This post was co-authored with Nikita Avdiushko, a second year MBA student, and Caroline Vincent, a former MBA student, both from the Fuqua School of Business, Duke University.
The Subscription Economy, a term that was relatively obscure a decade ago, has exploded into a ubiquitous phenomenon. Consumers gobble up Netflix memberships, Dollar Shave Club razors and Stitch Fix clothing each month; and they use Amazon’s “Subscribe & Save” feature to automate routine product purchases. Similarly, companies (and individuals) buy subscription-based technology, such as Microsoft Office, Amazon Web Services and SaaS business apps.
Zuora CEO Tien Tzuo was the first to coin (and trademark) the term “The Subscription Economy,” to describe the trend of buying and using digital products and services on a pay-as-you-go (or grow) model. However, many independent software vendors (ISVs) have now pivoted to a subscription-based model to meet increased market demands for great functionality, free trials and seamless onboarding, providing OpEx pricing that’s predictable and easier on corporate and individual budgets. ISV leaders know that an astounding 84% of net new software is now being delivered as Software as a Service (SaaS).
While ever-present today in 2018, this was not the case in 2013 when Adobe made a then-radical pivot to a subscription model. Recently, we had the privilege of interviewing Adobe CMO Ann Lewnes about the role of marketing in this transition. Lewnes joined Adobe after a 20-year tenure at Intel, where she helped build global demand for the Intel brand from consumers, business professionals and key computer channels. She was part of the team that managed the highly successful “Intel Inside” program and oversaw groundbreaking campaigns, including the launches of the Pentium and Centrino processor brands. Lewnes learned everything she knows about marketing under the leadership of mentor Dennis Carter and CEO Andy Grove.
She shares insights from her journey.
Ann Lewnes, Adobe CMO
1. Be fearless about taking risks
Lewnes joined Adobe as CMO in 2006. Although Adobe was a successful technology company in creative and document services with flagship products and a beloved brand, CEO Shantanu Narayen and his leadership team saw a tremendous opportunity to grow the business. Firstly, creativity was exploding everywhere. Everyone in the world has a creative spark, a story to tell; and the means to tell those stories through new mediums, formats and devices was becoming increasingly vast. Adobe’s creative business was not growing to encompass the new and different ways people were starting to create. Furthermore, Adobe’s innovative engineers were developing new product features all the time but had to wait 18 months – the cadence of Adobe’s launch cycles at the time – to release them to the world. As a result, the company saw spikes in revenue every 18 months, but a less predictable revenue stream in interim periods. These factors contributed to Adobe’s decision to transform its Creative Suite business from a boxed-licensed software model to a monthly cloud-based subscription model, culminating in the launch of Adobe Creative Cloud.
The model moved from 18-month launch cycles to ongoing launches as soon as an innovation was ready to go, and from product pricing ranging from $1,300 to $2,600 to subscription-based pricing that is $9.99 for a single product and $52.99 for all apps in the Creative Cloud. Despite the mainstream nature of subscription models today, at the time Adobe was among a small group of industry leaders who saw the value in moving from one-and-done software purchases to a business model with predictable revenue, more technology innovation and the ability to use data to drive customer understanding and interactions. They are credited today as the industry role model for how to successfully pivot a business model with seamless execution.
In parallel to its subscription transformation, Adobe was creating and leading a new business category, known today as digital experience. The company foresaw that content creation was becoming only the first step in the content lifecycle; the ability to analyze, manage, deploy and optimize that content would become essential to its customers’ future success. Today, that collection of products is known as the Adobe Experience Cloud, a set of best-in-class solutions for marketing, analytics, advertising and commerce.
“We had a thirst for massive change and risk,” recalled Lewnes about the early days of the transformation. Risk is “how you stay alive” in technology and other industries, she says.
Adobe’s leadership team applied the concept of disruptive innovation (as coined by thought leader Clayton Christensen), to envision a new, broader role as a global digital solutions company that would fuel digital experiences for its customers – from individuals to global brands alike.
