the seismic shift to recurring revenue models & what it means for your company
DESCRIPTION
This webinar will showcase the incredible shift from perpetual license to recurring revenue models among large public companies and hyper-growth companies alike. With Gartner research as a launching point and Adobe, we will talk about the real-world data that is driving this shift and what it means for your business.TRANSCRIPT
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Slide 1 − Zuora Confidential, not for distribution beyond intended recipientSlide 1 − Zuora Confidential, not for distribution beyond intended recipient
Why ZuoraZuora Provides a BluePrint to Succeed in the
Subscription Economy!
A Real World Look at Perpetual vs. Recurring
By Trav is Huch ZUORA
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Slide 2 − Zuora Confidential, not for distribution beyond intended recipient
The Gartner Report on Adobe
• Adobe is betting the farm on the new model • The “cloud” is mostly provisioning and rights
management • Big customers who always upgrade will benefit• Innovation will be faster • The relationship with Adobe’s channel partners
will probably change
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Slide 3 − Zuora Confidential, not for distribution beyond intended recipient
Infinite pricing options
We Celebrated When We Heard This
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Slide 4 − Zuora Confidential, not for distribution beyond intended recipient
Infinite pricing options
Pundits Predicted Peril for ADBE
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Slide 5 − Zuora Confidential, not for distribution beyond intended recipient
Infinite pricing options
The 6 Month Chart for ADBE
Dec 12 – Earnings announcement
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Slide 6 − Zuora Confidential, not for distribution beyond intended recipient
Infinite pricing options
Highlights from the Quarter
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Slide 7 − Zuora Confidential, not for distribution beyond intended recipient
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This Guy is a Hero
“We are leading the software industry in transitioning our business to the cloud, which is enabling us to target higher top-line growth and greater recurring revenue”.
- Mark Garrett, Exec VP and CFO
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Slide 8 − Zuora Confidential, not for distribution beyond intended recipient
Infinite pricing options
Adobe Solved Two Big Problems
• Setting the subscription pricing
• Rights / license management
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Slide 10 − Zuora Confidential, not for distribution beyond intended recipient
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How Did They Sell CC to users?
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Slide 11 − Zuora Confidential, not for distribution beyond intended recipient
Infinite pricing options
Perpetual to Recurring Pricing Analysis
Before: Creative Suite 6 = $2600 Creative Cloud = $50 per month with annual commit = 4.3 years B/E (2.8 years discount retail)
$75 – Cancel at any time price per month
Photoshop = $999Creative Cloud = $20/month with annual commit= 4.16 years (2.7 years discount retail)
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Slide 12 − Zuora Confidential, not for distribution beyond intended recipient
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95% Move to Annual Plans
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Slide 14 − Zuora Confidential, not for distribution beyond intended recipient
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Why Does Wall Street Love Adobe Again?
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GAAP vs Non GAAP Revenue
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Slide 16 − Zuora Confidential, not for distribution beyond intended recipient
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A Look at Price to Sales Ratios
Stock Market Cap Price to Sales TTMAdobe 33.77B 8.42Workday 17.26B 42.94Salesforce.com 38.39B 10.25Oracle 172B 4.57SAP 95.29B 4.36CA 14.61B 3.19Nuance 4.84B 2.6
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The Basic Issue with GAAP Traditional Income Statements are Backward Looking
Income StatementFor Period Ending December 31, 2013
Traditional income statements measure revenue based on how much money you made this past period.
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Again, GAAP is good for ManufacturingTraditional Income Statements are One-timed Focused
Traditional income statements do not differentiate one-time from recurring revenue or expenses.
Income StatementFor Period Ending December 31, 2013
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Annual Recurring Revenue $100
Churn (10)
Net ARR 90
COGS (20)
G&A (10)
R&D (20)
Recurring Profit 40
Recurring Profit Margin 40%
Growth (40)
Net New ARR 40
Ending ARR $130
Retention Rate
Recurring Profit
Margin
Growth Efficiency
Index
The Three Metrics That Matter in SAAS
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Slide 20 − Zuora Confidential, not for distribution beyond intended recipient
Wall Street Uses GAAP, But The Picture is Incomplete
Revenue is the only relevant information in GAAP…but it is just a piece of the picture.
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Slide 21 − Zuora Confidential, not for distribution beyond intended recipient
Analysts are Getting Paid to Calc Churn
Wall Street tries to back into The 3 Metrics that Matter… but it is really just an estimate.
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Slide 22 − Zuora Confidential, not for distribution beyond intended recipient
You then end up at a new ARR
level, kicking off the next period
you invest in growing ARR by acquiring new
ACV
you do a good job & minimize the amount of ARR that goes
away
ARRn – Churn + ACV = ARRn+1
you start the period @ some
recurring revenue rate
The Formula for Looking at a SaaS Business
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Slide 23 − Zuora Confidential, not for distribution beyond intended recipient
The Subscription Economy Income Statement
giving you your
recurring profit margin
you spend to service the
base
First,you begin w/
ARR…
you then anticipate
churn…
giving you an expected recurring income
Annual Recurring Revenue $100
Churn (10)
Net ARR 90
COGS (20)
G&A (10)
R&D (20)
Recurring Profit 40
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Enough With The Wall Street Stuff
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Slide 25 − Zuora Confidential, not for distribution beyond intended recipient
Sign up
Validate CC Validated
Create Bill Process Payment
Create Account
Link Account
Confirm Sign Up
Welcome Email
Create Subscription
Provision Service
WE
BS
ITE
BIL
LIN
GC
RM
PLA
TF
OR
M
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Slide 26 − Zuora Confidential, not for distribution beyond intended recipient
Pricing QuotesOrders
Commerce FinanceSubscription
BillingSubscription Subscription
Subscription LifecycleBilling Payments
Real-Time Bookings, Cash & Revenue
Payment Gateways Accounting/GLCRM Systems
Our Platform
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Z-Business is used by 500+ Subscription Economy customers across multiple industries
High Tech SaaS Cloud Infrastructure
TelecomDevices
Media
Education Healthcare
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Slide 28 − Zuora Confidential, not for distribution beyond intended recipient
Infinite pricing options
Summary
• Stories of Adobe’s Demise were premature
• Recurring revenue models do not require a SaaS architecture
• The market craves predictability
• Don’t overcomplicate making a move
• If you make the decision to go, let us help you with the analysis and implementation
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[email protected]@travishuch
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