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The Margin is a podcast from MGI Research that explores the evolving world of business monetization. Hosted by MGI Managing Directors Andrew Dailey and Igor Stenmark, the show features candid conversations with founders, CEOs, product leaders, and industry experts at the forefront of pricing, billing, and revenue operations. Each episode dives deep into the strategies, technologies, and trends shaping how companies generate, capture, and grow revenue—from subscription and usage-based models to AI-driven monetization. Whether you're in finance, product, or IT, The Margin offers practical insights to help you navigate complexity and drive growth in the digital economy.
Andrew Dailey: Hello and welcome to The Margin, a podcast exploring the forces shaping business monetization. I'm Andrew Dailey, Managing Director and Analyst at MGI Research. Ten years ago, the subscription economy was a metaphor for how businesses were trying to digitally transform and create a new economic relationship with customers, from Netflix to Audi. Companies of all stripes were attempting to move away from transactional one-time pricing models and were introducing subscriptions as a fresh way to monetize. Our guest today coined the term subscription economy and literally wrote the book on the topic. Tien Tzuo, CEO and founder of Zuora, joins us to discuss his latest mantra, total monetization, and how subscriptions are just one of many models that businesses should consider. Tien, welcome to The Margin. The first time, I think, we were maybe on stage together—
Tien Tzuo: Yeah
AD: Zuora was doing maybe 40 million, pre-IPO.
TT: Yeah
AD: You're now doing over 400 million, but a lot of change.
TT: Yeah.
AD: You wrote the book on the subscription economy, and now we're talking about consumption model—
TT: Yes.
AD: Usage based pricing—
TT: Yeah.
AD: What's changed?
TT: Gosh, I mean again, I think you guys always call it category monetization in many ways. If you go back to—back in that at that stage presentation, monetization was an advanced topic that maybe the world wasn’t quite ready for. They didn't quite understand it. And there was a more basic concept of saying, hey, look, the world's simply changing in the best way that we communicate. That is, look, you don't really have to buy products, right? So we really talked about how there's a shift from a product economy. You can subscribe to things. You don't buy CDs, you don't buy cars, you don't buy DVDs, you don't buy CDs, you don't have to buy any of those things. And that's really what the book was about, it is about these transformations that industries were going through, whether it was retail, or manufacturing, or technology, all the way to how it changes companies. How does this change sales and marketing, how does it change finance? But I think what we're seeing now is people are really understanding that. People are really understanding that this new world that we've been evangelizing is what I'll call our new normal now. Right? And people understand that. Look, given all that, all the points in the book, there is a new way of doing business. We call it modern business. Just to give it a term and at the heart of modern business with these new business models is what you've always been talking about is monetization. Monetization is the key. You're not putting a price on a product and just selling as many units as you can. You're letting people use a service and there are an infinite number of ways that you can monetize right there use of innovation that you offered out there.
AD: How do you think about monetization today?
TT: It has a pricing aspect to it, right? So people naturally want to say, well, look, I understand pricing. How does monetization connect to pricing. And so the way I try to explain it is, look, if you have a product that's a one-time transaction, it's an asset transfer model. You give me cash, I give you the product. And so the price the product reflected in the transaction. But if I'm talking about you and I going to have a relationship, we're going to do lots of stuff together over three, five, ten, 15 years. You're going to be using my innovations in all sorts of ways. Then modernization is about building value into that long term relationship, understanding the value that you get created, understand the value is created over time. Understanding the value fluctuate up and down depending on how much of the innovation, how much of my service you're using. So monetize—you price a product which you monetize a relationship. Or you monetize the use of the innovation relationship.
AD: So when you think about monetization as a price model or how you monetize relative to pricing, how does say total, this concept of total monetization fit within your overall kind of business strategy? Is it just the price? Is it within your broader quote-to-cash capability? How does it fit?
