Posts Tagged ‘Zuora’

Get a Horse

Posted: December 12, 2013 in CRM
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ImageI was literally gobsmacked and I had to re-read the post several times.  Gartner analyst Robert Desisto—who I don’t know at all—wrote a short post last week saying that today’s SaaS vendors, “will resist to the move to ‘pay as you go’ because it will have a very big impact on their business model predictability” and become “legacy dinosaurs” as his headline said.

But, but, but! I stammered to myself.  How can that be?  I have been researching and writing about this space for fourteen years.  I was the first analyst to cover Salesforce and a bunch of other early entrants, and one of the first people to have a practice dedicated to SaaS.  They all had pay as you go models, at least back then.  Did I miss something?

One of the real challenges of running a subscription business, and this includes SaaS companies as well as the Dollar Shave Club, ZipCar, and all the other companies that jumped on the bandwagon, is that you have very different revenue flows that must be accounted for.  Companies like Zuora have built big businesses and attracted hundreds of millions of dollars in venture funding to build billing, payment, finance and accounting systems that cater to this massive industry.  Now along comes Gartner with the clear implication that the pay as you go model is not in fact alive and well?  I didn’t get it.  Still don’t.

As a sanity check I contacted Tien Tzuo, CEO of Zuora, a subscription billing, payments and finance provider.  In his previous life Tzuo was CMO of Salesforce and at one point had the job of inventing a billing system for Salesforce that operated the way subscriptions run.  Here are some points from Tien.

  • Just because some SaaS companies do three-year contracts that doesn’t make them enterprise software dinosaurs.  Every successful SaaS company realizes that keeping churn low is a core part of the model, and every successful SaaS company realizes that long term contracts do not equate to low churn—the only thing that truly reduces churn is to have strong adoption and customer success.  That’s why SaaS vendors invest in customer success while on premise software companies do not
  • Many SaaS companies actually don’t offer three-year contracts.  At Zuora, we see lots of companies with month-to-month models.  CDNs, cloud companies, API companies, point-of-sale systems—these industries all skew towards month-to-month.  Radian6 also had a month-to-month model.  The post also says doing three-year contracts makes SaaS companies vulnerable to other startups who choose to offer month-to-month … but there’s nothing to stop the SaaS vendor from changing their billing policy whenever they want. (my note: provided they have a product like Zuora that makes this easy to do the billing and accounting).
  • Customers don’t have to accept three-year contracts.  It’s naive to say that it’s the SaaS vendor that forces it on them—many companies actually prefer long term contracts once they are committed to the SaaS vendor, as this gets them the best price as well as longer-term price protection.  This can be a win-win scenario.
  • This does create havoc on revenue recognition.  Monthly billing makes billing messy but revenue recognition easier.  Annual or multi-year billing makes billing easy but revenue recognition very hard.  There’s no free lunch.

It was such an odd thing to read.  It reminds me of some other chestnuts like, “If god wanted man to fly he would have given us wings,” or “We will never need telephones in England because we have such an abundant supply of messenger boys,” or “Someday every town will have a computer,” or my favorite, “640 KB is all the memory your computer will ever need.”  These are all such Luddite comments you just knew upon hearing them that they won’t stand the test of time.  Heck, this one didn’t survive a day before people started scratching their heads. 

Perhaps the last word on this comes from the most authoritative source—the marketplace.  On December 10, BrainSell, a Boston-based technology company announced it would offer an integrated solution of Intuit’s QuickBooks with bi-directional synch to Salesforce.  According to the press release, “What’s really great is that customers can get a Salesforce subscription from BrainSell with no contract, and the ability to pay month to month!”

http://www.itbusinessnet.com/article/Salesforcecom-Month-to-Month-Subscriptions-Now-Available-through-BrainSell-Boston-Based-Technology-Firm-2963070

 

 

Zuora User Meeting

Posted: September 28, 2012 in ERP
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Believe it or not some things that happened in San Francisco last week had little to do with Dreamforce.  Amazing that I’m just getting to that now.  Some vendors in the Salesforce ecosystem used the proximity of mutual customers to hold their own user meetings and if they weren’t exactly meetings within meetings, they were meetings within the same week and location.