2. Foster a data-centric culture
Lewnes’ mandate at Adobe was to transform marketing and use it to drive the business forward. Initially, she worked directly with the marketing organization’s lone econometrician to model revenue targets based on historical spend levels. Lewnes and her team also conducted A/B testing on the Adobe website, using web analytics tools from Omniture, a company Adobe had acquired. Lewnes said her commitment to digital and data was viewed as “crazy” at the time in the industry. However, she knew that Adobe would acquire a strategic advantage if it was an early adopter of digital marketing using data and technology. That prescient commitment to analytics and customer insights was the “secret sauce to measuring content,” and helped inform the development of Adobe Experience Cloud, says Lewnes.
“Data serves as the lifeblood of everything we do, and one of our biggest goals is to democratize data so that it’s in the hands of every single Adobe marketer, enabling them to better understand everything from the ROI of our marketing investment to what products and features are the most resonant,” says Lewnes. She now has an entire team of data scientists who focus exclusively on understanding consumer behavior and determining the best way for Adobe to engage with customers.
To create a data-driven culture and mindset, Lewnes continuously widens the aperture on analytics. For example, her team analyzes nontraditional metrics such as GDP and sales productivity, going beyond the standard KPI mix, to enrich Adobe’s ability to serve a vast client base, ranging from individuals to multibillion-dollar enterprises and governments. Her team conducts daily ROI analysis for every vertical segment to rationalize modeling decisions and paths to market. Additionally, the breadth of data that’s been amassed through Adobe’s website (one of the world’s twenty largest), reframes how Adobe can approach the sales funnel, speeding time to purchase for new customers and helping existing customers unlock the full value of Adobe solutions.
With such rich analytics, Lewnes is able to spend 75% of the company’s marketing budget on digital and understand its value. By quantifying media attribution, last touch and pathing analyses, Lewnes’ team has solved the bedeviling problem of how to justify advertising spend and align it to the right channels.
“The real value of content is demonstrating its impact,” stresses Lewnes.
3. Be committed to change
Changing to a subscription model meant rethinking everything – from the products themselves, to sales, finance and marketing. The leadership team worked together to position the new cloud products, strategizing how they’d be sold, branded and marketed.
While the pivot to the cloud was in-line with market trends, lower-priced products designed for a subscription-based service meant that Adobe would initially see a dip in revenue before it saw growth. Revenue shrank in 2013 by 8% and was flat the following year. Adobe even faced some resistance from customers who didn’t initially see the value a subscription model would bring.
To help employees, customers and shareholders navigate the transformation alongside Adobe, the leadership team focused on three key principles: 1) use data as a common language to communicate shifts and impact; 2) be transparent along the journey; and 3) remain committed to the decision and strategy, even when times felt difficult.
4. Unlock creativity
When interviewed about her five key marketing tenants, the first Lewnes chose to address was that “good creative will always matter.” She fervently believes in the creative power of video, which will drive 80% of internet traffic by 2021. As Adobe underwent the massive shift to a digital-first marketing strategy, it embraced video as a key tool given its visual impact, ease of consumption and sharing capabilities. Adobe has used video not only as a mechanism to deliver tutorials for customers to learn and master its products, but also to showcase customer work. Recently, Adobe partnered with a Japanese kimono maker who leveraged Adobe solutions to scale her business and expand into textile design and related areas. Adobe created videos that not only shared deep dives on the artisan’s process but also gave her a voice in a powerful visual ecosystem. You can also seek the help of top production company toronto to get your project done.
From a different creative angle, Adobe has focused its lens on Hollywood, using video to demonstrate how filmmakers and TV producers behind hit shows and movies like Atlanta, Blade Runner 2049, Deadpool, Mr. Bean and Mindhunter use Adobe’s video tools, Premiere Pro and After Effects, to create next-generation visual effects. Individual consumers, including students, can use videos to get inspired, learn how to push the limits of visual storytelling and teach themselves similar techniques with online tutorials.