TT: Yeah, it pricing is a simple thing, which is like it's $50. Monetization is okay. There's there is a price, but the price is attached to something that you have value. Price per minute, price per gigabyte, price per CPU cycle, price per user. And then over time which has all these multi dimensions on top of the price. What is total monetization? Well look it's not like this idea that you can have three different products. If you know the silver product, the bronze product, the gold product and you have three different price points, you can have the Lexus and the Toyota and so recognizing that customers are different has always led people to say, look, let me create different prices of different packages. But in this, this new world where you think about your services just out there, anybody can use Uber, anybody can use Google, anybody can sign up for Netflix. And everybody's needs are different. And I may not want to pay $20 a month. And you see them trying to do the same product stuff with, “ok, well we'll create an ad bundle, a non-ad bundle. But why can't I just create a bundle that's for me? It's right for the price point, this for me. And so when you look at and you say, okay, the traditional way is what I'll call a supply driven mindset, I got a supply. I put a price on the supply, put that supply into the channel. Now it's like you got a demand driven mindset, right? Which is, well, what do customers actually want? And it turns out that every customer wants something a little different. So total monetization is the strategy to say, look, how do we come up with infinite number of pricing and packaging. You can grow your way to that. But on top of that, recognize a customer's needs also change. So they want to flex back and forth. Which is why you're seeing all these consumption models really, really comes before. Because how do you get customers flexibility. How do you give them land exactly where the customers want? And how do you let customers change over time? So monetization is okay. But to bring out the aspect of unlike pricing, which doesn't change that much, monetization changes all the time. And total monetization is a strategy. You say, look, given that this is my marketplace, how do I monetize to the maximum capability to anybody out there that would benefit from my innovation?
AD: So that makes a ton of sense. And you could see how from a from a seller's point of view, what do you want to do? You want to give the customer exactly what they want with as little friction as possible through from the seller's point of view, from the organization's point of view, though, to support an infinite at number of different price models and contractual relationships is really hard to scale.
TT: It's really hard to scale.
AD: What's the challenge that you see for organizations, and how do you start to address those challenges internally when you start to support all these different modalities?
TT: Well, these things always come down to the sort people, process, and technology, right? If you talk about the technology side now, you're actually right. The traditional systems that we've all used, CRM, ERP systems, CPQ systems over the last 30, 40, 50 years are not built for that type of dynamism, right? You shouldn't forget it, if you will. But maybe once a year you come up with another product and look, you got how to go and do what you need to do. But when you have this, this flexibility, right, like when you were selling a product, okay, maybe the reps can come and say, well, look, I'll give you a 50% discount versus 40. Okay. Well, it's just there's no how to do that. And now the rest come and say, well, they want the pricing model be completely different. They want to roll up usage across 17 sites. They want a rollover model. If they don't use it, they want the credit back. “I have this pool of money I can use. I want to be able to buy third party, Amazon lets you buy third party products from the marketplace and use against your Amazon credits. And so you see all these things just explode in capabilities. And so having the right technology infrastructure is really, really important. You’re talking to customers are coming to you and they say, “well how do I how do I make sense of this and what is what is the new technology stack that I really need in order to do this total modernization?”
AD: Who are the companies that you think are doing it well today?
TT: Well, that's a trick question. Look, so we are maniacally focused on—at Zuora, we are 100% focused on AI, on this space. Many times when I talk to customers, I say, “look where you're going as a business, knowing that you're going to cloud, you're going to IoT, you're going to customer centric models, you're going to pricing flexibility. More and more of your business is recurring revenue because it's tied to a service. There might be a product involved, and more and more, the service is more important” and we feel like we're the only company that's 100% aligned to that future state. And when we think about innovations and gosh, we look at servicing our customers, our customers have taken to all sorts of areas that that we don't necessarily would have thought of so that's why we went into revenue recognition. We went into consumption billing. We went into payments. We went into this—the Zephr tool that we had. The “how do you put the right price model for the right to the right offer for the right customer at the right time” and you're seeing us continue to do those things.
AD: What are the common questions that you get in the conversations you have with CEOs, CFOs? What are their biggest fears when you start talking about introducing a lot of different options and capabilities in terms of monetization?
