I have a few thoughts about Netflix’s recent good news for Wall Street investors, and it directly relates to our business here at Aria Systems.
If you don’t know, Netflix recently reported that their net income quadrupled while the number of subscribers jumped above 40 million, and will continue to grow steadily during the current quarter. The number of subscribers jumped 11 percent compared to the same quarter a year ago, and continues to grow even in difficult economic times.
Netflix was among the first to pioneer the use of recurring sales as a basic retail model and it continues to set the standard for how this model reaps rewards for everyone involved – Netflix the company, their users and their shareholders. Investors realize that businesses like Netflix are engaged with a new generation of consumers, and the Netflix model is how they like to purchase products and services.
For the past decade, we’ve been predicting that recurring revenue model adoption would upend the retailing worldwide, and that upending seems to be well underway. I don’t think Netflix’s most recent earnings report is that surprising. What’s surprising is how quickly businesses are adopting recurring revenue models.
Meanwhile, YouTube’s recent news about offering subscriptions to a new music streaming service comes at a time when more and more young listeners turn to their smart phones or tablets for their music enjoyment. Netflix and YouTube are two great examples of what the next generation of recurring revenue models should enable companies to do: enable businesses to establish and enjoy a sophisticated relationship with each and every customer.
Historically, critics have looked at companies like Aria as providing subscription billing services, which is certainly important and key to what we enable – in part. But if you only look at the transactions involved you are missing the point. Consider Netflix. Subscribing is a frictionless process. I turn on my TV using my Roku device, click on the Netflix icon, which brings up a huge catalog of content to choose from. It’s all based on my preferences, which in turn is based on past viewing habits. Netflix understands my tastes, and tailors content suggestions suited to those tastes. That ongoing—recurring, if you will—relationship makes me all the more loyal as a customer, but also increases my lifetime value to Netflix. The key to their model is their ability to establish a positive, seamless, customized ongoing relationship with me. This is true for any companies, whether they are offering movies, music, or traditional goods and services. And that is what’s at the heart of Aria—far beyond billing—a unique ability to enable companies to forge and manage relationships.
And let me say here that this is also important for big businesses selling products and services to other big businesses. Today it’s truly possible to initiate and optimize a thriving relationship, like Netflix did with me – one that can last for years and years.
The economic value of a satisfied customer over a period of time is going to make any business much more valuable. The relationship can take many guises, whether based on subscriptions, or usage, or a series of one-time transactions, whether online or offline. But the point is not only how the company offers up its services, but if it can forge a positive, frictionless relationship with each and every customer and keep that relationship front and center as it conducts its business.
Many companies come to us thinking they need to update their billing system to accommodate a new recurring revenue model and walk away knowing they need more. They come to understand they need more, often much more; they need a recurring revenue management system that can truly help them develop relationships that last a lifetime. Netflix has always understood this and offers us one possible roadmap for the future of how recurring revenue models will transform the marketplace worldwide – one customer at a time.
– Tom Dibble, CEO, Aria Systems
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