios. So you’ve got to pick one. 

Shamanth  

Good point. Those three are very different directions. When I ask people, I think the common answer I get is, we’re doing this for more revenues. That’s so accurate, that we need to go deeper than that.

Robbie  

That’s right. That’s where you start. You say we need to earn more money. Hypothesis: subscriptions can help us earn more money. How would we use that tool? That’s like saying “Computers will help us be more efficient” Yeah, probably. But it depends how you’re going to use those computers. 

Shamanth  

Certainly. Just to go back to an earlier theme about pricing. So with pricing, obviously, that can take many forms. One is freemium, which is people get access to a bare bones version of the product, and then sort of give them the option to upgrade. Or have them get access to a free trial, which could last a few days. They can then upgrade to the pro version. What are some considerations you would recommend that folks keep in mind while deciding whether to offer freemium, free trial, some combination of those? How would you recommend this?

Robbie   

So usually, you’re incorporating free, whether it’s a free trial, or freemium or some other use of free, because you have some kind of problem and you’re trying to solve for it. So it’s useful, first of all, to look at what job each of these do. A free trial is a tiny taste of the best that you have to offer, because the customer doesn’t understand how good it is, or they don’t believe you, when you tell them it’s great. 

If I say, driving this car is like driving on a cloud, you’re gonna say, I’ve been driving my sedan that my parents gave me, it’s 20 years old, it’s fine. It’s very comfortable. Then you drive a Tesla, or you drive a Mercedes and you’re like, “Wow, this is like driving, this is a whole different thing. I want this”. I didn’t believe it was as good as they said, I didn’t believe I’d notice the difference. But in fact, I do. 

Or I don’t understand. When Uber came out with the ride sharing services, a lot of people just couldn’t get their heads around it. Some person was going to pick you up in their own car, via an app, and you didn’t know them. And so they said, try it, we’ll give you a free ride, and you get the experience. And once you know, then you can decide if it’s for you. For a free trial, you have to be very confident that if they try it, they will understand and they will love it. 

Freemium, on the other hand, is about building habits. The reasons that you use freemium are either you’re trying to change your behavior on an ongoing basis, you want to prove to somebody that they would have this habit. They don’t think they’ll use it very much and you want to show them that it will be a habit. Second thing is, there’s some kind of network effect, meaning that each new person that uses your product for free creates more value for the people who are paying for it, for the premium users. And so they’re part of the product.

LinkedIn has this. If the recruiters and the salespeople and the job seekers went to LinkedIn, and the only people that were there were recruiters, job seekers, and salespeople, it wouldn’t be valuable, they need us, right? They need us there so that they can have someone to recruit or sell to. 

Third reason that you would have freemium is if there is a viral component. That is, I might be getting it for free and I invite you. There’s a game, I play the free version, I encourage you to play the free version. You love the free version, so much that you upgrade to the paid version. I become the marketing channel. It’s worth it to give me some free features, because I can go get big fish like you. And so those are the reasons to use free trial and freemium. You can look at it and say, is it freemium because the people that are getting it for free are part of the product? Is it freemium because I’m trying to change a massive behavior that really only changes and proves itself over time? Is it viral? If not, and so many products are none of those things. And they have a freemium, or they have a free trial.

I had a client that had a free trial. I don’t want to say it was insurance, but it was a product that you wouldn’t use every day. The free trial was for two months, but the vast majority of people wouldn’t use it for six months. So I was like, why are you even bothering? And they say because there’s some friction, they don’t believe it’s going to be useful. You can see that freemium might be better. I love free trials, and I love freemium. I think they’re very powerful tools. I think it’s worth it for every company to take a really hard look at whether they can reduce friction, or increase engagement or increase value to their paying customers. By incorporating an element of free, everybody should think about that. It’s worth a half day exercise with your team. But not every company is going to find that it makes sense.

Shamanth  

Certainly. And the recurring theme is to ask clearly why consider freemium/ free trial or even subscriptions, as we talked about earlier. Once we have clarity on why we are trying to do this, the path shows up.

Robbie  

Even today, I hear people saying things like, every SAAS company should have a freemium offering, every game should have a freemium offering, every game should have a free trial. The funny and hard thing about gamers is, they’re gamers, they’re gonna game the system. So if you offer stuff for free, they’re going to take great pleasure and enjoyment out of figuring out how to get the value, even if they’re not going to do the behavior that you hoped for. So the bar for getting value from free is even higher, I believe, in the world of gaming than it would be in B2B software, or even streaming content for consumers.

