Peter Houston

Peter Houston: What’s your career been like so far?

Robbie Kellman Baxter: I’ve been focused on subscription and membership models for the past 20 years or so, starting when I was working as a consultant. I was a general consultant and I had Netflix as a client. This was just after Netflix had gone public, they had a presence across the United States and were not global. It was still three DVDs out at a time.

I fell in love with their business model. I loved how they were focused on doing one thing really well for the customer on an ongoing basis. I loved that they were getting recurring revenue in a predictable way. I loved that they were designing all of their processes and systems and metrics around this approach to ongoing engagement with the customer.

As I was falling in love with Netflix, everybody else was too. I was an independent consultant and I was getting calls from people saying, ‘hey, we want to be the Netflix of news, we want to be the Netflix of music, we want to be the Netflix of bicycles, dental pain management products’. You name it, somebody wanted to Netflix it.

So I started thinking really hard about what does that mean? What are the practices that can be shared across organisations? What are the questions organisations should ask themselves if they want to be like Netflix? And what does it mean when they say they want to be like Netflix?

In most cases, it meant being closer to a customer, having an ongoing relationship, and generating recurring revenue. I’ve been focused on that area ever since. I’ve written two books. The first book, ‘The Membership Economy’ came out in 2015 and I really wrote that book to explain to people what I was seeing, that this was a massive transformational trend that could be applied to virtually any kind of business, regardless of the size or industry.

I just felt like people weren’t getting it. They would say ‘it’s not relevant to us, we do we work with advertisers, we sell transactionally, we’re really big, we’re really small, so it can’t work for us’. And so I wrote that book to make my case.

Five years later, I don’t have to make the case for organisations to consider subscription pricing, but a lot of organisations are struggling to do it successfully. They’re running into problems: it used to work for us, we used to be able to get subscribers today, people don’t want to subscribe, we put out a subscription and nobody’s signing up, we put out a subscription and the wrong people are signing up and they’re cancelling right away.

I wrote ‘The Forever Transaction’ to help people at each phase of maturity in their own subscriptions journeys. That’s pretty much me, that’s what I’ve been focused on, for the last 20 years, all things subscription, and more importantly, a membership mindset, a focus on the long term with organisations.

So you’re well ahead of the game as far as publishing and general media is concerned on this idea of direct to consumer revenue, but now you’re working with FIPP. You guys are doing an event in June, looking at how direct to consumer revenue models will become, what they say, is the primary source of revenue from media businesses. Do you think that’s true?

I think it could be and here’s why. If you think about who the customer is – and this is really the important question – if your customer is an advertiser, then your product is, as people have said many times, it’s the eyeballs, it’s getting somebody connected, to want to learn more about that company’s products. There is a path to that with content.

But if you want to create content that is optimised for reader learning, enjoyment, growth, entertainment, then you have to optimise around the reader. We’re seeing over and over again, that consumers are very willing to pay for quality content. What we’re also seeing is that once they have a trusted relationship with a company, in this case with a media organisation, they’re more willing to buy other products and services that continue to support whatever their goal was.

So if I come to your magazine, because I have a hobby and you write about that hobby, the likelihood is I’m also going to be interested in your thoughts on products and services related to that hobby, travel related to that hobby, expertise related to that hobby. Organisations that kind of flip their model and say ‘we’re focused on helping our customers, our audience achieve their goals and one of the ways we do that is through our content’, it kind of opens up a new way of thinking about your business strategy.

I definitely get why, from a publishers point of view, this is a great way to go. You’ve got that predictability of revenue, they’ve got a direct relationship, you’ve got brand extensions. Why do you think it works for customers? Why are people so keen on subscriptions?

I’m so glad that you asked that. Because it’s a key piece of the puzzle that I think a lot of organisations neglect. But it has to be good for the customer and here’s why. I always say you have to have a forever promise with your customer, with your subscribers. So as long as you subscribe to my organisation, to my content, I promise that I will do everything I can to help you achieve your goal.

Your goal might be to get the most enjoyment out of your basketball fandom. Your goal might be to understand the world around you, so you can make better decisions. Your goal might be to be on the cutting edge of what’s happening in my industry.

