The Business Model Transforming Global Industries (Episode 32)

Jeff Bullas: Hi everyone and welcome to The Jeff Bullas Show. Today, I have Robbie Kellman Baxter, she's got one of those double barreled names, and I had to make sure I got it right. So I have a strange last name as well. So I used to get called all sorts of names in the school yard, but luckily I survived that. So Jeff Bullas was a name that could be easily transferred into all sorts of things. But enough about me, Robbie, let's talk a little bit about what you're about. So Robbie is a founder of Peninsula Strategies, which is a management consulting firm. She's the author of the original bestselling book, The Membership Economy. And we'll have a little bit of a chat about that. And that's sitting over there apparently. Robbie is very delightfully placed her books behind us, so we can't forget what she's written.

Jeff Bullas: Her new book, The Forever Transaction I've just finished reading and it's a fabulous read. She coined the popular business term “membership economy”. Now Robbie has done some pretty fabulous things and she's been to some awesome places such as she has an A.B. from Harvard college, an MBA from the Stanford graduate school of business. So I think Robbie is quite smart based on that, just that alone. She's been quoted and interviewed by dozens of major outlets, including CNN, NBC, and NPR. I think NPR's the National Radio Organization?

Robbie Kellman Baxter: National Public Radio in the US.

Jeff Bullas: Good. I just sort of dive into that a little bit because acronyms are one of my pet hates and a lot of people quite often speak their industry. And if we need to explain it because no one understands what three letters are, and even IBM was renowned for using acronyms.

Robbie Kellman Baxter: You sound like a friend of Alexandra Watkins.

Jeff Bullas: I am. We got introduced by a fabulous friend of both of us Alexander Watkins who wrote an awesome book. She's not going to talk about today, but about naming. So welcome to the show, Robbie, it's fantastic to have you here. And as we have a chat about what you've been doing and how you got into this type of work. So can you tell me a little bit about what got you into this membership economy thing? Because it's certainly an evolution of business as we know it. So what got you into membership and subscription type business models?

Robbie Kellman Baxter: Yeah. Well, first of all, thank you for having me. I can already tell we're going to have a lot of fun with this conversation. I first started thinking about membership about 20 years ago, actually. I had gotten laid off while I was on maternity leave. I've been in product marketing. I've been in big firm consulting before that. I got laid off and I said, okay, I have two kids. My husband, I have this big mortgage. I need to be in control of my own career, so I started consulting. And if you want to be an independent consultant and you don't want to start building up a firm and you don't want to just be a contractor arms and legs, you have to have an area of expertise. So I was looking and thinking, what could I be an expert in? And my fifth client as an independent consultant was Netflix.

Robbie Kellman Baxter: I fell in love with their model, with their business model. I had already fallen in love as a new mom with always having DVDs stacked up so that I never ran out of content. And that was back in the DVDs and the red mailing envelopes if people remember. But when I started to work with them as a consultant, I fell in love with their business model and this concept of what I've come to call a forever promise, where they said for anyone who subscribes in exchange for their subscription, they're going to get a broad selection of professionally created content delivered in the most efficient way possible with cost certainty. And 20 years ago, that was three DVDs out at a time. And those DVDs had content that belonged to someone else.

Robbie Kellman Baxter: Today, they do that with streaming and the content is proprietary, but it's still that same promise that they're delivering on. And back then when I saw this, I just fell in love with that model, this idea of focusing on doing one thing, having it really aligned well with the customer's goal rather than any particular product. And as I was falling in love with it, everybody else was too. And so I started getting calls from people who were saying, hey, we want to be the Netflix of news, of software, of music, of dental, pain management products, of bicycles. You name it and somebody wanted to build a membership around it and wanted to slap some subscription pricing on top. So I kind of followed that path and started developing frameworks and seeing what these organizations had in common and what was different or unique to each one of them. And eventually that led to me focusing completely in this space, writing lots of books and articles and creating a lot of frameworks to help other people that were trying to do the same thing.

Jeff Bullas: Yeah. So the Netflix model is fascinating and they've moved from physical products to digital streaming products. The thing that I certainly was watching with interest was how they were going to pivot out of using other people's content, because at some stage that was going to get pulled. And we've seen exactly that haven't we? With the likes of Disney, the likes of other big platforms saying you're not going to use our content because we're building a streaming platform as well. So Netflix started creating their own content over the last few years and they own their content, so they don't have to worry about rights. A number of heard is that they are spending about 16 billion a year creating new content. That's phenomenal. So what can you tell us about this pivot, because you must've been watching it very closely over time. Netflix changed both. They've evolved, they continued to evolve. So I'm interested in your insights around Netflix pivoting number one to a digital platform where they were using other people's content and then to a digital platform and building their own content. I'm interested in your insights around that?

Robbie Kellman Baxter: Yeah. So those are two really big pivots and two big strategic decisions that they made. So the first one around digital moving from the three DVDs out at a time to streaming it to wherever you would enjoy watching your programming, whether it's on your little phone or on your big screen, smart TV, through your kid's gaming console, or direct through the pipe. The goal has always been to make it as easy as possible. And when they launched the way to make it as easy as possible was the DVDs by mail, which was completely revolutionary and very hard to explain to my in-laws and friends when I was trying to explain what kind of work I was doing, "The DVDs." "No, you don't go to a store. There is no store. They just mail them to you and you keep a list online and they call it a queue and they just send them to you."