TT: We talked about the technology, but it certainly has a change in the people side, in the process side. So you're seeing especially go-to-market organization, a lot of change in the selling organizations selling servicing organization, take picture industry and the car industry. The service centers are becoming more and more important because that's where the ongoing relationship—
AD: That’s where the money is—
TT: Where the money is, too. And so you're seeing the shop, the sales floor shrink a little bit. And the service centers really are where the investments are in the software and technology space. There's something about okay, you got sales over here, you got customer success over here, but how do you unify them as a single team, especially when you know that scale 50, 60, 70, 80% of your revenues are coming from your existing customers? How do you make sure that you're servicing and well and their needs are constantly changing. So there's a people side right in the number one thing for process is you got to automate, If you don't automate and you just have people driving these changes, it's hard to know what's going on. Mistakes happen. You can't scale. And that's where you get all this friction. Sales team wants to do this, but the most important thing is you got to automate and what I'll call a, a future proof infrastructure, which really just means, hey, whatever the future throws at you, you can change fast. So it's about agility. It's about change. Especially in today's world. Who knows? I gotta change how I price. There's a pandemic. Oh, gosh. I got to change how you go-to-market, right? There's a recession. Oh, there's a boom in there. Change is just happening so fast. And if you have a technology infrastructure that you put it in, that was fantastic. On day one, they get stale really, really fast and is too hard a change, then it just doesn't work.
AD: One of the things we're talking about is usage-based models. Consumption based models make it easier for customers to just start consuming your product without having to overcome some initial price hurdle. What's the hardest part, do you think, for companies, especially in the finance organization, where you're trying to forecast what's my revenue going to be? What are the costs that are going to be associated with supporting that revenue? How do you square that for folks who are trying to figure out, “okay, I want to go to that usage model, but I need some type of predictability in my business, and I have no idea what my customers are going to consume.”
TT: The interesting thing about this monetization thing is it did. So it used to be, “hey, engineers whether you're building cars or software, you're over here and then you package it up and I'll sell it over here, and then I'll count for it over here. And we don't really have to interact that much.” But this monetization thing this, it jams everybody together. And so when we're talking to folks, it's like, okay, you could do that stuff on the engineering side, but later on, like, how are you finance department going to recognize the revenue? Because these are really, really complex. And so that's where you get a lot of the friction and so you really need a system that says, “look, look we can do revenue. We can do consumption. We could do metering. We can do all the customer facing stuff around querying or provisioning or whatever happens to be. And we can make it work in a unified way.” And so you're absolutely What we're seeing is a lot of people are tackling consumption from an engineering point of view, not recognizing that the biggest hurdle is probably the revenue team because you can't recognize revenue until the service obligation has been met. So well, when is the service obligation met? Is it based on the month and how you package and price? It is really, really important. And so it sounds easiest as well. Look, they just use it as they go. But 99% of Amazon's revenue is not based on credit card users, it’s based on large customer contracts that are negotiated over multiple years.
AD: What's the penalty for ignoring this whole thing and just saying, “hey, look, I got a price model. It works. Why do I need to think about opening up the aperture on more options for my customers?”
TT: Well, look, I think if you're if you're a monopoly, then maybe you can get away with that. But the markets are changing so fast. You've got competitors coming out, you got competitors from other industries that you don't even realize. Most competitors coming out at you. AI's changing everything, it's mushing everything together. Your AI alone means you can't ignore that. Because how do you how do you monetize and recoup all these AI costs for your product? You have to be smart. Otherwise you're going to go to somebody else's product and how do you monetize all that? And it's for you to do some form of consumption.
AD: What questions should every C-level team be asking of their team about monetization?
TT: About monetization? Well, if you look at the definition we said about monetization, which is a holistic process, right, of creating value for your customers, bringing that value to market, probably as a service, not as a product, maybe with some products, and then converting that value into into revenue, into revenue, revenue growth. Then I think the number one questions that executives have to get back to is, do you understand the value that we're creating for customer? What is the value that we're creating for customers? And there could be multiple value dimensions in how is the customer's preferred way of measuring that value, and is your pricing in packaging models reflective of the value you create?
AD: So is pricing the first place to dig in? What are the things that people could do in concrete terms, in terms of either addressing the business process around pricing, around packaging? Is it around systems? Where do you start?
TT: I just hesitate on the word “pricing” because people think “okay, I just get in the room and let's make up a price.” But it is monetization of the value. You got to look at it and end, which is why we use the word holistic. The engineers have to say, “well, how do I even measure that value?” So now you get into metering, you get to mediation, you get to how do you capture all that data? The revenue team has to say, well, how do I sit down with, with a KPMG or PwC, or EY, and the auditors and recognize the value that I created. And so it's really up the entire pricing and packaging monetization model, if you will, and the salespeople say, well, how do I sell this? How do I explain this to the customer? The customer comes back afterwards and says, look I don't feel like I'm getting to value that. I was I was sold then. Well, the pricing model should really account for that, right? Embrace mastery. If you didn't get the value, the pricing will go down. The other value of the pricing should go up.
