Mark Thomason is a Research Director – Digital Business Models and Monetization at IDC. He is one curious person that loves the challenge of understanding needs and creating something that’s high quality, simple and easy to use. He understands the thrill of creating and working in a high-performance team. He is known for being focused, easy to get along with, & getting things done quickly.
In this episode, Mark shares technologies and best practices that are used in monetizing digital solutions that result in optimized pricing.
Why you have to check out today’s podcast:
- Learn how to use the data that is funneled into your subscription management
- Find out the leading indicators of customer churn, and what to do about it
- Learn how to package features into bundles that will create good pricing and eventually the most revenue for your company
“A lot of the based functionality of managing subscriptions is really just making sure that you do revenue recognition correctly.”
– Mark Thomason
Mark Thomason’s Upcoming Event:
Join IDC’s 55th Annual Industry Business Briefing
Directions 2020 ~ Changing Customer Requirements: Creating Value in the Digital Economy
March 4 in Santa Clara, CA ~AND~ March 10 in Boston, MA
For more information visit: http://www.idc.com/directions
Get COV’s Pricing Metrics:
The Most Important Pricing Decision in a Subscription Business Course at https://www.championsofvalue.com
02:08 – What is IDC and what does it do
03:15 – What service do IDC sell
06:06 – What are digital business models and monetization
10:18 – What is futurescape
16:13 – Taking a closer look at Zuora’s subscription business model
24:22 – Mark’s best pricing advice
“If you’re a company that has a physical product, if you haven’t investigated price optimization product, you should because they have a very quick payback.” – Mark Thomason
“You want to know that as a product manager and as from a monetization point of view, you want to understand your value metrics. And if you’re a software company, if you can identify and watch, basically your users use, you know, features or capabilities of your product, you can go, okay now I can watch over the shoulders of my potentially thousands of customers and I can know what this cohort value.” – Mark Thomason
People / Resources Mentioned:
Connect With Mark Thomason:
Connect with Mark Stiving:
Full Interview Transcript
(Note: This transcript was created using Temi, an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Mark Thomason: If you’re a company that has a physical product, if you haven’t investigated price optimization product, you should because they have a very quick payback.
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the analytical relationship between them. I’m Mark Stiving, today our guest is Mark Thomason. Here are three things you want to know about Mark before we start. He’s Research Director Of Digital Business Models And Monetization at IDC and that title is why we invited him on the podcast today. He’s been head of market intelligence in a large software firm for the six years prior to that and he’s a big supporter of electric vehicles. He worked hard in the 2010 timeframe to bring electric cars to Orlando, Florida. Welcome, Mark!
Mark Thomason: Hey, glad to be here!
Mark Stiving: That’s going to be fun. Okay. I got to ask quickly, do you have an electric car?
Of course! I want my third one.
Mark Stiving: Really?
Mark Thomason: So I did a lady sublease of a Nissan leaf back in ’12. That’s when I got it. That’s when they came to Orlando. They were on the West Coast before that. And then I’ve had, I had that for three years and then I had a BMW for three years and then I was on the list to get a Tesla three but they delayed the shipments to the East Coast passed when I was getting rid of my car when the lease was up. So I end up leasing another I three for another two years and then on the 15th of this month I get my Tesla three performance.
Mark Stiving: Nice, nice. And okay, I got so many questions I want to ask, but let’s move to pricing.
Mark Thomason: Oh man, you don’t wanna talk about cars anymore? All right. Fair enough.
Mark Stiving: So I love IDC, but I’m not sure all of our listeners know what IDC does. Could you tell us what IDC does?
Mark Thomason: Sure. So we are a market research firm. We’ve been around for over 50 years. We’ve got 1100 analysts around the world. We’re known for our numbers. So we’ve got this, the system that we call the tracker, IDC tracker. And for many years, probably at least 20 we have been collecting revenue data from technology companies on a quarterly basis. So for the companies that we track, we call them up or we engage with them once a quarter and ask them how much they sold in this market. You know, cause we’ve got 84 functional markets, 85 functional markets that kind of roll up to a bunch of secondary markets that roll up to three primary markets. So that’s how I kind of organize technology and these are broken out from all different types. We basically break it out into applications, developer platform as a service type of stuff and system infrastructure software.