Robbie Kellman Baxter: That was really cutting edge. But even as they were doing that, they were thinking about what is the most efficient way going to be in the future. So they were experimenting with downloads, with streaming, with time downloads, all different ways of thinking about what's the way to kind of replicate a rental or access rather than ownership, but doing it digitally rather than through the DVDs. And so they had been experimenting all the way through, even back when I was working with them in 2001, 2002, 2003, thinking about these ideas.

Robbie Kellman Baxter: I think that's a really important idea if you're doing a subscription that even if you have happy customers today, you have to be looking out on the horizon, using your telescope, as well as your microscope to look at your customer's needs today, but to also look way out into the future and say, where's this space business going? What is technology going to allow me to do? And how do I stay a little in front of my customers so that if they ever look around and see what the best practices are today, they'll say, "Oh, this company that I have a subscription to has kept up, they're current."

Robbie Kellman Baxter: You can be a subscriber to Netflix for 14 years and never look up. And one day look up and say, "Oh yeah, what they have is exactly the latest and greatest." A lot of subscriptions fall behind, if you think about your gym membership where they have old equipment and you go to a new gym one day and you're waiting, why am I a member of that gym where everything's old? I guess I just wasn't aware of it. So Netflix has been great on the technology side.

Robbie Kellman Baxter: And then in terms of creating their own content, that was an issue pretty early on when they first started their revenue and their market share was so small that it was irrelevant for the content creators. In fact, they thought it was just a nice additional revenue stream. And when those contracts came up for renewal, by that point, which was, I think seven or eight years ago now, those companies, they hadn't quite gotten to the point of streaming their own content and having their own subscriptions yet. But they recognized that Netflix was eating into their revenue and into their distribution.

Robbie Kellman Baxter: So people were waiting for the movie to come out on Netflix and not going to the movie theaters anymore, or not watching it on TV anywhere and waiting for Netflix. And that was when they stopped with, they changed their terms. They started charging a lot more for that same content. And that was right around the time when Netflix raised their prices and introduced Quickster and had that whole debacle where they had two products, one was streaming content, one was three DVDs out at a time. And they were just trying to respond, I think, this is my opinion now to the fact that their content creators had raised the prices on them. And they had to recoup that additional expense from the subscribers.

Jeff Bullas: And that was being watched by the suppliers of the content as well. And we've now seen Amazon launch Amazon Prime. We've seen Disney launch their own channel, I think. What are some of the others in the space that they're competing with now?

Robbie Kellman Baxter: Oh yeah, it's crazy now because for many, many years that providing professionally created content with cost certainty in the most efficient way possible, that was groundbreaking. But now, yeah, there's Amazon Prime, there's Disney+, there's Apple+, and those are kind of the big ones. But then there's also a lot of thinner slice over, the com OTT over the top streaming content providers, everything from crunchy roll, which is, I think a Japanese anime to A&E Network has the history and crime. And I mean, they have special subscriptions for each of their narrow slice categories. You can subscribe to almost any kind of streaming content. So they really have to make sure that they continue to own that direct relationship with the subscriber and that their content stays broad enough and relevant enough that people don't switch out to one of the other offerings.

Jeff Bullas: Yeah. One of the things you've mentioned in your book was to think global and when you've got a digital product and you've got it delivered via the internet and the web going global is a way of thinking that a lot of businesses don't. They go, I'm in the USA, I'm in Australia, I'm just going to tap that market. And going, well, you need to think a lot bigger than that. It's very interesting in that streaming space in Australia, we've had a few, what we call local streaming companies called Stan is one of them. I've been seeing your thoughts and it was mentioned in your book about thinking global rather than local. I've been seeing your thoughts on that.

Robbie Kellman Baxter: Yeah. Of course every market globally is aware of Netflix coming into their market. So Netflix is now available virtually everywhere, but for local players in addition to providing content for your own local audience, you suddenly have the opportunity to make that content available globally too. And so for ex-pats for people who have special interests, or if you provide a very special value there's opportunity, and you're no longer limited by geography. TV historically had limited geography because of how far the transmission could reach. And now your reach is global, so what I advise organizations to do when they're moving to subscription, and when they're moving to digital is take a step back and say, whose problem are we solving? Or who has the goal that we can help them achieve with our offering, whether that's streaming content, which we've been talking about, or let's say news or education, right?

Robbie Kellman Baxter: If you can provide people with expertise on how to build a content marketing business or a strategy consulting business, or how to create podcasts or whatever it is, you're no longer limited by your geography. So organizations need to think about that and think about who their audience really is and whether that audience is limited by geography or more by need state or interests or goals.

Jeff Bullas: Yeah. And that whole global versus local becomes a challenge in the sense that some countries, different languages, there's creating subtitles, different cultures have different requirements in terms of content. So there's obviously still a lot of room for local content.

Jeff Bullas: The other thing that interests me also is and you brought up the word gyms, fitness. Now, the whole fitness industry, the gym industry, I've heard some numbers coming out of the US. I believe that 50% of the gyms will basically be bankrupt in the next 12 months. Now, there's a subscription model for gyms now. And Peloton is the perfect example that I don't know what the current valuation is, but it's in the billions of dollars. And they also supply hardware as well as provide a subscription model. I'm interested in your thoughts on Peloton and its disruption. Also, there's some competitive companies stepping into that space as well. I'm interested in what you think about Peloton.