AD: How many companies do you think really understand how much of their product is being used, and which parts of their products or services are actually being used?
TT: Very little, I would say or it's done with purely a feature set mindset. The engineers are probably measuring which features are being used. So I can take a look at that. How many classes a day to do something. But in terms of measuring the actual value and from our context, are we helping you close your books faster? Are we helping you launch products faster? How are we helping you get to these new pricing models, or help you figure out these new pricing models that allow you to grow faster? How are we reducing the number of billing errors and therefore reducing number of customer phone calls? They're saying, “hey, this bill doesn't look right.” Those are the values that that we really created.
AD: You have a lot of conversations with CEOs and other senior executives about their pricing models on how they monetize. How has the conversation shifted in the last 12 to 24 months?
TT: So, a lot more consumption, a lot more consumption. And this certainly could be driven in the technology sector by AI, in the manufacturing sector, it could be driven a IoT of we looked at the media sector and they traditionally had not done this. But I don't know why, if I might, the New York Times, for example, I can't put a credit card down for $20 and just consume the $20 to the number of articles over time. And then look, if I finish it, maybe I top it off almost like a Starbucks card. Why can I do that for Disney+? And so we're seeing a lot more conversations about consumption models.
AD: What we've seen in the last, let's say, 3 to 4 years is companies that were going from a B2B model that then had to sell. So direct consumer or consumer-oriented businesses that then tried to have some type of B2B motion. What have you seen in terms of the companies that have been successful in crossing over to a new sales motion, whether it's direct a consumer?
TT: Yeah, absolutely. When we started Zuora way in the beginning, we had a decision and we said, “look, should we cater to B2C companies and cater to B2B companies?” And we looked at our customers, we said this is just not that simple. And there's plenty of SaaS companies that do a product led growth motion. It starts with individuals, right? You think about LinkedIn, you think about Evernote, you think about Zoom, you sign up for the free Zoom that cuts you off after 40 minutes. Well, next you want your paid user account. And actually you bring it into your company really grows from there. And we've also seen lots of examples. New York Times has a really healthy B2B business where they sell licenses to entire school or to our company, if you will. But they even sometimes geofence it into that specific location. And so when you have an innovation that's out there as a service and anybody can access it, you will, you can have that's the great thing. Your market is probably 10x bigger, maybe more than you originally have. So I would say every company eventually in its growth cycle will be both a B2C company, a B2B company. And so for us, it was important to blend these models all together and give our customers the most, most flexibility.
AD: The pandemic drove a whole bunch of unnatural things in the economy. You saw Zoom and a bunch of other companies that suddenly came out of seemingly nowhere, and their business just exploded. And now we're coming back to what you're calling the, I think, the new normal.
TT: The new normal.
AD: What are examples of companies that have really done well in not only taking advantage of that moment in time, but really now getting into the new normal, as you call it?
TT: I think whether it's Zoom, you saw their success, whether it's the New York Times, like 100 million people in the US, only about 300 million people. So one of out three people including kids, we're going the New York Times every single day to look at the coronavirus maps. And so you're seen so many examples. I’d say the hallmark of a company that was able to capitalize on the shift with the pandemic and the shift back to coming back into a new normal was flexibility, was agility. And so we're proud to say that we were able to help Zoom move on a dime and other technologies, too, but now are part of it in terms of their billing system. They were able to launch packages fast, to scale their business. I think they grew business like 8x, which is pretty amazing. But now that they have this mass of customers, what do they do? And they're launching Zoom phones or launching Zoom conference rooms, right? They've got all their AI thing going right now. And so the hallmark is packaging, pricing, monetization, flexibility. And that gets to where we talk about futureproof because you don't know what the future is. And that's been really the lesson over the last five or six years.
AD: Terrific. Thank you for listening to The Margin. If you have questions about today's episode or if you'd like to schedule a call with an analyst, reach out to us at insights@mgiresearch.com. You can also reach us on LinkedIn, Facebook, and X. You can find more information about our research and advisory work at MGIresearch.com. Until next time.