Zuora held a successful user meeting just prior to Dreamforce that I attended and I was most impressed by its size and the new product introductions.  The event, “Subscribed,” is a couple of years old in name but older than that in practice and the company packed a lot of enthusiastic customers and partners into the Ritz Carlton.  The choice of location was smart, in the financial district at the other end of town from the Moscone Center, which gave some distinction from the larger event later in the week.  But my greatest interest was in product messaging.

Zuora CEO, Tien Tzuo, filled the last slot (for now) in his product universe and deployed a nifty description to how the product line comes together and why it matters.  The product focus was on Z-Finance, which joined Z-Billing and Z-Commerce in a holy trinity of back office applications aimed at subscription companies.  The description is “Subscription Business Management,” which I like as it elevates the discussion from simply how do I do my subscription billing to how do I manage a subscription business which is much different from a product business — especially when the subscription business is inside of the conventional business.

Z-Finance gives financial executives the tools they need to examine their subscription data and manage their businesses accordingly while being able to dump the proceeds into the conventional GL in a way that makes sense to the traditional side of the house.  It’s smart really and no simply feat.  So now Zuora provides its customers with the ability to simply and quickly configure, administer, bill, collect, analyze and reconcile the subscription business.

The importance of Z-Finance is two fold.  There is no doubt that pure subscription companies would need it sooner or later, but Z-Finance is also a key piece of technology that will help conventional companies exploring subscriptions to understand better how subscriptions fit into their business models.  This expands Zuora’s market significantly, so bravo for Zuora.

Truth check — Zuora is a client and I recently published a small book, “The Subscription Economy—How Subscriptions Improve Business.”  Fortunately, my messaging was congruent.


Oh bother.  They’re at it again.  I’m on the long flight from Boston to Dreamforce in San Francisco and I have a lot of time to think.  First stop is the Zuora user group meeting “Subscribed” happening at the Ritz Carlton.  It’s Zuora’s second bash like this and it’s nice to see them doing well with a great idea like subscription billing.

I am on a Virgin flight, which is my choice for these long hauls.  The plane is full of Dreamforce attendees and the excitement is palpable.

It’s nice to have the option of WiFi and power for my computer so that I can work.  Signing onto the go-go inflight wireless service is always something of a Gumpian box of chocolates, you never know what THEY’RE going to get and today is no exception.

Back in July I wrote a post on a similar Virgin flight titled, “Like a Virgin” that delved into the murky world of product pricing and it looks like this might become a thing for me because I am doing my own little inflation study on the price of WiFi.  If you need to catch up on my musings, you can click the link but a synopsis of my study from the original post is here:

Thanks to go-go’s record keeping, I am able to access my account history.  It seems in 2010, the first time I bought the service, I paid $12.95.  The cost actually went down for several flights after that either because they were running a special to get people hooked or, and this is a dim memory, someone was giving free or discounted service to all passengers during the holidays.

At any rate, my point is that the price of WiFi has gone up dramatically over less than two years.  Today I paid $17.95 for the same service I once paid $9.95 for.  Off the base of $9.95 we’re looking at an 80% increase and divided over two years that produces a 40% inflation rate.  Yikes!  Looks like the increasing cost of Internet is tracking the plane’s altitude.

Ok, so back to today.  Want to guess what WiFi costs today?  Today I plunked down $34.95 for a month because I am going to do this a lot this month, but a single day has a cost of $24.95 and a single day is the benchmark.  Going from $17.95 to $24.95 is a rise of a bit more than 33%.  Presumably they were making money at $17.95 and now that the equipment is fully amortized the additional fee is pure profit.