Robbie Kellman Baxter: Yeah. So first of all, full disclosure, I am a happy Peloton owner and subscriber. We have a bike in our garage, which has been great during this whole pandemic. So first of all to answer your excellent point about the demise of many gyms, we go to gyms to get and stay fit. And that's really the kind of core forever promise of a gym, but a lot of gyms then fall in love with their own product, which is the physical plant, the classes and so on. And they forget what is the reason that people came in the first place, the reason they came in the first place is to get and stay fit. And technology is creating all kinds of new ways for us to get and stay fit that offer additional benefits.

Robbie Kellman Baxter: And so, for example, with Peloton, we originally bought our Peloton because my husband doesn't like going to a gym. He's a very polite, quiet person. He doesn't want to hover over a machine like I do to force the other person to get off. And so he would go to the gym and the only machine open would be the neck machine. And he'd come home with a really strong neck, but couldn't get on any of the cardio or what have you. And so the Peloton was a way for him to get and stay fit without dealing with the crowds at the gym. But then for me, I found that I loved the Peloton because it saved time. My gym was a half an hour away, including getting into your car and the parking and all of that took me a half an hour each way.

Robbie Kellman Baxter: And suddenly I was able to do a 45 minute workout in 47 minutes, instead of a 45 minute workout in about two hours with the change in your clothes and all of things. So Peloton is repackaging a way for you to get and stay fit that solves problems that were frustrating to people. What's also interesting, of course, about their model is it's not just the video fitness classes, it's also the physical. You get the bike, the bike has a tablet attached to it, the tablet streams you live classes where the instructor can actually tell that you're there and recognize you, "Hey Robbie, ride 100, congratulations." And it can create community with that. So I can actually ride if you and I both have Peloton, we can ride together and we can talk to each other while we're on the same ride.

Robbie Kellman Baxter: We can compete against each other. We can challenge each other. So it's a new way of creating all the same things that you used to get from a gym, but in a way that might be more efficient or require less confrontation. So really interesting model, and also kind of the early adopter, the early joiner of this subscription to physical products, as opposed to all of the subscriptions that we've seen for the most part are about either subscription to content, subscription to software, or maybe kind of a continuity subscription to something that's mailed to your home. So there's a new area.

Jeff Bullas: Yeah. And I know in terms you mentioned was removing friction and both you see that with Netflix, they make it easy for you to one, join and two continue to stay. How do Peloton remove their friction you think?

Robbie Kellman Baxter: Yeah. That's such a good question, because there's a lot of friction to getting a Peloton, right? You have to make a decision to buy a bike, which is $2,400 or $2,500. So it's not trivial. It's an expensive bike. It's more expensive than other treadmills and recumbent, or what do you call them? Stationary bikes. So you have to make that decision. Then you have to find a place for it. It is gigantic, right? So you have to find a place for it in your home. So that's more friction, but then once you've gotten over that friction, it's actually quite hard to get out of it because you're required to buy a year of the subscription, to the classes, to the online subscription. And that's enough time for you to make it a habit, right? Because you're like, okay, I just spent 2,500 bucks plus another 1000, not quite that much, $800 on the subscription, I guess I better just ride it.

Robbie Kellman Baxter: So for a lot of people, it forces them. I'm putting all this money out and I'm making this effort so that I'll be sure that I continue to ride. So it's interesting. It's kind of counterintuitive, but sometimes a little friction is really good for forcing somebody to commit. And for only bringing along the people that really understand the value and are ready to engage. The other side of that is that if you want people to stay, you have to invest in the onboarding process, which they do really well with helping you connect to your friends, helping you find that first class, welcoming you on. All of that which helps you make Peloton or whatever subscription part of your regular habits.

Jeff Bullas: They've done a great job of doing that. The other thing working in their favor is what's happened in the last six to nine months. So Peloton has been around a while now, how long has it been around for three or four years?

Robbie Kellman Baxter: Three or four years. Yeah. I've been a member for three years, I think four years.

Jeff Bullas: Yeah. So I heard about it initially from Tim Ferriss because he was one of theirs, they sponsor his podcast. So I heard about them from Tim and they got the timing right in terms of still being around after three or four years to ride, that's almost a dead job. To ride the opportunity.

Robbie Kellman Baxter: To ride, I got it.

Jeff Bullas: So I think turnover is up 70%, 80% something ridiculous. So right product, right time, right business model as well. But let's see what happens in the next 12 months as things hopefully go back to what was the normal. So what do you think is going to happen over the next 12 months?

Robbie Kellman Baxter: So what we've learned in COVID times is that subscription models are really resilient business models. People don't cancel subscriptions the way that they stop buying things that they were buying episodically. So we're seeing in the first few months of COVID the number of members on various subscriptions, according to Zuora is one of the leading subscription billing platforms, their customers that were using that platform were reporting membership staying flat or increasing 89% of all of their customers. So all of their customers are subscription based businesses, and 89% of them were either growing or flat in the first three months of COVID, which is crazy. It's just a really resilient business model. The other thing that's happened is people have been forced to adopt new habits during this time. So as an example, my mom used to go to her yoga classes in person.

Robbie Kellman Baxter: She did Bikram yoga, the hot sweaty yoga. And she can't do that anymore. So now she's streaming her classes into her bathroom, which she's made into, she calls it her studio now. She has an electric blanket on the floor. She has a space heater on the counter. She turns on the shower, she gets some steam going, when she puts down her mat on the electric blanket and she does her yoga. And so she has a digital subscription to her gym and she says even if things go back to normal, I love doing it in my bathroom because the heat is always exactly how I it. There's nobody sweating on my mat, standing too close and like me, she's like, I'm in and out, it's a 90 minute class. She's it takes me 94 minutes. I'm in and out. It's not a three hour extravaganza like it used to be.