Mark Stiving: Yeah. And so you’re going to sell research to, I’m going to assume it’s relatively large firms mostly.
Mark Thomason: Correct.
Mark Stiving: So Mr. Large firm comes to you. What are they going to buy from you?
Mark Thomason: Well, they have it. So we’re known for the trackers and we’re known for that data, but we have a bunch of subscription-based analyst services. So like my service, the digital business models and monetization is what we call a CIS or a Continuous Information Service. And that means I’m an analyst focused on this area. I don’t change and move to somewhere else. I focus on this and I work with a bunch of vendors that have a subscription with me. So I work with these vendors on a heavy basis and pat briefings and kind of understand how the market’s going. And that happens all across our domain. So we have a whole bunch of analysts that are focused on different markets that companies, companies, and small and medium-sized companies come to us because we have different packages for each will come to us and either, you know, so when they get a subscription for me, they get everything that I write, you know, which is over 60 documents in a year. And then I also partner with other analysts and those get published into my service too. They gave it a bunch of time with me so they can call me up and work through, you know, whatever kind of CIA issues or communications issues. And then you know, from there we have an ala carte menu of a bunch of custom applications that we can do white papers and all sorts of things, videos and things like that. So that’s how we monetize.
Mark Stiving: Sounds perfect. And now a customer comes and wants to engage with you. What are they buying from you? So define digital business models and monetization for me.
Mark Thomason: Yeah, that’s a fun thing. So I started this gig a little over two years ago. I had been working with IDC as you know, with my former positions as a market intelligence leader. So I had relationships with IDC and Forrester and Gartner and Four Five One and ESG and a whole bunch of other TLAs and really good folks out there. But when I was leaving or when I was at the end of that, I wanted to become an analyst because it’s a pretty cool gig. You get paid to learn. So that’s the cool part. And the bad thing is if you’re curious, there are tons of things to learn and then it really just becomes a time management thing on how you manage your time when you stop learning, when you start writing and when’s enough. So that’s usually the hard part.
Mark Stiving: It sounds like fun.
Mark Thomason: But they would get from me everything that I write and when I work with them, they might want something so I can go around to other analysts. We’re sort of like a big college where you can go over to another analyst who’s been there for 15 years and knows, you know, a certain domain really, really deep and I can go figure out answers or get other people on the phone and we can solve a problem, solve a really big problem.
Mark Stiving: Yeah. So what I’m trying to get out right now, Mark, is what are digital business models? So what are you writing about?
Mark Thomason: Yeah. So what I did when I got into this, it was kind of undefined when I arrived, but what I did is I basically carved out what I call the monetization ecosystem, which if you’re on LinkedIn, I posted it a while back, I need to like make it a permanent thing, but it’s a graphic. And then on the left side of the graphic, it has vendor income or excuse me, you know, basically the customer. And then as you transfer over from the left side to the right side, you go through what I call opportunity capture type features. So this would be like your CRM or your eCommerce or you know, some way of we’re Omnichannel commerce, you know, some way of getting the sale.
And then it comes into a bunch of green boxes, which is the monetization area. So once you click on something and you wanted to buy it, or you go through a salesperson and you go through a configure price quote type of solution, it goes into the monetization domain or what I call the ecosystem. And this includes a whole bunch of functions. And so if you take all these functions and you kind of like bubble them up to forward-looking platforms that I look after, it kind of basically comes down to like four. So one is like subscription management companies.
So these are like your Zuora, your Aria systems, your go transfers type of companies manage a subscription. So you know, they understand the relationship, what you bought, they understand revenue recognition really well and they interface with a bunch of other applications like the opportunity capture part or as you go to the right, the accounting applications where you’d drop the money.
And so elsewhere in the monetization area you’ve got, I’ve just covered subscription management, I cover price optimization and price management products. And those typically have a price guidance type of feature, which could be price guidance or it could be CPQ as a front end to the people part of it. And then what I call usage intelligence. And this is the things that if you’re in the telecom merits called mediation, so you’re just taking a bunch of customer records and you’re aggregating them so you can blend them all together and charge on them.
So if you’ve got one customer account, you can understand how much they used this. And it might be simple, it might just come from one platform and need to be rated and charged on that. Or it could become, it could come from a variety of sources and you have to understand what’s noise and how to get rid of ambiguity and how to aggregate. So these things can be really simple or they can be really complex.
