Zuora CEO on subscriptions: ‘Every industry needs to shift to this model’

Cloud-based subscription management platform provider Zuora posted an earnings beat in the fourth quarter and gave an upbeat outlook for the full year. Yahoo Finance’s Zack Guzman and Akiko Fujita discuss with Zuora CEO Tien Tzuo.

Video Transcript

AKIKO FUJITA: Well, let's turn our attention to another company that reported here. And shares there sliding in the session as well, down just over 6%. Cloud provider Zuora did top expectations in its latest quarterly results. Revenue was up 13% year-on-year, while the company narrowed its loss to roughly $19 million.

We've been talking a lot about the growth of subscription models, Zuora right at the center of that. The latest data from the company pointing to 78% of global consumers having some sort of subscription model or service in place in 2020. That is a 20% increase from the previous year.

Let's bring in the CEO of Zuora. We've got Tien Tzuo. Tien, it's good to talk to you today. I'd love to just get your thoughts on how the subscription model has really evolved during this pandemic. Because you've talked a lot about how new industries have really been brought in. We know about the Netflixes and the Zooms, which, of course, are-- many of them are your clients. But what about the new industries that have come on board?

TIEN TZUO: Well, we believe, really, that every industry needs to shift to this model. What we're witnessing is nothing less than the end of ownership, the idea that you have to own a product to meet your needs. It used to be that we have to own software. It used to be we have to own DVDs or CDs. And what we're seeing is industry after industry, whether it's retail, financial services, industrial manufacturing move to this world.

One of the things I'm most excited about, quite honestly, is the physical product world, the manufacturing sector. And after years and years of having headwinds, we're about to see the manufacturing having incredible tailwinds really driven by the fact that every product that's coming off the assembly line-- cars, appliances, laptops, phones, anything that's now connected to the internet. It's a smart device. And what we saw, the digital revolution that happened in media and happened in software, it's going to happen in physical products. And that's really one of the most exciting things that-- that's in the horizon.

ZACK GUZMAN: Yeah, Tien, I mean, shares down today, but tech kind of down broadly, so difficult to tease out what investors might be reading into here. But I don't know if they're questioning, maybe, the growth that you guys are forecasting in some of these sectors that traditionally had not looked to SaaS in some of their offerings. You highlight a couple examples, Fender being one, as they've leaned in to kind of their online services to learn how to play guitar. Caterpillar another.

I mean, what are you seeing in your data to prove out that growth theory that a lot of these industries maybe didn't think about products that you offer now doing so, and that's going to continue once we open back up and get back to normal?

TIEN TZUO: Well, I think 2020 was the wake-up call. I think people are coming-- and companies are realizing and waking up to the power of subscription business models. And you look at 2020, consumer behavior changed for good. If you're a company today and you're relying on physical products being sold through physical distribution channels, you know that the world is not going back to that, right? It's now a digital world, digital acceleration.

You hear the stats, right? Three years in three months. And so you look at Fender. It used to be that Fender would have to depend on people walking into retail center stores, Guitar Center to buy guitars. Well, a few years ago, they launched something called Fender Digital. And it's a set of digital applications that help you tune your guitar and help you teach your guitar.

And what we saw in March, April, May is with all of us stuck at home, a lot of people were breaking out their guitars from perhaps under their bed, perhaps in the attic. Fender signed up over a million people through their digital arm to learn to-- for Fender Play to learn how to play that guitar.

And so if you look at what's happened now, Fender is becoming less and less a manufacturer of musical instruments and more and more of a media company, right, as an alternative to Netflix. Why sit there and watch the latest Netflix when you can actually teach yourself how to play the guitar? That's where the world is really going to.

AKIKO FUJITA: What do you think has prompted that change? In some companies, it seems sort of-- you know, you can see how the services just naturally evolved digitally. But you've also talked about some of these traditional retail players who have really moved to a subscription model. How do you think the value proposition of these subscriptions have changed? And ultimately, is it just about trying to make things a bit stickier at a time when there's so much competition?

TIEN TZUO: Yeah, I think the bigger picture is we don't really, as consumers, find that we need to own products anymore, right? If you can have a service that understands who you want, what you want to watch, the work that you need to do, and the services are learning over time. And so I kind of bring it back to the early days of Software as a Service.

And the software sector really went through this transformation because software companies like Salesforce woke up and realized, you know, because of digital technology, we can actually better understand what our customers are doing. And we can actually deliver the outcomes that they want without forcing them to own the software, back it up, maintain it. And so now you think about car companies. You think about medical scanners. You think about washing machines.

There are engineers around the world right now that are waking up and realizing, here's how my customers actually use my services. And the company going forward that understands who their customers are, that build their business model based on usage of their-- consumption of their innovations and consumption of their services versus unit use, those are the companies that are really going to win.

What we're focused on at Zuora is really providing a platform and a set of expertise to do exactly that, to help the best companies in a subscription economy win by understanding their customers better and building their innovations and their business models around delivering value to their customers.

ZACK GUZMAN: All right, the CEO of Zuora, Tien Tzuo. We'll see how that growth plays out in the months to come. Appreciate you coming on here to join us today. Thanks again.