Robbie Kellman Baxter: So I think people are changing their habits right now. And we have an opportunity where people are looking to digital solutions and we're getting over that friction hump where people are saying, well, I don't want to learn how to use streaming to do my work out. My mom was, "I would never have done it otherwise, but I was forced to." A lot of people are forced to learn how to use Zoom. And now that we know how to use it, it's unlikely that we're going to stop.

Jeff Bullas: Yeah. The business model is certainly very sticky. But I'm curious about how she keeps her iPad from steaming up in the bathroom.

Robbie Kellman Baxter: I know. Well, I'll have to ask her.

Jeff Bullas: Can you ask her that because I'm curious because surely the iPad would maybe just warms up, but anyway. And that raises the next little area that I wanted to chat with you. And we just had a bit of a chat before we hit the record button. And that was, it is a very sticky business model in that. And it's one of my pet hates about subscription. So I have a love, hate relationship with subscription models. I think they're a great business model on the other hand, try and remove yourself from an Apple subscription. Good luck with that. You got to somehow get into, where do you find it? Is it iTunes somewhere?

Robbie Kellman Baxter: You have to go back into your settings and you have to go to your subscription settings and then it has a list of things that you've subscribed to. But you have to know to do that. You have to go into your settings for the App Store. And honestly, it's funny because in that case, I'm not sure that Apple wanted to hide it, did it deliberately. I wonder if they just didn't think it through, but a lot of businesses hide the cancel button as part of their business strategy. I've actually had CEOs say to me with pride we found by adding two or three more steps to our cancellation process that we can gain an extra month or two of revenue bringing up our revenue by 8% or 12% or whatever it is, as if that's a good strategy.

Robbie Kellman Baxter: Basically by hiding the exit, people stay longer. And that leads to what you just talked about, which is subscription fatigue, where people are sick of subscriptions. I can't keep track of them. I'm not getting the use out of what I'm paying for, and then when it's time to cancel, it's really hard to do that. I think that those bad actors are giving all the subscriptions a bad name. And ultimately, or hurts the brand because you remember it, and you're okay, I'm not going to sign up for that product again, because it was so hard to get out the last time, I don't trust them anymore.

Jeff Bullas: Yeah. I subscribed to a lot of business platforms on monthly subscription software as a service companies. And after a while I subscribed to quite a lot and they've great tools and I use them for a while and sometimes I don't need to use them anymore, but I'm going, what did I sign up for? I didn't create a spreadsheet that lists them all. And I solved that problem by my credit card expiry date running out and getting a new one. And suddenly I had all these platforms reaching out to me, going, Jeff, sign up, continue your subscription. I'm going, "Ah, do I really need this?"

Robbie Kellman Baxter: Jeff we love you, where did you go.

Jeff Bullas: And I went, "Do I really need you anymore?" So that successful strategy was to get rid of my subscriptions was to just let the credit card finish its use by date and get sent a new one because the number changes. Subscription fatigue is certainly real. And it also just slowly fills up your credit card statement as you join more and more, on Netflix, on Amazon Prime now. I haven't joined Disney or the others yet, but it's certainly an area that can be an issue and create a bad name for the subscription models for the consumer if they have trouble getting out of it. So now the other thing I wanted to talk about too was, and whilst I'm intrigued by your process. And in other words, when you talk to companies, what are the steps you take them through to help them develop the model?

Jeff Bullas: Now I read the book and it's got a lot of detail in it. We're not going to go into all that, but I want to talk about the concepts, but we'll do that in a minute. The other thing that intrigues me is we've got Netflix which has video, right? The other one business model that really intrigues me is Spotify. Spotify has just sort of in the last 12 months, got away from just talking about being a music channel to an audio only platform. And they've done some interesting moves and especially in the podcasting space. They have just signed up Joe Rogan last, or I think it was this year, one of the world's top podcasters, who also has a YouTube channel. And they bought the rights and licensed it, I think for several years, for 100 million dollars. Good on you Joe, you've been an overnight success after doing it for 12 years because that's how long he's been doing it.

Jeff Bullas: So Joe's done very well out of that. But the interesting thing is for me, is looking at... Because Apple launched a podcast app, essentially, I think it was in 2012. And they really haven't done much with it. Spotify have said, okay, so let's take podcasting and audio to a whole new level of subscription model. And they've invested half a billion dollars in both producers of content, which includes not only as corporate podcasts, also narrative podcasts, which then could be used both on video as well as audio. But I'm really intrigued by what you think about Spotify's evolution in the audio only space and subscription, if you've got some insights on that.

Robbie Kellman Baxter: Yeah. Well, if you think about... I can try to even answer these two questions at once by saying the first step of building a good subscription is seeing what problem you're solving and for whom or what goal you're helping that group to achieve. So Spotify frames that as how people listen, what people want to listen to, what's audio only, it opens up a whole new world for them. And it makes sense because you're I don't... A lot of times we listen to music, listen to podcasts for the same reason, which is I need to use my eyes for something else, right. Or I need to use my hands for something else, and I can't watch at the same time. So it's I'm cooking, I'm driving, I'm on a run. And sometimes I listen to music, sometimes I listen to podcasts, so that makes sense.