And then the last bit is entitlement. You know, how are you, once you buy something, you basically entitled to use it. And if it’s a digital product, it gets, you know, go through an entitlement management type of process. Or it can be part of the beginning of the supply chain. So that’s like all these little boxes.
That’s how the monetization part, that’s the part that I cover. And then there’s other analysts and another functional market around me that handle like, you know, the stuff on left or right of me of the CRM or the ERP systems or supply chain management, those types of things that I talked to, you know, so to speak.
Mark Stiving: Yup. Okay. So I’m sitting here, I’m looking at it and we’ll make sure we post a graphic of this or the PDF of this in the show notes so anybody can go look at it as well. What I’m, so what I think I’m hearing you say is that you could take any of those functions, that typically happen in a company and then there’s a series of companies that sell services to fulfill that function. So we talked about Zuora for billing and services or subscriptions and there are companies like Pros and Vendavo that do price optimization or price setting. Okay. And so that’s what you’re doing is you’re watching all of these big, I guess I would call them software vendors cause I’m not sure if there are any vendors.
Mark Thomason: That’s exactly what they are.
Mark Stiving: Okay, excellent, excellent. And so are you watching who gets, how much revenue or yeah, you already said yes. And are you also watching what the new technologies are? So if I’m using one, what else is coming out in another area?
Mark Thomason: Yeah, one of the documents that we’ve put together is a futurescape. And that’s basically our way, our sexy way of saying here’s 10 predictions in this area, in the monetization area. And so I look at the tea leaves and basically put down 10 predictions with the help of a whole bunch of smart colleagues that I work with. And you know, basically, B2B recommendations is one of those. That’s one of the things that I’m working on this year is just kind of like understanding, you know, recommendations have been, you know, if you shop on Amazon or you listen to Spotify, you’re getting a recommendation thrown at you by a machine and that’s all well and good. And some of these are pretty lower order. You know, like in an e-commerce situation, if you’ve seen, if you’ve clicked on this before or looked at it, then they’re gonna say you might be interested in it or they might be, you know, they pull in a competitor product. But on the B2B recommendations area, this is an area of the kind of like using data to help expand in a situation. So understanding who that customer is, what size they are, being able to blend data together so you can kind of like tell a story and add them to a story and basically set up this recommendation. You know, it’s sort of like a rule-based type of thing. If this and this and this happened, then this is a, you know, a good recommendation to throw at them. Well, there are companies now, you know, Pros is one of them. They have a formal product that’s out there that uses artificial intelligence to look at all the transactions from, you know, various segments of customers that you have and be able to understand what might be the right recommendation to throw at you and not at you but basically offered to the salesperson so they can if it’s a salesperson-led type of thing, they can give that to the person. Or if it’s an eCommerce-led, you know, throw it up to the robot that shows you what you might be needing. But that’s kind of a sexy cool thing because it sounds easy but there’s a lot of sources of information that you could use to better those signals. And then the hard part is kind of like how do you blend those, cause it’s a lot of noise and it’s a lot of data. So how do you do it and what should you be using? And you know there’s a lot that you could use is all that stuff. You know, what’s noise and what are the three things that you need. And so a lot of attention needs to go into and this is where we are in this space is kind of like crawl, walk, run.
Today we’re crawling around, we’re kind of like learning around. Like what can we use in the ecosystem of data to help us, you know, price better or offer better. And basically just kind of like understand when something works more often than not. And so that’s not a part of, you know, and the pricing and subscriptions to a degree. But that’s what we’re going through right now. It’s just, just starting to use is this, these new tools, well, they’re not new, but machine learning and artificial intelligence to help us do those workloads better. But there’s just a lot of learning that we have to do to understand what actually works and what’s noise.
Mark Stiving: Yeah, that’s pretty fascinating. In the old days, and by the old days, I mean, oh, say 10 years ago they used to do, they called it, Pricing Science and they would use micro-segmentation and try to figure out, ‘Oh, here’s the size of the segment.’ Now it sounds like they’re trying to use AI to gather more of that information and adjust those numbers real-time instead of creating the segments once or once a year or something like that.
