In another life as a graphic designer, Adobe Photoshop was a staple of my toolbox. Every new release of the software meant a new box of install disks. If memory serves me right it took eight floppy disks to install version 3.0.
How things have changed.
In 2013, long-time users of the popular Adobe Creative Suite were flabbergasted to discover they’d no longer be able to purchase their software directly. Instead, they’d have to purchase what they needed on a subscription basis through the cloud.
While not well received by some users, the move started to gain popularity even faster than Adobe anticipated. The initial plan was to phase out physical copies, but this proved to be problematic.
"We expected it to be a couple years before this happened,” said Scott Morris, Senior Marketing Director for Creative Cloud when he discussed the plan to discontinue the perpetual-license sales. “But we were surprised by how successful Creative Cloud has been. We know that's going to be a difficult transition for some customers, but we think it's going to be the best move in the long haul."
Why did the business decide to do this? One reason is it creates a steady stream of recurring revenue.
The gamble to disrupt the Adobe platform has certainly paid off. In its second quarter of 2019, Adobe posted $7.47 billion in annualized recurring revenue. It’s an amazing number when you consider the business had just $200 million in recurring revenue at the time it transitioned to the subscription service.
Adobe’s annual conference, Imagine 2019, brought together more than 3,000 e-commerce experts from over 50 companies for Magento—Adobe’s e-commerce platform. At the conference, senior vice president of Adobe’s digital media (DMe) go-to-market & sales, Rob Giglio, highlighted five lessons the business learned along the way as it transitioned to the subscription business model.
After watching his company's impressive recurring revenue growth over such a short period of time, you can imagine he had a lot of things to say.
Lesson 1: You can’t get close enough to your customer
In the process of Adobe acquiring Omniture and Day Software, Giglio said the importance of the customer really came to light.
“I think culturally, you started to understand the importance of dot-com relationship, the digital direct relationship with their customers,” he said. “And as soon as that happened, the lights went on for us, and we started to see the potential of having a better direct relationship with customers.”
Eric Cox is the vice president, digital media GTM strategy and operations at Adobe and wrote the article, "How Adobe Drives Its Own Transformation".
In a world where the experience is now just as important as the product…organizations have to embrace data as a means to drive key decisions that impact the customer,” he wrote.
Continually looking at ways to improve your customer experience (CX), is essential. In fact, the Tempkin Group suggested businesses that earn $1 billion dollars and invest in their CX can generate an average of $700 million in additional revenue. Software as a service (SaaS) businesses can anticipate revenue increases by $1 billion, Tempkin Group went on to say.
It’s impossible to improve the CX without first establishing a baseline. As Cox explained:
“From individual contributors to the C-suite, any decision that impacted the overall customer experience had to be made with insights and not purely intuition or educated guesswork.”
Lesson 2: You can’t have enough data
Intelligent insights are driven by data.
“We do this thing called the data-driven operating model,” Giglio said. “The premise of that is that we're using data to manage our business in real time.”
Known as “DDOM” internally, Cox explained, “This model fundamentally shifted how we operated by creating a common language around data. The important first step was building a single source of truth that every team could rally around.”
That single source of truth—also known as the SSOT—is an essential component for any business because data needs to be consistent, accurate, and accessible to any department in your business. That way, a business can efficiently complete tasks and projects while also being able to make critical business decisions.
Netflix, for example, is largely driven by the data it generates. The company collects data on preferences and buying patterns of its millions of subscribers. From there, it uses that information to drive personalized viewer suggestions. About three quarters of all viewer activity is based on these suggestions, according to Netflix.
As the company’s success proves, that data needs to be used to keep propelling a business forward.
Lesson 3: You can’t stand still. In a subscription world, every day is launch day
“Just because you've sold something to an old customer, doesn't mean that you're done in an engagement model with them, with your product,” Giglio explained.
With the information Adobe gathered from its data, one thing the business discovered was mobile usage for customers was critical.
“For some time, a great deal of resources (and mindshare) had been focused on a few specific mobile apps that we had instinctively felt were priorities for the business," Cox wrote. "What DDOM revealed to us was that some neglected apps were actually driving tremendous value for our customers. It pushed our teams to divert resources and deliver new onboarding experiences. These efforts have since driven significant engagement and conversion for Adobe’s overall mobile offerings.”
In the subscription world, catalog flexibility and being able to launch new features quickly is essential for keeping your business fresh.
Microsoft Office has taken this one step further by inviting customers of its Office 360 subscription to tap into new features before they’re launched. It even offers customers two different levels: The Insider, for customers who want access to new features on the ground level, or the Monthly Channel, for those who want more stable updates.
In making this option available to all customers, Microsoft Office increases customer engagement, demonstrates customer value, and has continual feedback on features before they’re officially released.
Lesson 4: Test, test, and test again
With Adobe’s DDOM, the business uses the data it generates to operate in real-time. For Giglio, this means he and his team are continually running tests to optimize operations.
“We used to have a mindset where we would run maybe to test every two weeks or every week. And today we're at about 200 tests every week all around the world,” he said.
Adobe developer Nick Babich wrote “A Comprehensive Guide To Product Design” in which he highlighted the importance of testing.
“There are two types of ideas—good ideas that lead to product success, and bad ideas that can lead to failure,” he wrote.
Product testing is an art in itself. Do it wrong and you’ll learn nothing. Do it right and you might get incredible, unexpected insights that might even change your product strategy.”
Price testing is also critical, as Adobe knows. Earlier in 2019, for example, the business doubled the cost for the photography plan, which includes Lightroom CC and Photoshop CC. Users took to social media to find product alternatives.
With the fluidity of the subscription business model, there are many different types of pricing strategies a business can employ. For example, a business might find a tiered pricing plan doesn't work as effectively for it as a stairstep pricing plan. Or perhaps a business is ready to test bundling different products and features to optimize profits.
“Take a subset of customers and trial that hot promo, new messaging ... or different checkout experience,” Giglio suggested. “With testing and digital marketing, you get data. You’ll find you can’t get enough of it, [and] it delivers great insights.”
Lesson 5: Automate, automate, automate
A homegrown or legacy system often tends to involve manual processes, opening the door to costly errors and revenue leakage.
Removing the manual element will free employees from mundane tasks so they can concentrate on more important tasks, said Giglio.
“Not only will you speed your programs to market, you free your teams to focus on what humans are great at: creative problem solving.”
In a world where subscription monetization often means launching products in weeks versus months, it’s essential to be agile. Supporting your business with responsive technology solutions such as a dynamic recurring billing system facilitates agile monetization.
Adobe’s transition to a subscription model was ultimately successful for many reasons. How will you apply these five lessons to launch or grow your recurring revenue business?