I know, the fee indirectly includes the free electricity for my computer but I prefer to think of it as something they throw in for the cost of a ticket since I could use the plug for anything else like charging my phone.  But if I am charging a phone and not using WiFi then am I technically freeloading on the WiFi users?  It gets complicated.

At any rate I think I’d have to go back to 2010 when I started using WiFi on these flights.  If you go back to the July post you see that I started paying $12.95 then it went to $9.95 before beginning its inexorable climb.  So take your pick.  I have to keep my socks on here so my math might be off but it looks like at least an inflation rate of 100% over two years.  But more interestingly, I know I am not paying double the cost of a ticket that I did in 2010 even though jet fuel is up considerably in that time.  Again some quick math with shoes on.  The cost of WiFi is now roughly equal to 3.8% of the ticket, not bad at all or about six gallons of jet fuel.

Ok, but like an economist I know there is more than one way to calculate this inflation rate.  Consider this: The cost of WiFi is so high now that they’ve come up with a new entry point, a ten dollar cost for one hour of service.  So that’s ten bucks an hour but when this started in 2010 it was ten dollars for the whole six hour flight or about $1.50 per hour.  If you use 12.95 as the basis then the cost per hour is more but no matter, this is back of the envelope stuff.  But the change suggests an inflation rate of 600%.  Six hundred percent!  Oops!  I really meant 300% per year over two years.  Feel better?  I do.

Well enough of this I am signing off from somewhere over Wisconsin traveling at 422 mph at an altitude of 36,199 feet.  It’s -73 degrees outside and $24.95 inside.

Like a Virgin

Posted: July 11, 2012 in CRM, Economics
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It’s a slow week with lots of people on vacation.  I am on a plane heading to San Francisco to shoot a video with Zuora but judging by the number of screaming children under five on the plane I would say that I am in the minority on this one.  No matter, they’re cute and well behaved and remind me of a time when I burned a bunch of miles taking the family on a cross-country trip.  As I recall, we sat in first class and one of my boys who was in the process of toilet training liked to stand on his head in his seat.  Takeoffs and landings were an especially challenging part of the trip.  I’ll spare you the fond memories of the other thing.

But I am flying and writing today and wondering about inflation of all things.  You might find that odd given the state of the economy and the official numbers coming out of Washington and other world capitals but maybe it isn’t.

Inflation is measured as the cost of a market basket of goods and services measured and recorded on a monthly basis.  Naturally, there are numerous games we can play with inflation by simply manipulating the market basket.  One of the favorite tricks of pundits and prognosticators is the exclusion.  That’s where someone says that for instance, energy and food are so volatile that we shouldn’t count them because their volatility skews the numbers.

But what’s the point of having the market basket if you aren’t going to compare apples?  When they take the volatiles out they skew the picture just as sure as they do when they leave them in but with one critical difference.  If energy prices rise or if food does the same, it does me no good to know that inflation is somehow supposedly under control if I don’t have any money left at the end of the month because I spent more on the staples of life than I did the month before.

A few years ago one administration, I forget who was president, started substituting things in the market basket a construct (and a data record) that went back to the New Deal.  Here’s how they worked it.  Say beef prices went up because Argentina was suddenly exporting less and the American beef industry moved to sell more product internationally leaving less for domestic demand.  The inflation watchdogs would substitute chicken in the market basket thinking that this is what savvy consumers might do if beef prices rose too much too fast.  The result was stable inflation rather than the reality that higher beef prices contributed to that penniless feeling you came home from the grocery store with.

Finally, the market basket is far from all encompassing so there are plenty of places where prices rise but their rise does not register.  I remember reading about a guy who kept his own version of the market basket and based it on the things that were most important to him.  One of those things was the cost of a milkshake at the local dairy bar.  I don’t recall all the details but his results were at variance, as they say in economic speak, to the “real” inflation numbers.