Robbie Kellman Baxter: Investing in a big name title, The Joe Rogan Show in that case is a way of signaling to people that you're there and you're there to stay and getting a whole bunch of people to give it a try. So it's great for trial and something that Spotify has been really great at since the very beginning. I've written quite a lot on this is getting their footprint, changing people's habits. First, they wanted to change your habit to get you to use Spotify as a way to listen to music, which of course we all do now. But five years ago, that was a really novel approach to music.

Robbie Kellman Baxter: We all had, we owned our music and now most people like my kids don't own any music. They just listen to what they want on Spotify. So they wanted to do a land grab. They wanted to get everybody to make the new habit, be Spotify, not Apple Music or Amazon or any of the other options. And now they're taking another leap forward and saying we want you to listen to your podcasts here too. We want to own your ears, and they're able to wait for a while on the payback. They're still full on in investment mode, land grab mode.

Jeff Bullas: Yup. They're playing the long game. And that's what Amazon did for years since it launched back in the 1990s. Netflix is playing the long game as well. I don't know whether they've even made any money yet, but it's very difficult when you're spending $16 billion a year in content creation. But the interesting thing is that I'm intrigued by was Spotify, is that they're seeing an opportunity in the podcasting space. And podcasting is a very interesting area, not just because I'm doing it, but just watching it from a content creation point of view and also owning the content and making a difference because podcasts can be turned into three pieces of different media, okay. Not just snippets that you can break up. So a podcast, and this is an example here, we're doing this in audio, we're doing it video and then I'm going to use rev.com to turn it into text.

Jeff Bullas: I'll have three pieces of major content then I can carve that up any way I like. Into snippets on video, on the YouTube channel and we're experimenting with that. But the other thing that... It's a long game. It really is. I'm intrigued by Netflix investment and they obviously see this land grab territory grab globally, because that's how they roll, is to basically say, well, let's dive into the whole podcasting area because interesting data on podcasts is there's only 1 million podcasts globally, whereas there are 1 billion blogs.

Jeff Bullas: So which one do you think is less competitive? So I'm intrigued by that, on that basis, as well as the ability to take one event such as we're doing right here right now, and turn to three different media and then I can then turn it into maybe 12 or 20 different pieces of content from that. But the other thing that interests me too, is content creation because I live in the content space, I'm essentially a niche publisher. So what is your observation of niche publishers and the forever transaction and also use the term to the forever promise. But let's go back to the question I should be asking before I just go down rabbit hole after rabbit hole, what do you think about niche publishers and the forever transaction model and how they could maybe apply? What have you seen in the niche publisher space or even in the publisher space, such as even New York Times and others that are creating podcasts as well?

Robbie Kellman Baxter: Yeah, well, I think it's a great space to be in focusing on a particular niche really means I know my customer really well and I'm only going to create content that they're going to value. And then the next step, when you make it into a subscription is to say that they value enough to pay for.

Robbie Kellman Baxter: And in the world of news where I spend a fair amount of time one of the big themes is reader revenue. That's what they call it, reader revenue, which in great part is subscription revenue. Meaning that instead of getting the revenue from advertisers who are paying for eyeballs, for impressions, they're going for readers who are paying for content worth paying for, and just the discipline of content worth paying for. I feel every content creator should charge for their content just to force themselves to really focus on what's the content that your customers or your readers really value.

Robbie Kellman Baxter: But when you get it right, it's such a beautiful model because you learn from your members' behavior, you learn from what they're actually reading and how long they're spending, the metrics for any niche publisher, any content creator really is frequency, recency, and depth, and breadth of usage. So when was the last time they logged in, how often did they log in and check you out? And when they're there, what do they do? How much time do they spend? How many different types of features do they use or different types of content do they use? And that can guide you forward in terms of what else to create. So it's really a very beautiful model and perfect for subscription.

Jeff Bullas: And that raises another question, which I'm very curious about is there's so much content out there. There's so many news providers and news is one thing, but information education are another and you operate in a niche so do I. Americans call it niche by the way I call it niche, sometimes I say niche, depending on what-

Robbie Kellman Baxter: Sounds much nicer the way you say it.

Jeff Bullas: It depends on whatever country I feel comfortable with that day. But there's so much free content. So how do you identify what is premium content? And then you've got to test pricing models I know, but how do you choose... Okay, so I'm going to choose premium content. What sort of premium content sort of niche publisher consider and test?

Robbie Kellman Baxter: Yeah, there's a lot of different ways of doing this, but the way that I think makes the most sense, if you want to have subscription revenue, you're basically optimizing everything you do around your reader, your consumer of content, rather than whatever other model you have. And so you want to create every piece of content should be something that they would pay for. And then when you ask what should be free, it's not that this content is lousy, so it's free and this content is good so you pay for it. It's we're giving you a taste so that you see how good it is and you want to be part of it. That's a free trial, right? I don't know what it tastes like. I don't believe it's as good as you say. I don't understand what you mean when you say it's really optimized for a person like me, show me what you got. So you give them a taste of the best that you've got.

Robbie Kellman Baxter: One of your great pieces of premium content. There's also what people call a freemium model, where some content is free forever. And this is where I think a lot of news organizations, for example, give away some content for free forever. Sometimes they say for example, all the COVID content is free. All the health content is free. Financial news you pay for, or the other thing that's very popular is to give people an ongoing limited quantity of content. So you get 10 articles a month, five articles a month, one article a month. Sometimes it even ratchets down over time as a way of proving to your audience that they're actually consuming more content than they think they are, because they're like, "I don't want to subscribe because I'm not going to use it very much." And if they keep banging up against that, "You looked at 10 pieces of content this month, you've looked at your 10 pieces of content." They're like "Okay, fine. I really am using it."

