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Making the Web's Subscription Economy Hum

Making the Web's Subscription Economy Hum
Photograph by Alistair Berg/Getty Images

As Web businesses embrace subscription business models to sell consumer goods, the benefits are clear: reduced customer acquisition costs, predictable inventory requirements, and steady cash flow. Last year research firm Gartner calculated that by 2015, more than 40 percent of media and digital-products companies around the world would use subscription services for their fulfillment, billing, and renewals. The challenges in relying on subscription models include controlling customer churn, managing credit-card charge-backs and delinquent payments, and ensuring the security of customers’ financial data.

That’s why small businesses that are pioneering membership models or adding subscription options to their existing sales efforts often outsource billing and other chores to service providers. “We estimate that there are potentially greater than 15 million companies in North America and Europe that are using [the subscription] model or could adopt this model,” says Jeff Yoshimura, vice president of marketing at Zuora, a Redwood City, Calif., provider that handles commerce, billing, and finance processes for clients selling products that range from video-game subscriptions to single-serve coffee packs. He says the 200-employee company’s revenue increased by 125 percent from 2010 to 2011.