“Video is an exciting area,” said Lewnes in a CNBC TV interview. “I love video because it works. It’s unbelievable: video stats in advertising are exploding. Short form. Long form. It’s very, very high in terms of its impact. And when you think about the possibilities that immersive media formats like augmented and virtual reality introduce, the opportunities for the next frontier of video become even more exciting.”
5. Make talent capabilities king
Bolstered by the company’s new digital mindset, Lewnes sought to empower her marketing organization. “In order to be successful in this new age, you just plain and simple need different skills,” she says. “[Talent is] the most important thing. Yes, technology is critical to transformation, but without the right people…it won’t be successful.” Lewnes addressed skill gaps through hiring or retraining for new capabilities such as digital advertising, social media and analytics. She invested in talent by offering training, brown bag lunches and speaker series on everything digital. Lewnes also expanded undergraduate and graduate school internship programs to increase the university hiring pipeline in her organization.
“We needed to become world-class in digital and data,” says Lewnes. “We established new roles and reskilled in adjacent roles. We created processes to constantly test, analyze and optimize everything we did across marketing. With a lot of work, we created a widespread marketing competency based on customer insights and marketing analytics, becoming a strategic driver of the business.”
6. Redefine engagement
When Adobe pivoted to a subscription model, the company went all in on engagement, because it had to win over vocal customers who were initially apprehensive about the business-model shift. “We conducted monthly customer studies which informed how to shape marketing efforts for every customer segment, including the biggest resistors. By looking at the data and understanding the customer insights that were driving their concerns, we leveraged blogs and community forums to own the change and educate customers on the benefits they would reap.” This experience mirrors the advice customer service advocate Jay Baer gives to companies to “hug your haters,” turning customers who have had a negative interaction into brand champions by addressing their concerns.
But Adobe does more than just address its customers’ concerns; as a brand with perhaps the largest creative community in the world, it constantly finds way to engage and co-create with them to celebrate their work. Recently, Adobe teamed up with Coca-Cola to challenge the design community to create a concept for the 2020 Olympics in Tokyo. The crowdsourcing campaign, called “Coke x Adobe x You,” provided all participants with a creative brief and key brand assets, encouraging them to create their own art using any Adobe Creative Cloud app and then share their work on social media using the hashtag #cokexadobexyou. The results were astounding, with thousands of creative submissions from around the world.
“Design has been at the heart of Coca-Cola for 130 years. We are thrilled to collaborate with Adobe and share our most beloved visual assets with designers and creatives everywhere. Whether you’re an established pro, or an aspiring artist, this opportunity is for everyone,” said James Sommerville, vice president of global design at The Coca-Cola Company.”
Adobe’s own creative and marketing teams are also customers. “From producing all of our creative through Adobe Creative Cloud to delivering, measuring and optimizing every marketing initiative through Adobe Experience Cloud, we’re able to constantly push the boundaries of our own technology to create and deliver beautifully designed, hyper-personalized experiences at scale.” Through this evolution, Adobe has helped its own teams – as well as millions of companies – use creativity and data to engage users and grow lasting relationships.
Today Adobe is a recognized leader in the subscription economy. By providing fast SaaS access to its solutions; constant product innovation; and lower, more flexible pricing options that expand its customer base from individual consumers all the way to large enterprises, Adobe has proven that foresight, calculated risks and seamless execution pays off. Since 2012, Adobe’s market cap has increased by more than 87% to 108 billion+, as of May 2018.
“We have the world’s best employees, products and customers, along with a crisp strategy around the future of digital experiences that will enable every person with a story to tell and empower every business to compete through beautiful, meaningful experiences. The opportunities are endless and in many ways, we’re just getting started. I have the best job in the world and I can’t wait to see what the future holds,” concludes Lewnes.
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