Robbie Kellman Baxter: But whatever you're giving away for free with your content, you should have a very clear and predictable return on that investment. What is the value you're getting for each piece of free content you put out there, you want to be able to see that after somebody sees 14 articles, they have a 90% likelihood of converting. Or in exchange for this free trial, 82% of people convert after the free trial and 50% of those are still around a year later. Those are the kinds of numbers that will allow you to understand if it's worth it, to give away anything for free. And I know you're seeing this too, that a lot of publications and content creators are finding that there's never a good reason to give away free, people know what it tastes like, so they might as well pay.

Jeff Bullas: Yeah. And I think one of the ones I've observed doing it very well is Wired Magazine. They give you, I think, five free pieces of content a month. Then at the end of that, they're going to want to view them more, you'll see the top of the headline. If you want to read more, going beyond the five is going to cost you X. So yeah, that's interesting in terms of that model, because I certainly exist not in the new space, but in the education, information space, value adding to digital entrepreneurs who want to grow their business globally. And that's what the podcast is about. So that's from a purely selfish reason, I'm really glad you shared that really. So it gives me some ideas.

Robbie Kellman Baxter: Yeah. I would just say that if your content is actually helping people make more money, then you absolutely should be charging for it because they're getting an ROI. It's harder for me to justify an ROI on entertainment content.

Jeff Bullas: Yes.

Robbie Kellman Baxter: Spending my money to learn about entertainment or to just amuse myself, but to learn things that I can actually apply at work, I can see exactly how they help me grow my business. So yeah, you should definitely be charging for your content.

Jeff Bullas: At least is watch out, you're going to see some premium content turning up shortly that month. It might pay a little bit for, but we'll bring great value, anyway. When I read your book, you talked about three stages, you talked about launch, you talked about stage two scaling, then you talked stage three, which is leading and another term for that is optimizing, I think would be appropriate as well. So let's talk about the three stages, launch, scale, and lead. Just a quick snapshot of your top insights on those three. So tell us a little bit what you're going to do as an organization, because you go and talk to an organization, they want to build a forever transaction models, subscription model, membership model. So what are some of the key things I need to remember when looking to watch that you've discovered as you help people out?

Robbie Kellman Baxter: Yeah. So when you're launching, you want to have a product market fit, meaning you want to know who you're making this offering for, and that what you've created for them is what they want. And you want to look at two dimensions. One is, is the headline benefit enough to get them to sign up with you? So do they understand your offer? And is there value there that they recognize before they've become a member. And two, are there engagement benefits that are going to keep them for a long time, because there's no point in winning someone over to your subscription if they're going to cancel right away.

Robbie Kellman Baxter: So once you have that product market fit, where you say, I'm going to do this thing for you and I'm going to do it forever and people understand it and come for that headline benefit and then continue to get value over time, that's what you need to do before you invest in turning on your loud speaker and bringing more people in or in building out your infrastructure or anything around scaling it. You want to really get that, understand what that promise is you're making to your customer and be confident that you can deliver on it with the product you've built.

Jeff Bullas: So what you're really saying is understand your customer first and then two continue to offer them that forever promise and deliver on it. Is that correct?

Robbie Kellman Baxter: Yep, exactly.

Jeff Bullas: So number two scaling. And of course in business a lot of us start small businesses that stay small. Some of us are solopreneurs, some have a team, some have bigger organizations, and we now have a lot of technology to help us scale. Tell us about some of the key things that we should consider if we're going to scale the forever transaction and membership.

Robbie Kellman Baxter: Yeah. So this is the time where you know that for every dollar you spend on acquiring a new customer, it's going to predictably lead to a big lifetime value. They're going to stay for a long time and keep paying you. So this is the time when you want to put money into acquiring more customers and growing really fast, but it's really important to pay attention to your engagement and retention metrics, as much as if not more than you look at your acquisition metrics, because the thing that's going to make you successful is how long those people stay and whether that relationship expands over time or contracts over time.

Robbie Kellman Baxter: And so you want to really understand that and balance those two. And you want to make sure that as you grow, you're creating a culture in your organization that's focused on your customers long-term success, rather than focusing on your quarterly revenue. It can be very, very tempting in this space when you're growing so fast and you're acquiring customers so fast to focus on that quarterly revenue number, rather than focusing on that lifetime customer value number, how much each customer's worth. So that's probably the most critical thing in your scaling phase.

Jeff Bullas: The two things to consider are your scaling, number one, customer acquisitions scaled up, and then is focused on your metrics to make sure that you're not churning so that you're not spending money and burning at the other end. Now, there's another question I have in the scaling cup, the role of technology in terms of, because I think important part of scaling, tells a little bit about your insights on using technology to help scale as well.

Robbie Kellman Baxter: Yeah, well, there's good news and bad news on technology. The good news is there are all kinds of SAS services that you can use for subscription billing, for customer success, for eCommerce, for content management, for digital community. So whatever you can dream up for your subscribers, you can build it with out of the box solutions. So you don't have to be a technologist to run a pretty robust subscription offering. That's the good news, the bad news is it's available to everybody. So there is an explosion of subscription offerings out there that you're kind of competing with and consumers are weary and they're picky. And they're saying, why aren't you giving me the same experience that Netflix gives me or Amazon gives me, or LinkedIn gives me or Spotify gives me. And you're just starting out. You're a solopreneur, it's hard to perform on that level.

