Our world is quickly moving to a subscription economy. In a subscription economy, the economic value of a customer is realized over time, instead of up-front at the initial sale. This means that the duration of the customer relationship has an increasingly large economic impact on the company’s financial health. Being successful in this new economy requires that companies actively manage their customers during their engagement relationship to ensure that they are realizing the economic value of their purchase. Why? Because if you don’t, customers churn.
A new organizational role, called customer success, has emerged which is dedicated to actively managing the post-sale journey that a customer has with a product or service that they have bought. One measure that customer success organizations use to track a customer’s success is a “health score.” The health score is a composite number created from product usage data (who’s using the product, how is the product used), customer interaction data (support tickets, customer feedback) and contractual data. This data is pulled from systems like CRM, ERP, billing, customer survey solutions. It is tracked at a user and company level and the way it trends, and sudden changes to the score are used to understand a customer’ health.
A growing ecosystem of customer success vendor solutions offer tools and processes to operationalize customer success and manage a health score. These vendors offer: (1) ways to collect data from disparate systems in a data hub; (2) reports to track account status, account health, revenue expansion opportunities and more; (3) analytics to explore data to, for example, identify elements critical to churn; (4) triggers and alerts to track a change in a user’s or account’s condition, such as a drop in health score; (5) workflows to standardize customer facing actions to nurture customers post-sale.
Many of these vendors are small, and it is no wonder that one of these vendors, Frontleaf, has been acquired by Zuora, a subscription billing and finance solution. Zuora will repackage the Frontleaf solution into a new product called Z-Insights, which will allow their customers to better understand and actively manage their subscribers.
It will allow Zuora customers to better understand their subscribers’ identities, actions such as consumption patterns, or engagement with the company, and allow better segmentation of their subscribers (such as upsell opportunities, free customers likely to convert to paid, at risk customers, etc.) to help maximize the value of each segment. It will also allow Zuora customers to trigger nurturing and intervention actions.
Why is this acquisition important? Because (1) the subscription economy is here to stay, which raises the importance of the customer success function. (2) Customer success vendors offer discrete functionality for managing customers, (3) single-purpose applications with value quickly get subsumed into a greater technology ecosystem.
This means that this acquisition could herald a wave of acquisitions for other customer success vendors. Natural purchasers of these vendors are primarily CRM and recurring revenue management companies as customer success solutions already tap into these data sources.