Mark Thomason: Right. Yeah, that’s exactly what’s happened. So they’ve moved from a rules-based system, F Dance, you know, that is more complicated than simple F Dance, you know, the price optimization products just a few years ago when you bought them, you basically bought the product, but there was a team of state of scientists behind that that would have to take your data, look at it, analyze it, set up a model, give you that model and then check that model overtime to make sure it was working correctly. And today with SaaS and today with AI, a lot of that stuff is not so high touch anymore and it can be monitored and tweaked, you know from afar, you know, back at the back at headquarters, you know from the dude that might be on the beach somewhere else, you know, programming from afar. So it’s done with more agility today and working better because now we can do basically testing afterward and look at, you know, what was done and do backtesting and find out how you need to tweak the model to make it better.
Mark Stiving: Nice! Time out for a quick add.
Timeout for a quick ad. If you have a subscription business, you have many choices on what you can charge for. You can charge for number of users, number of active users, gigabytes of storage or gigabytes of data transmission, seconds of usage, minutes of usage, hours of usage, months of usage, number of messages, number of downloads, number of clicks, number of views, API calls, events, assessments, miles driven, meals served, hours flown, the list feels endless
How do you decide?
Choosing an effective pricing metric is the single most important decision you can make in a subscription business.
Get it right, and your company grows as your users get more value. Get it wrong, and it feels like rapid growth is just a fantasy.
And here’s a hint for most companies charging based on the number of users is not the best answer.
We just released a new course on pricing metrics. It provides you a step by step process on how to brainstorm and then decide on your most effective pricing metrics.
To learn more or better yet to purchase, go to championsofvalue.com.
We hope to see you on the course.
Mark Stiving: Okay, so Mark, I want you to surprise me or excite me or something like that. And so it was probably a year or so ago I ran into Zuora and the whole reason I ran into Zuora was I was studying subscriptions really, really hard. And I said, Oh my gosh, this whole subscription thing is very different than traditional businesses. And so you see companies like Zuora come out and now I’ve got to do something different. I have to take care of this new business model. What else is out there that’s exciting, that’s changing dramatically that maybe I haven’t seen yet.
Mark Thomason: Right now it goes back to the data thing. So there’s, Zuora was early on in the market. They started in 2007 but the oldest vendors like 2002 or at least the one that I just tested, I did a market scape and that was released at the beginning of the year and that was on 13 vendors. And these 13 vendors can do math really well. They can do accounting really well.
So a lot of the based functionality of managing subscriptions is really just making sure that you do revenue recognition correctly. But that’s all easy the first way through. But when you start changing subscriptions, you know, adding more seats, declining seats, changing your tier, changing your bundle, you know, change just the whole world change.
That’s where the magic on these products shine because they will handle that ripple effect down of what’s going to happen to the bill, what’s gonna happen to your forward-looking revenue, your forward-looking MRR and be able to do that accounting and forecasting so you can understand what’s happening with your business, you know, today in a few months from now. So those products do that today pretty good. And where they’re going today is they’re getting either, one of the big plays is just using the data that they see pass through them and be able to automate things.
So you know, one way of saying it is analytics-driven automation. So you set up and watch for some sort of an occurrence of something. And if this happens then we’re going to do something. And then the monetization space, there are all sorts of new signals. You know, kind of goes back to what we’re talking about with pricing to get these signals into the subscription management and usage is a big deal. So usage intelligence is basically watching could be served. Some people think is surreptitious, you know, somebody is watching me do something.
But really what, you know, if you’ve ever made a product and you’ve been a product manager before, what you really want after spending a whole lot of time creating a product or creating a feature and then pushing it out to the public, you’d really want to know if people are using it. And if you’re getting stumbled upon, you know, if they start using it and they don’t understand it and they just stop before, you know, they get to a certain point. You want to know that as a product manager and as from a monetization point of view, you want to understand your value metrics. And if you’re a software company, if you can identify and watch, you know, basically your users use, you know, features or capabilities of your product, you can go, okay now I can watch over the shoulders of my potentially thousands of customers and I can know what this cohort value, the SMB seems to use these features a lot. And the enterprise group, they seem to use these features a whole lot. And when I develop my tiers, I had the features in the wrong tiers.