Robbie Kellman Baxter: So the expectations are very, very high. I would say that the temptation with all of this out of the box software available is to make your offering really complicated. It's like when you get the 64 box of crayons and you want to use every single color to make your picture, and it looks like a mess, but artists will only take a selection and then make something that's much more composed. It's the same thing. You need to use some restraint on your offering. I always advise a subscription business. It's just getting started, just do one tier, just one offer, and don't break it up into a thousand pieces and say, you have to pay more based on the number of people in your company and the number of minutes you spend, and the number of features you use, and how many times you call us. You want to keep the pricing really simple, even if the technology would allow you to make the pricing complex.

Jeff Bullas: Yeah. And that comes down to, I suppose, creating a minimum viable product that uses a minimum viable pricing, so, it's great to hear. The last stage three is, okay, so you're scaling, you're now growing. You're not getting much churn. You're getting people onboarding and they're not leaving. So that comes down to the last stage, which is to lead. And another way when I read that was, is continuing to optimize what you're doing and what you're offering and how you go about it. So I suppose that's another term to describe leading. Can you tell us more about your insights on what leading means in terms of continuing to evolve as an organization?

Robbie Kellman Baxter: Yeah, so, businesses that have been successfully using the membership mindset to justify subscription pricing, and that's kind of a distinction by the way, between membership and subscription. Membership is about the way you feel about your customers, subscription is a pricing decision that you make to capture the value from those customers.

Robbie Kellman Baxter: And what happens in a lot of businesses that have been using subscription pricing for a long time is they start to rest on their laurels. And you can tell, like when I go into a company that's been doing subscription for, let's say 20 or 30 years, these are like your professional associations, your newspapers, your gyms, what you often see is the existing members are really loyal and they've been around for years, but their product isn't relevant to tomorrow's subscribers, people don't join. And those companies will tell me, oh, young people, they're not joiners, young people don't read newspapers, young people don't go to the gym, young people don't join associations.

Robbie Kellman Baxter: But what you find is that those young people still have their consumer hat and they're looking at alternatives. And they're saying, well, I could pay to get my newspaper delivered once a day, or I could subscribe or access for free all of these other news organizations' content for free, or even if I pay for it I get updates all day long. Why would I pay for the newspaper if I can get a better deal? And so it's really important for organizations that have been around for a while to, I always say, use your telescope as well as your microscope. Don't just focus on today's members and keeping them happy. Think about what's going to delight your prospects for tomorrow.

Jeff Bullas: Right. That's a very interesting insight. And what you did say at the end of your book was you said how to build and maintain a forever transaction that operates at the intersection of three things. And you mentioned what's in it for the customer, what's in it for us and what's in it for everyone. And that's what you really covered with the optimization is that you've really got to put on three hats and operate at that intersection, which I've found really, really thought provoking.

Robbie Kellman Baxter: Oh good. Yeah. Because it's that last piece for everyone else that really builds engagement and support, and also gets you out of bed in the morning as an entrepreneur, frankly. Feeling like you're doing something for the world, but it really does keep you kind of very focused on the bigger picture as well as on the wellbeing of your small group of members.

Jeff Bullas: So that brings up another thing in terms of making sure that you're considering those three in terms of your model and also being aware of it and continue to remind yourself to be aware of it. What are some of the major trends you're seeing in the membership model for every transaction and you mentioned a few, one was digital to physical goals, mature adopting startup models, the ones from loyalty to premium, and the other one was health care transitioned to patient comfort or was it patient control or comfort?

Robbie Kellman Baxter: Yeah, patient centric.

Jeff Bullas: Patient centric.

Robbie Kellman Baxter: Yeah. So, the idea that most healthcare systems fix people when they're broken, that's what they're in the business of doing. You come in and you say, I have a broken arm and they fix your arm. You say, I'm not at the right weight, they give you the medications you need. But they wait until you're broken, which is not really aligned with the needs of the patient, because what I want is to not get sick in the first place. I don't want to break. So organizations that are more focused on or that are compensated for keeping you healthy, as opposed to fixing you when you're broken, that's kind of the big transformation in health care that I see right now.

Jeff Bullas: Yeah. I chave seen it in the Australian healthcare system as well, that the doctors are taking a management approach rather than fixing it when it's broken. And I think that's great. And that also requires us to be responsible. I've got a pain in my leg, I'll get around to it, or I'd need to go and get that skin cancer check every year. The challenge gets a little bit tougher as you get older because things start kind of going, what's that ache, I really don't know. So it's tough.

Jeff Bullas: So what are some of the best examples you've seen of in the marketplace recently that you go, wow, these guys are just nailing it. You've spoken about a few, what are some others that are maybe outliers in different industries that are some of the real stars that are producing great forever transaction business models and the other one, where do you see some of the opportunities going forward? So let's do the first question first.

Robbie Kellman Baxter: Yeah. Well, something I have seen. So a couple of things, one is solopreneurs with expertise, subject matter experts, building a membership around your expertise, lots and lots of examples. John Lee Dumas is one that comes to mind. You mentioned Tim Ferris, where they're taking their expertise and they're expanding it. They're layering in more and more value around the same goal that their audience has. Once you have the relationship with the audience, the goal is to layer in more value for them to help them to increase the likelihood that they're going to achieve that goal. So if you're helping people be successful in their careers, there are dozens of ways that you can do that. So you keep layering in more value and focus on the ones that are moving the needle. So I see a lot of growth and possibility there for small business owners for solopreneurs.

