In an era of rising customer expectations, the notion of frictionless commerce is gaining currency. In our personal lives, customised offers and one-click checkouts are the norm. Amongst the digital native millennial generation, there is no patience for anything but a seamless purchasing experience. This expectation now extends to the world of B2B commerce.
Rising to meet this challenge is not easy. Companies have weighed down legacy processes and systems while competitive and shareholder pressures compound the challenge, forcing organisations to improve their game, simultaneously limiting their ability to invest. With this as a backdrop, three trends are dominant in subscription commerce today: the need for speed and business agility, prioritisation of investment in agile monetisation tools, and enterprises embracing the journey and reaping the rewards of an agile monetisation platform.
In an era of uncertainty, never before has the need for business agility been so pronounced. Global brands that once dominated their category have been swept aside by ascendant subscription-businesses. From razor blades and movies to IT hardware and software, customers have switched from buying a product to subscribing to a solution. Digital native companies are disrupting highly profitable markets, eroding margins and rapidly making impressive market share gains.
Whether it is a digital native or a 100-year-old business, organisations in all industries and sizes are striving to move faster – to launch products faster, to introduce new offers, and to respond to customer needs in days or weeks rather than months or years. Businesses that once sold via a distribution channel are now looking to build a direct relationship with the end consumer. This changes the requirements for systems of engagement, as well as for operations and finance systems like billing.
Understanding customer preferences and profiles is vital to creating customised offers that are presented quickly and that can be delivered at scale. Ecommerce teams and systems can no longer be an island – they need to be integrated into the entire enterprise business platform.
Customers want to know the availability of products and inventory, they want to have the agency to place their own orders, to see consumption trends, to increase or decrease a subscription, and to provision their services themselves. In addition, they want it now, right now, not when the business opens, at 9am in your time zone, and definitely not tomorrow or next week. Everyone wants to move faster – it’s not just the customer that wants faster response times. Boards of directors and investors are pointing to hyper-growth unicorn startups and pushing executives for greater speed and growth. The need for speed is pushing legacy systems beyond the breaking point.
Over the past five years, the weaknesses of traditional systems have been exposed. Most ERP systems cannot handle subscription or usage billing without expensive and time-consuming customisations. Most commerce systems that are more than ten years old cannot handle today’s requirements.
The good news is that modern, cloud-based solutions that address all areas of monetisation – from quoting systems, to commerce sites, subscription billing engines, payments providers, and more – are available, and these systems provide best-of-breed functionality in specific domains.
Today, organisations are re-thinking their business and IT priorities, as the demand for greater business agility combined with the ever-increasing strength of the new tools makes it possible to modernise even the most calcified business platform. The concept of an agile monetisation platform – AMP, for short – is gaining acceptance as legacy systems are replaced and core processes are re-imagined and streamlined.
Monetisation, defined as how demand is created and translated into revenues, profits, and business differentiation, is becoming the focus of many digital transformation and customer experience (CX) projects. To be digital, by definition, a process should not include human intervention. The millennial consumer – and in fact all consumers – now demands a seamless experience. Many of the areas of analogue friction can be found in traditional CRM and ERP systems and back-office operations. An agile monetisation platform gives organisations the speed and operational scalability required.
Processes that were once reliant on manual touchpoints or used spreadsheets to manage edge cases are being re-calibrated to eliminate bottlenecks. Instead of sales managers manually approving custom offers, customers themselves are able to configure complex orders, select the pricing model that fits their needs (subscription, usage-based, tiered, etc), and push the ‘buy now’ button. Product managers are able to introduce new services, with different price points and options based on customer profiles, and then ramp them up if they are successful or quickly shut them down if not. Unable to handle the growing complexity of enterprise contract arrangements, many companies allow revenue to go unbilled or uncollected.
MGI Research estimates that the average revenue leakage in a company is 3–5%. Finance directors hunting for a positive earnings surprise are able to justify the investment in a new billing solution based on this data point alone. Modern payments solutions allow customers and business partners to be paid faster, in the currency of their choice, and provide the enterprise CFO with greater speed, transparency, and lower fees. These are just a few of the many benefits that are being realised by adopters of AMP.
The market is whole-heartedly embracing these new tools. The average subscription billing vendor is growing 30–50%+ annually, an indicator of underlying demand. Compared to other categories of enterprise applications, vendors in the AMP segments tend to have above industry average growth rates overall. Clearly, subscription commerce and agile monetisation are becoming investment priorities.
The third major trend in subscription commerce in particular, and business in general, is the growing embrace of AMP as a business journey. Order management, billing, ecommerce, and payments, these critical elements of monetisation are also at the heart of a business. Anything touching revenues, profits, and customer relationships is the life-blood of an enterprise. A disruption or stoppage can put the entire business at risk. At the same time, the cumbersome, expensive, and tightly-coupled legacy systems that we are eager to replace have been in place, delivering revenues, profits, and passing audits for years. These often convoluted and highly customised systems have taken years, even decades, to put in place. It would be unwise, and unnecessary, to rip and replace these systems overnight. Progressive organisations recognise that the move to AMP is in itself a process, which often begins with the need for a cloud-based, agile solution in a single domain – eg a new quoting tool, an agile billing engine, or a fresh payments infrastructure. The benefits these individual systems deliver often exceed expectations.
The interconnected nature of the quote to cash process highlights the organisational need to address monetisation holistically. For example, a new subscription billing system pushes the business to consider who (if anyone) owns pricing, and where the master price book should reside within the enterprise architecture.
Should customer accounts mastering objects be part of CRM, billing, or legacy ERP? These questions, and the vital complexity they expose, tend to open eyes and focus management attention on solving the broader monetisation challenges. It is in these moments of financial and operational introspection that many organisations hear the call and begin their monetisation journey.
Business today faces myriad challenges – rising customer demands, a growing number of activist shareholders pushing management for faster growth and increased profitability, and a legacy base of IT systems and business processes that are slow to change and rife with friction.
Progressive executives are addressing these challenges and beginning to deliver break-through experiences by looking to the concept of an agile monetisation platform. For these leaders, digital transformation and the adoption of new business models are only possible when the underlying monetisation capabilities of the enterprise are brought into the cloud-first agile era of the 21st century. Not only does it require across-the-board investments, but it also necessitates sustained organisational commitment to embark on a transformational journey.
Agile Monetisation Platform – AMP
This editorial was published in our Payments and Commerce Market Guide 2018-2019, and in Monetisation of Digital Business Models 2019 – Insights into Billing and Recurring Payments Report.
About Andrew Dailey
Andrew Dailey is a Managing Director of MGI Research, an independent research and advisory company focused on disruptive business and technology trends. Mr Dailey leads the agile monetisation and quote to cash coverage for MGI. He has over 25 years of diversified technology and financial services experience as a software executive, industry analyst (Gartner), and advisor to Fortune 500 companies. He is a co-founder of Gartner’s Software Asset Management service, and served on the team that coined the term ERP in the early 1990s.
About MGI Research
MGI Research is an independent research and advisory firm focused on disruptive business and technology trends. It serves business and finance executives, tech CEOs, and institutional investors.
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