As an organisation really focuses on that, with a subscription, you actually start to see the behaviour of that customer. of that subscriber. So you’re better able to plan for the future. You can see what they’re using, what they’re willing to pay for, and what they’re what they’re wanting more of. It gives you a really distinct advantage over the competition, because you’re better able to deliver on where that customer is going, which is really valuable for the customer.

A really good example that I think people don’t usually think about in this conversation about subscription and media is Apple. I’m not talking about Apple+, their video streaming service, or even iTunes. I’m talking about their hardware, and how, for many years now, people will walk into an Apple store, and they’ll say ‘I’m an Apple person, I need a phone, what phone should I get?’

Then they’ll come back and say ‘I’m an Apple person, I need a computer, what computer should I get?’ Then they’ll come in and say ‘I’m an Apple person, I need a printer, what printer should I get?’ And the Apple genius will say ‘Apple doesn’t make printers’. And the fan, this person that has a forever transaction with Apple will say ‘well then tell me where I should buy my printer, because I’m an Apple person’.

That’s what we’re talking about here, because that consumer says ‘I love Apple so much, I trust them, I know if I buy what Apple tells me to buy, everything will work together, everything will be easy and elegant and I don’t have to worry. So I’m going to go there first, and I’m going to buy what they tell me to buy, because I knowthat I can trust them.’

It’s that relationship that really is a key to it. I was really interested, looking at the agenda for the event. We get so used to seeing the same successful publishers come on and talk about what they’ve done. But you’ve got other people on, you’ve got Strava you’ve got Citizen M Hotels – why are they on the agenda?

One of the reasons that I got involved with this project was to bring different voices together. That’s always been my approach when I think about subscriptions is what can the world of heavy equipment learn from the world of professional services? What can the software world learn from the entertainment world, or the hospitality world?

And in this particular case, what we’re trying to do is bring together, as you said, some new voices who have something to share, and who honestly probably have something to learn as well from the media companies. In case of the companies you mentioned, Citizen M is a hospitality company, they have hotels. They have two different subscription membership offerings that they launched during the pandemic that I think are really interesting.

One of them focused on this global digital citizen who travels the world and works remotely. Then the other one is for a professional who’s travelling for work, but both of them are really focused on knowing who their ideal member is. Most hotels say ‘bring your babies, come for your honeymoon, come from your work trip, we’ll do it all’. They’re only focused on business travel, and only in a digital person who travels a lot. They came up with these two memberships because they’re so focused on understanding this traveller’s unique needs.

Strava is the world’s biggest community for athletes. You can keep track of and compare yourself with your friends, on your runs, your walks, your cycling. It’s a great way to keep track of your routes, your pace, a whole bunch of different features. Last May, they went hard for subscription, they really doubled down on their core members who they know incredibly well.

They put up a paywall almost overnight – a lot of controversy when it happened – but it’s been tremendously successful, because they’re so laser-focused on providing the greatest value to their most engaged members. It’s ended up being incredibly well received.

It’s just a really interesting example, you might not think of it as having much in common with media, but they have a paywall. They have subscribers. They have content, it’s a different kind of content, because it’s other people’s and your own history, your record of where you’ve been and how fast you were when you were there.

But they’ve been really, really thoughtful and creative in balancing subscription and ad revenue, or sponsor revenue, and in how they think about what goes behind the paywall, and in how they communicate that message, confidently, transparently, honestly, to their community.

So those are two, I think, really interesting companies that are going out there. I think we’re actually pretty lucky to have them, and very senior people coming to speak.

I actually have a Strava subscription, and I use a Citizen M Hotel in Glasgow when I go to Glasgow. So I felt very seen when I saw this agenda. I thought it was great. I’m looking forward to it. Just looking back at those kinds of companies, and you mentioned Apple and the sort of community around Apple products is legendary. How is media doing, compared to some of these other industries, when it comes to that sort of direct to consumer saturation?

I think there’s there’s a huge range across media companies. I work with a lot of them. I do a lot of speaking, but I also work as a consultant with many organisations. I see such a range between certainly the well-funded leaders. Let’s say the usual suspects: The New York Times, Wall Street Journal, Post, The Financial Times, and then some of the hyperlocal ones I think are really interesting, and what they’ve done at a very local level. There’s a lot of really good examples that are doing it well.