Robbie Kellman Baxter: Another thing that's interesting that's emerging is this idea of retailers offering a premium loyalty program where you pay upfront for specific benefits rather than accruing those benefits by earning them through points.

Robbie Kellman Baxter: So an example of that is Restoration Hardware, which is a furniture store. If you pay an upfront fee to become a member, you get access to an interior designer, you get access to borrow the swatches of the different fabrics and you get a 30% discount on everything in the store. So if you're serious about upgrading your home, this is a great deal. So it's really focused on aligning your goals with their goals, kind of in the model of Amazon Prime, which launched with free shipping or even Costco, which says you can't even shop with us unless you're a member.

Jeff Bullas: That's correct. Yeah. So some of these models have been around a long time and some, like you said, have rest on their laurels. I suppose you'd see that all the time, you mentioned loyalty, you've mentioned the other ones were digital and physical, which Peloton seemed to have done very, very well, haven't they?

Robbie Kellman Baxter: Yeah. Caterpillar, heavy equipment company threshers and crushers and cranes, those kinds of large expensive products that you would use for agriculture and construction. They're looking at models around subscription, kind of like the Peloton where maybe instead of buying the item, you access it and you get data benchmarking, tracking recommendations, rather than just being kind of saddled with the ownership of this million dollar piece of equipment that you may only use a couple of times a year.

Jeff Bullas: Yeah. A subscription model goes into sort of a whole lot of areas recently sort of business model for boats where you just pay a monthly fee. You don't have to worry about putting the boat at the marina. You don't have to worry about maintenance. They have an onboarding fee where they train you how to sell the boat. So don't drive it into another boat, which is a pretty good idea. The other one is that they look after all maintenance all you have to pay for is the consumer, which is the fuel. So the other one I came across the other day, which was fascinating too, was and I think some of the big brands, car brands are looking at it as well as a subscription model for cars. It's where you get used to the car, you pay a 12 month subscription. And if you go to a premium program, you actually can swap cars as well.

Robbie Kellman Baxter: Porsche has that.

Jeff Bullas: Yeah.

Robbie Kellman Baxter: Yeah. Many like Porsche, Cadillac, Volvo have all experimented with subscription pricing for cars, with slightly different offers. With Volvo, you're subscribing to a single make and model, but it's always a new version and you're not responsible for all the maintenance and care. With Porsche, you're actually getting access to a fleet of cars so you can drive a Cayenne during the week and a convertible on the weekend. So you can actually have a wardrobe of cars. And really what all these subscriptions are doing is repackaging the value so that you don't have the burdens you don't want. So if you want variety and you're willing to pay a premium, you can do that. Or if you want to only have a new car, that's kind of what leasing has always been. You only want to have a new car and you don't want to have any of the burdens of ownership, you can do that as well. It's just different ways of packaging the value that align better to the needs of the customer.

Jeff Bullas: Yep. And that area, because we all think we own stuff, but in the end stuff owns us. And you just think about a car. You've got to put fuel in it. You've got to get it maintained. You've got to get insurance, you've got to get it registered. You've got to make sure it's roadworthy, [inaudible 00:57:48]. You got to check it-

Robbie Kellman Baxter: Plus store it.

Jeff Bullas: You gotta store it. So in the end stuff ends up owning you, it's not an asset. What we want is experiences. Isn't it?

Robbie Kellman Baxter: Yeah.

Jeff Bullas: We want to have the experience of driving a Porsche. What's that? Well, if it's a convertible, it's wind in your hair, it's sun in your face. It's the feeling of freedom and also going well, a status symbol as well makes me feel good.

Robbie Kellman Baxter: Yeah, make me look good.

Jeff Bullas: Yeah, exactly. The hallway area of subscription, do you think can apply to almost anything, almost any industry?

Robbie Kellman Baxter: Yeah. The only places where I think it doesn't apply is any business that doesn't depend on sales and marketing. So if you own a fleet of fishing boats and you sell your fish at the market price every day and there's only one market and there's only one price, you don't really need a subscription because the customer doesn't have a choice. If you're the last gas for 100 miles and the customer doesn't have a choice, you don't have to build an ongoing relationship with them, you don't need to build trust with them. If you have the patent and the customer doesn't have a choice, again, you don't have to worry about the long-term relationship. But anywhere where your business would benefit by having a trusted long-term relationship with your best customers, that's a place that's ripe for subscriptions.

Jeff Bullas: That's a great insight. I think that's a great place to finish. So in reality, a lot of businesses, in fact, a majority can use the forever transaction membership model to build a business and make it sticky and also grow their revenue. Thank you very much, Robbie, you for your insights. It's been absolutely fabulous. I've learned a lot and I'm sure our listeners will too. I look forward to maybe having another conversation down the track because this is an evolving area, isn't it?

Robbie Kellman Baxter: It really is. There's so much going on right now, but it's been a pleasure talking to you. We covered a tremendous amount.

Jeff Bullas: It's been fabulous.

Robbie Kellman Baxter: It's great.

Jeff Bullas: Thank you very much for your time, and I look forward to sharing this with my audience and also we'll share your books. So how can you find Robbie, where's the best place to contact you?

Robbie Kellman Baxter: The best place is robbiekellmanbaxter.com. My name, all three names, robbiekellmanbaxter.com. You can also find me at the titles of my books, The Forever Transaction. If you can type in Forever Transaction or Membership Economy, you'll find me.

Jeff Bullas: Awesome. Thank you very much.