Many corporations are moving towards subscription models to manage their consumer (and B2B) revenue models. Subscriptions allow a company to more easily predict their revenues and profitability. By looking at simple subscriber churn analysis, its implied lifetime value (LTV) and subscriber acquisition costs (SAC), businesses are easily able to manage their direct marketing programs to see their return on investment.
Scott Scazafavo and I met in 2005 at United Online’s social media company, Classmates.com. I was the EVP of United Online’s media properties and COO of Classmates. Scott was the head of Classmates’ Product Management. Classmates was *the* original social network. Since 1995, long before Facebook or even MySpace existed, Classmates was signing up millions of free subscribers and working to convert them to paid “members”. It was at Classmates that I truly learned the joys of SAC/LTV analysis and the wonderful powers of running a paid subscription business.
Take a look at the conversion major companies such as Abobe have made with their Creative Cloud suite or Microsoft with Office 365. Both are now paid subscription based products. Consumers do not buy a license, they rent the product on a monthly or annual basis through their subscription. Google docs for business only ever existed in this format. A LinkedIn “membership” (a subscription) has also only existed in this format. A consumer cannot buy them or permanently own them like they did with Microsoft Office 2010 – they subscribe to them. I refer to these companies that initially built their products as subscriptions as being “born in the cloud”. Oddly enough, Classmates.com must have been one of the first born-in-the-cloud subscriptions companies.
It is clear why a business wants subscriptions for its consumers. The revenue is more predictable, profitability is easier to manage, and marketing becomes more directly focused and easily attributable to the ROI. After Classmates, Scott went on to run a subscription business at AllRecipes.com and I went on to AOL and Microsoft as an exec in their media businesses. Guess what? AOL and Microsoft’s MSN both have subscription dial-up Internet businesses. They both still exist inside AOL and MSN today!
After numerous years working on subscriptions in a combined 6 companies between us, Scott had a new product idea. I came up with the name (still under wraps) and we decided to start a new business leveraging our combined 40+ years of product experience.
WolkeWerks is a different story. We both love “born in the cloud” technology. With a tad of German precision tongue-in-cheek, I suggested we name the company CloudWerks. Scott took it a step further by Google-ing the German word for Cloud – Wolke. Thus WolkeWerks was born in the cloud.
More to come on our first product as we move forward. Now you know a little bit about us and a little less about what we plan to build (part is in Beta already). We look forward to sharing more as we make progress. I am sure Scott will post his view of the world and what we are trying to do soon.
Ted Cahall, co-founder