I think there are also organisations that are struggling to catch up a lot of times because they’ve been straddling the fence. They’re unwilling to really commit to subscriptions, because I think committing to subscriptions, committing to readers, and weaning yourself from advertisers is very scary, because you’re giving up revenue and not knowing if the revenue is going to be made up on the other side. It requires more than just slapping a subscription price onto your product.

The next thing that happens is you start looking at the content and seeing what content drives conversion? Which articles drive conversion? What topics are people willing to pay for? I was talking to a business publication last night and they were saying that for a long time, their newsroom was very focused on clicks and reads. They would have articles like what’s the best pizza in your market, because a lot of people want to read but nobody’s going to pay to access that article.

People are going to pay for the article about this office tower is going up in your neighbourhood and these are the companies that are moving in, so that you could maybe go market to them or go complain to your city councilman, or what have you. That’s the kind of information that people are willing to pay for. So it changes the newsroom as well.

I think those are some of the issues. The organisations that are doing this the best are thinking holistically about content, about the digital packaging of the product. It’s not just about the content, it’s about how easy is it for me to access the content? How easy is it for me to find the content I need, wherever I am? How easy is it for me to personalise it so that it’s useful to me?

That’s part of the product, that’s not a supporting function, that’s core. It requires a different org structure and I think for organisations to take that leap requires some bravery. It’s a big risk, a real risk, for many organisations.

One of the things that I’ve always, not struggled with, but I can see is a major challenge is this idea of marketing a subscription product where the content that you’re actually going to charge people for is behind the paywall. So how do you sell that to people? Is there some clever tricks there that can help you do that?

Yeah, it’s a really good question. There’s many, many different approaches, but I’ll talk about two in the realm of free. There’s free trial and there’s freemium. A free trial is a small taste of the best you have. Because, as you said, they don’t know what it is, they don’t know what it tastes like, or they don’t believe it’s as good as you say.

For example, I’ve known the Strava team since the very beginning and when they first explained what they were doing, it took me a long time to understand it. It was just very different. You had to see it to understand it, so a free trial comes in really handy there. It’s a small taste of the best you’ve got.

I don’t believe that your articles are better or deeper or more thoughtful than these articles I can get for free. And you say ‘well, Robbie, read a couple. you’ll see. they’re just a lot better’. And I say ‘you’re right, I’d really prefer that, okay, I’ll subscribe’.

Freemium, on the other hand, if free trial is a tiny taste of your filet mignon, freemium is hamburger forever. You can fill up on it, it’s available on an ongoing basis, you can have a freemium subscription versus a premium subscription. That might be limited by volume, like you can have 10 articles a month. It might be limited by type of article. 20% of our content is in front of the paywall, the good stuff, 80%, is behind the paywall.

It might be that you get the content but you don’t get the features. Maybe you can’t save things or you can’t download things or you have to deal with navigating ads and videos that you have to watch in order to earn the right to enjoy the content. Freemium is great as a way of building habits.

As you said, if somebody doesn’t really know what’s behind the wall, you go through freemium, maybe it’s ad-supported, maybe it’s one of those other approaches. At some point, you say ‘I’m actually using this a lot, I should probably pay for the full set of features, since I’m using it’.

The other times when freemium is useful is if there’s a viral component, so like Hotmail was back in the day. I send you an email and at the bottom, it says, I did this email with my free Hotmail account, and you say ‘that’s interesting’. Then you click on it, and you sign up for a Hotmail account. That’s a reason to give something away for free.

Then the other reason to give something away for free is if there’s a network effect, meaning that each new person that joins creates more value for the other people that are paying. That’s like what LinkedIn does. You and I might not pay for our LinkedIn membership.

But if we weren’t there putting our content out every day, describing our resumes and our backgrounds, it wouldn’t be valuable for the job seekers and recruiters and salespeople who are trying to connect with us. And those are the people who are willing to pay.

So there doesn’t have to be $1 value on every customer, sometimes it’s just the fact that they’re participating?

You can still put $1 value on them, but it’s not direct revenue. I think LinkedIn is very clear on the value of each new free member, and what they bring indirectly to the ecosystem. But they recognise that there’s value in people who are never going to pay out of their own pocket being part of the community.