So now that kind of gives me some really good insight where I can balance my tiers correctly because now I have data on which company uses these features and then I can group those companies up into cohorts and look at them and evaluate them and then develop my, you know, enforce, not enforce, but add to my personas that I have on who might be buying this type of bundle and I can be a lot more exact, you know, I can use data science and this can be something that happens through the year. It doesn’t happen once a year.
When you do your big surveys or your customer advisory group, it could be on a daily basis. You could see this stuff. So that kind of data gets funneled into your subscription management and you know that you can see that happen inside that application also. You can see just the high level what you’re rating on and you can understand and maybe take action on a customer that is about to churn and how do you know he’s about to churn.
While you’re looking at his usage of the product, you’re looking at his billing of the product, you’re looking at, you know, different signals that will tell you that the person has, you know, has lost interest with it, has abandoned the product or is starting to use the thing like crazy, like download a whole bunch of things right before they terminate their contract. So there’s, depending on the type of product or the type of solution that you’re doing, you can listen for these certain signals and understand when somebody is going to churn. And if you can do that on aggregate, that’s a wonderful thing.
Mark Stiving: So Mark, first off, I’ve got to say thank you because you just advertised for the course that I’m working on right now, which is a how-to package features into bundles, right? Your good, better, best package or your market segments and usage data is a great way to do that. Absolutely. But what I didn’t know that you did surprise me, so thank you. That was really good. But I didn’t know that companies like Zuora were now collecting or gathering that usage data. I thought that was other companies that were doing it. And Zuora was mostly on the billing revenue management side.
Mark Thomason: They do. Yeah. I didn’t mean to say that they, so what I call usage intelligence, those products, you know the regular lytics of the world, flex areas of the world. And then there’s another group of customers or group of vendors like the customer data platform type of companies or the Pendo amplitudes and heaps of the world that collect this usage data on different types of applications. And then there are API monetization products that we’ll understand how many times an API has been accessed and who did it. And what did they pull, what dimensions were pulled up into data as a service type of thing? And that data in those platforms can, you can see the whole thing, but what goes up to Zuora or one of those types of products is the thing that you’re actually charging on. So the usage intelligence application is going to give you the full gamut of things so you can understand the value.
Mark Stiving: And those sensors are absolutely crucial to know where your customers are in their journey. Are they onboarding well? Are they getting ready to churn? And why are they ready to upsell? I mean, those are phenomenal.
Mark Thomason: Yeah. That’s where the recommendations come in. It’s kinda like you’re listening for things and now you can tell, you can give the tools to a junior salesperson and you can enable them to act more like a senior salesperson because you’ve given them a lot of insight on the behavior of a company or a customer to give them that, you know, that boost and then these…
Mark Stiving: Yeah, and you could also think of it as automated prospecting. So we’re only going to go after the right clients.
Mark Thomason: Well that’s the beginning of the funnel. That would be in the marketing area, but you could certainly use that if you’re doing a or a trial-type of product. That’s a wonderful app.
Mark Stiving: What I meant Mark was, if I were selling a big product to enterprise-level customers, then I would be watching their usage to know when it’s time to go upsell that customer before I send my sales team out.
Mark Thomason: Yes, yes, yes, yes.
Mark Stiving: Awesome. Hey, this has just been a hoot. Mark, I like to end with this question and even though it isn’t exactly you, I’m going to ask it anyway. What one piece of pricing advice would you give our listeners that you think could have a big impact on their business?
Mark Thomason: Well, that depends on the business type. So if you’re a company that is in, that makes a product that has a physical product. If you haven’t investigated the price optimization product, you should. Cause when I looked at those last year, they have a very quick payback for what they can do. And they have a very quick payback from the customers I talked to because in a lot of companies they have, you know, in a B2B situation you give pricing exceptions to certain customers for a product.
And if you’ve done it, if the salesperson did it right and they have an expiration date on it, all is well and good. You know this price is good for this time. But in a lot of cases these products get the, you know, the price optimization products get turned on and they’ll find all these exceptions of customers paying lower prices on something because there wasn’t an expiration date on it. So some of these types of customers saw like a less than one-month payback because it just lit up those types of problems. And then also, you know, if that’s not your issue, then it’s going to be, are you underpricing based on the cohort or the segment of the user that you’re going after?
