The recurring revenue business model has been referred to as the “best business model in the world.” It kicks the pants off of loyalty programs, which is not a guarantee of consistent revenue, and ensures a steady stream of dollars from customers.
But recurring revenue models have broken the traditional retail “shopping cart.” More complex than simple one-time transactions, ongoing payment streams for membership, subscription and freemium products and services require subscription billing platforms to handle serial and variable invoicing, while managing entitlement (access permissions) to files and services in real-time.
A look at recurring revenue models
For example, the Discover a New Love ebook club allows members to select one DRM-free romance novel from a selection of 4 titles each month. Membership is $9.99, prepaid for 6 months. Each month, the system must recognize the user’s membership as valid and identify if the month’s book allowance has been used or not.
Members can buy additional books from its Store at steep discounts. The system must recognize the member’s eligibility to receive the discount for each incremental transaction.
Music subscription service Rdio offers 3 service tiers including a family pack that allows 2 to 3 users on one account, and offers credit card and mobile carrier billing. If a payment is declined, the system must suspend service to all users on the account.
Listeners may stream unlimited and can purchase individual tracks for download which may be billed mid-month or combined with the monthly subscription payment (at Rdio’s discretion). If a user decides to upgrade or downgrade a service tier mid-month, Rdio must determine how to pro-rate billing accordingly.
Virtual worlds like World of Warcraft and Farmville may be “freemium” (free to play with revenues coming from add-ons and virtual products) or premium (one-time or monthly fee). The big revenue comes from incremental purchases like avatar customizations, special skills, virtual goods and power levels. 35% of gamers bought virtual goods to enhance game play, with an average spend of $64 per player in 2011. The industry for in-app virtual goods is expected to hit $6 Billion next year.
Players may buy credits in bulk to redeem for goods or accumulate points equivalent to real money, or pay with a combination of points and money. Credits may also be gifted to a friend. In some cases, points can come from physical purchases. Skylanders sells toys that sit on a gaming console that unlock powers (an alternative would be to enter a serial number from the product).
Billing systems need to handle both real and virtual currencies, paid in advanced and earned or gifted through gameplay. They need to work with the game to identify when “consumables” are churned or expire, and to recognize what parts of the game a user is entitled to based on his player stats or account balance.
For subscription commerce, billing is a business model, and the ecommerce platform must be built around the intricacies of the transactions involved over the lifespan of the customer relationship.