This is an impossible question, but is there any way to sum that up as the core to any strong direct to consumer offer? Is there one thing it’s got to have?

I think you have to have a really clear promise that you’re making to a really clear target customer that you know very well. You have to know that customer and the journey that they’re on and that you’re a part of. Like, I’m buying this business newspaper because I’m trying to be successful in my career as an XYZ. Or I’m buying this magazine, or I’m subscribing to this magazine, because I love fashion and I want to be current and I want to look stylish.

If you understand who your audience is, and you understand the promise you’re making to them, it allows you to optimise your offering around them. It allows you to keep them for a long time, build loyalty and trust, and expand the relationship over time. If you are moving from an indirect, intermediated model to a direct to consumer model, the most important thing is that you really get clear on who you’re serving, and what it is you’re promising them. If you stay true to that, I think everything else should fall into place.

Do you think people take a long enough view of these models? Your new book is ‘The Forever Transaction’, so the clue is in the name really. Do you think that publishers, in particular, take a long-enough-term view on it?

Again, I think some of them do. In terms of long-term view, there’s two different ways I think about it. One of them is the forever transaction, that is, when you sign me up as a new subscriber, you’re not going to get all the revenue possible in that first transaction.

A lot of businesses are very transactionally focused, like how can we get the most money out of them when we’ve got them at the checkout, at the point of sale? Let’s try to lock them in for three years, do you want fries with that, that kind of a mentality.

In this case, you really have to be thinking, I want them to want to stay over time, so I have to treat them a little bit differently at the beginning. Because I’m building for the long time, I have to optimise my product over time, because that’s part of what they’re paying me for is continued improvement, enhancement, even without charge.

Somebody asked me the other day, we’re spending a lot of money to develop a new feature, should we charge extra for it on our subscription? In most cases, the answer is no, that’s part of what you’re subscribing for is a continually improving offering.

But the other thing, when you talked about long-term, that my mind went to, is the leadership of the organisation needs to take a long view, if they’re making this transition. For a large mature company, it can take four to six years to move from a transactional episodic model or an advertising driven model to a subscription driven model, once you take into account all of the experimentation, all of the new skills that the organisation is going to need, the new tech stack the organisation is going to need.

And then of course, the time for those repeated small payments to add up to those big one-time payments. It requires a tremendous level of patience for the leadership team and the investors.

One quick question, is membership different from subscription? Because we see both, but are they actually different? Does it matter?

I think they’re different and I think it matters. It’s always useful to have definitions and clear lexicon. For me, a subscription is a pricing tactic. We are charging subscription fees in exchange for this value and they’re recurring. They’re usually the same amount over time. But it’s a tactic, it’s not a strategy. You can’t say our big strategy is subscription. It’s how you do the subscription and in service of what.

Membership is a funny word, the way I use it, for a membership mindset and when I think about the membership economy, it’s about organisations moving from this very transactional mindset to a mindset that really treats the customer like a member, and optimises around the long-term relationship, optimising around lifetime customer value and understanding what it’s going to take to continue the relationship over time.

That’s how I think about membership and subscription. I know that for many people, there is a thing, a product, that they call a membership. Usually what people mean by that when they say we have a subscription, and we have a membership. Usually, the subscription is fixed deliverables on a monthly, weekly, or annual cadence in exchange for a fixed payment, whereas membership is often a bundle of benefits that you’re entitled to use at your discretion as a result of a payment that you’ve made or joining an organisation.

So in that case, some people would call Amazon Prime a membership, because it entitles you to a bundle of benefits. Many of those benefits have no value if you don’t shop there, so you pay for the privilege of having a better shopping experience. This is in the context of the free shipping, for example, as opposed to the access to their movies.

We could talk about this all day. I guess the best thing is for people just to tune in to FIPP’s event in June.

Yeah, it runs over two weeks. for several hours each day. There’s a tonne of content, both live content, so I hope that people come live and they can ask questions and provide feedback and comments and create a little bit of community conversation in the chat. Then there’s a whole lot of pre-recorded stuff that we’re making available from the day we open the conference, a lot of new interviews and presentations from some really innovative DTC practitioners.

, , , , , , , ,
Similar Posts