And they can, you know, if you’ve got a complex mount of skews and you’re shipping things across borders, you’ve got taxes across borders. If you’ve got a complex situation, you’re affected by tariffs that are changing more often than they should, then you know, these products can really help you with the complexity of dealing with that. So if you’re a software vendor and you’re trying to price your products, well then that’s a different thing. The price optimization products aren’t there yet. So they’re getting there and the reason they’re not there is really about data availability.
You know, in a software world, the amount of transactions that you have is, you know, a lot lower than how many cans of soup goes through a grocery store or you know, an air filter for a car or something. You know, something that transacts a lot to a lot of different places. So, you know, data’s king in the world of analytics. And so the more that you have, the more you can do with, you know, work with it. So when it comes down to pricing for software, it’s really more of a people-led a consulting-led type of thing. And a lot of companies don’t do it nearly as much because it is a big ordeal to do.
So the advantage there would be to, you know, it’s not a scary thing, but do it more often than you probably do and really understand your value metrics so you can really understand what you should be paying, you know, and how you’re different than the other company and don’t always go for a competitive pricing angle.
Mark Stiving: Yup. So I am always impressed with the payback period on pricing and in fact, it doesn’t have to be a pricing system. It almost is to the point of somebody says the word pricing inside a company, you get payback for that. There’s so much opportunity there.
Mark Thomason: Yeah. Yeah. And you’d be really surprised that across the monetization scope of products, of the usage and title man and price thing and subscriptions, it’s still Greenfield. When I talk to my vendors, they’re still replacing, you know, typically the number one thing that they’re replacing is Excel because there’s still a whole lot of that out there. So it’s still early days and I can’t say early days, but it’s still young days in the world of automating, you know, the pricing or subscription part of a business. You know, people, the whole monetization area is really just not that well known.
Mark Stiving: Yeah. I think the reason for that though is every company is so different. Every industry is so different. And so it’s hard to get this generic package that says, ‘Oh this works in all these different companies or all these different industries.’ You see some companies that are focused on specific industries because once they get that industry down, it’s like, ‘Oh, here’s how the channel works.’ Here’s how to get this data. And that makes a lot of sense. But you can’t take that and move it to some other industry cause it doesn’t work anymore.
Mark Thomason: Yeah. But today you’ve got products that can cross industry pretty good. And I think the reason why they haven’t been, as you know, people aren’t running for the gate to onboard one is they just don’t understand what the upside is from managing yourself to using, you know, one of these platforms to either ease the use how many people you have that are helping you close your books on a quarter or one of the things that really helped with bringing onboard the subscription products was a new revenue recognition rule ASC six 0 six and so when that new rule came around it was kind of like the right time for a lot of businesses in the middle of their digital transformation thoughts to say, okay, we want to mechanize this, we want to get a software package that automates us. Because when you do then you can use that data that usually, in an Excel spreadsheet and you can use it in different applications cause you can ask for it and you can analyze it in different ways.
So, it’s more like democratization of that data that you have that if it’s an Excel, it’s really kind of confined to the corner and then you really have to worry about or you know it’s really going to be on that heat that you have that really loves data that’ll look at it and be in charge of it and be able to manage that at a high degree. And if you don’t have somebody like that, then an application like you know, either subscription management or pricing can do it automatically and make you a whole lot smarter just because it’s telling you the stuff that you should know and allowing you to manipulate things in a grand scale.
Mark Stiving: Excellent. Mark, we’re going to have to wrap this up, but thank you so much for your time today. If anybody wants to contact you, how can they do that?
Mark Thomason: firstname.lastname@example.org and you can go to idc.com and search for me as an analyst and they can look at what I’ve published already or what I’m going to publish in the future and we can talk if you’re interested.
Mark Stiving: All right, episode 57 all finished. Let’s see, what was my favorite part of today’s podcast? I think I enjoyed the very end where we started talking about Zuora and having access to data or what data they have access to. That was very interesting to me. What was your favorite part? Please let us know in the comments or wherever you downloaded and listened and while you’re at it, would you please give us a five-star review. I noticed several people have done that recently and it’s really helpful and huge, huge thank you to all of you. Please don’t forget about the community at championsofvalue.com you can grab all of the content that we put out there, participate. There’s a free community and there’s also an insiders community that gives you access to all of our content. If you have any questions or comments about the podcast or about pricing in general, feel free to email me, email@example.com.
Now, go make an impact!