Manufacturers must adopt subscription models to grow

More and more companies are turning to the emerging subscription economy, and it could be time for the manufacturing industry to tune in, Zuora CEO Tien Tzuo told CNBC Wednesday.

“They know how you use your product. They provide a service to you,” Tzuo said in a sit down with Jim Cramer on “Mad Money.” “What you’re gonna see is every physical product, from appliances [at] Whirlpool, cars from Ford, tractors from Caterpillar, they’re all going to go through a transformation and become services.”

In the past 7 years, Cramer pointed out, subscription businesses have grown revenue five times faster than the S&P 500, according to a subscription economy index. That equates to about 300% of growth during that period, Tzuo added.

Zuora provides software to help businesses launch and manage their subscription-based services. The cloud company has a $2.2 billion market cap.

“What we’re seeing is the early adopters of the subscription economy are finding growth and that’s why everybody is moving into the space,” he said.

A large subscriber base of long-term customers could help influence a company’s value, Tzuo said. That explains why Wall Street has placed a lot of value in the more nascent subscription businesses, he added, such as Netflix.

“This business is about building customer-centric business models taking technology today – IoT, mobile, whatever it is – and then transforming what you do as a service,” he said. “This is the heart of these digital transformations that the companies are going through.”

Shares of Zuora rose 0.30% Wednesday to close north of $20. The stock is up more than 10% this year.