Shamanth  

We’ve talked about some of the strategies for subscription products that are very successful, very large companies that have had a portfolio of multiple products that have successfully switched to subscription based models. Companies that come to mind would be Adobe and Microsoft. Somebody I know that’s very plugged into space, basically, has credited the subscription model to the ascent of Adobe’s share price. And again, based on my somewhat limited understanding that sounds about right, but I’m curious, based on your experience, what are some of the critical things these very large organizations did to pivot a multi product portfolio to subscription based models?

Robbie   

I featured Adobe in my first book, The Membership Economy, which I wrote eight years ago, because it was one of the first stories of a traditionally priced business moving into subscription. Netflix, of course, was a subscription native, they’ve never had another pricing model. What did they do? The first thing they did is they were really clear on why they were doing subscriptions and who they were doing it for. So in their case, they were looking to serve professional designers, who probably had their software being paid for by their company where the cost of the software was very small relative to the cost of the designer and or the value that the company was counting on. So in other words, the cost of the software was negligible. 

So who did this leave out? All the moonlighters and the hobbyists, those are the people that actually we’re going to end up with a worse deal rather than a better deal. They were going to have to pay more for features that they didn’t care about as much. They were perfectly happy using a really old piece of software to create their projects, their wedding invitations, their menus, whatever kind of moonlighting projects they were doing. Suddenly they were being forced to get this product that had tons of features, was constantly being updated and allowed for much better collaboration with peers. 

If you work in an agency, or you work in the marketing department of a big company, those were really valuable features and by the way, you weren’t paying for it anyway. So they were very clear on who they were serving, very clear on who is going to be angry, tested it a lot to understand who would switch and not only who would switch but once they switched, would they love it? Because again, as we’ve been talking about this whole time, it’s not just about getting someone to sign up, it’s about whether they feel like your ongoing offering solves their ongoing problem better than alternatives, or helps them achieve an ongoing goal better than alternatives. So they tested that in small markets, it was a small country. So they knew what was going to happen. They were able to optimize based on that experience before they went global. And

They communicated it really clearly all the way along, they educated the public markets on what to expect and what metrics to look at. Don’t just look at the cost in the first month. But notice the recurring revenue, you have to understand it’s all about recurring revenue. It’s all about retention. 

A big part of this, too, was educating their investors. Today, I personally think investors still need some education on subscription, at least some investors do. But most of them actually, almost blindly prefer subscription models to transactional models. But I think back in the time that that Adobe was making this switch, subscription models weren’t the darlings they are today. I think the CFO and the finance team really did a great job at communicating – Why was Adobe doing this and what the long term value would be to the shareholders?

Shamanth  

Yeah, and like you pointed out, a lot of this can look somewhat obvious now. But certainly in hindsight, a lot of this was breaking new ground.

Robbie, I think we’ve covered a lot today. This was such a refreshing look at everything in the subscription space from a very first principles perspective. So, thank you for sharing with us. This is perhaps a good place for us to start to wrap. But before we do that, could you tell folks how they could find out more about you and everything you do?

Robbie 

Sure, you can find me on robbiekellmanbaxter.com or on either of my books amembershipeconomy.com or forevertransaction.com. I also have a podcast Subscription Stories: True tales from the trenches. Any of those places are easy to find me. For your audience, if you go to robbiekellmanbaxter.com/audience I have some goodies like a Membership Manifesto, a chapter from my new book, The Forever Transaction and some process visuals. So be sure to check that out as well.

Shamanth  

Excellent. We will link to all of that and to both your books in the show notes. Thank you so much for being on the show, Robbie.

Robbie  

Thanks for having me.

A REQUEST BEFORE YOU GO

I have a very important favor to ask, which as those of you who know me know I don’t do often. If you get any pleasure or inspiration from this episode, could you PLEASE leave a review on your favorite podcasting platform – be it iTunes, Overcast, Spotify, Google Podcasts or wherever you get your podcast fix. This podcast is very much a labor of love – and each episode takes many many hours to put together. When you write a review, it will not only be a great deal of encouragement to us, but it will also support getting the word out about the Mobile User Acquisition Show.

Constructive criticism and suggestions for improvement are welcome, whether on podcasting platforms – or by email to shamanth at rocketshiphq.com. We read all reviews & I want to make this podcast better.

Thank you – and I look forward to seeing you with the next episode!