In that spirit I would like to offer an item for the basket and, who knows, I may be starting my own basket.  It’s the price of wireless internet service on a Virgin flight, which uses the go-go service.  Thanks to go-go’s record keeping, I am able to access mu account history.  It seems in 2010, the first time I bought the service I paid $12.95.  The cost actually went down for several flights after that either because they were running a special to get people hooked or, and this is a dim memory, someone was giving free or discounted service to all passengers during the holidays.

At any rate, my point is that the price of WiFi has gone up dramatically over less than two years.  Today I paid $17.95 for the same service I once paid $9.95 for.  Off the base of $9.95 we’re looking at an 80% increase and divided over two years that produces a 40% inflation rate.  Yikes!  Looks like the increasing cost of internet is tracking the plane’s altitude.

Economists would probably just call this pricing the asset to its utility.  You pay a small-ish price for connectivity and you get to have the illusion of being productive while flying 500 mph across the continent.  But even as the price of connecting has increased, the service has deteriorated.  More people on the router means slower connections and increasing frustration.

But more to the point there is the issue of the customer.  Am I simply a consumer who the airline seeks to extract money from as quickly as possible or am I a customer with whom they expect to develop and nurture a long-term relationship?

To be fair much of Virgin’s messaging to me by the way they treat me suggests they think of me as a customer but that’s just the business model showing.  The corporate urge to promote consumerism is strong and I would say not fully domesticated.  So we have the market basket of services and they we have those special things they wouldn’t dream of including in the base package.  Perhaps it’s my age and experience showing but I don’t trust corporations much any more.


Recent economic news is lousy.  The Eurozone can’t seem to decide on the fundamental question the robber asked, “Your money or your life?” and indecision is cascading across the globe in the form of slow or no growth.  It’s as if we’re choosing slow death, boiling our own frog.  Unemployment rates are either high or higher and various policy and economic experts offer conflicting prescriptions that cause food fights among the proletariat.

Hard to find credit and high debt loads are preventing most people and businesses from behaving as rational economic actors.  Rather than borrowing to start life and buying cars, housing, refrigerators and all the accoutrements of household formation, many recent graduates are moving back home.  They do this because the only jobs they can find might pay enough to enable them to pay off student loans but not enough to form households.

The situation is much the same anywhere you look and the combined reluctance or inability to spend is a drag on recovery.  Your spending is my income while my spending is someone else’s and in an economy where upwards of 70 percent of spending is driven by consumers, this kind of slowdown is debilitating.

I know what you are thinking.  Here’s comes a plea for more spending by government to perform what used to be called pump priming.  I won’t say that I am not thinking about it.  There was an article in the New York Times last week about the awful state of infrastructure in the U.S. and the need to repair it.  Those repairs would go a long way toward helping the economy recover.  The article suggested that we needed to spend about $2 trillion recommended by the American Society of Civil Engineers to do the job.

But I am not going to go there because there is an alternative.  It’s not a perfect alternative but it might be good enough to get us off the dime and it’s one that most people reading this will understand.  It’s the subscription economy.

We all know about subscriptions from things like software as a service.  You know the drill — pay a little each month for the use of a system rather than paying a lot up front for the right to own, house and feed a computer system.  We’re good with that and the success of cloud computing over the last dozen years is testament to the idea’s viability.

But software is not the only thing to consider when you think about subscriptions.  We lease cars or participate in ZipCar systems, we have monthly contracts for cellular services that include the cost of our devices as well as the use of the network.  But there are many other kinds of subscription that are becoming fashionable, like fashion.  You can subscribe to your wardrobe or at least part of it and there’s almost no limit to the things you can get cheap through subscriptions.

You might not think about it this way but if someone plows your driveway in the winter or cuts your lawn in the summer, you are subscribing to a service that keeps you from having to buy a snow blower or a lawn mower.

Employing more subscriptions would function like an economic stimulus to the degree that they would stimulate demand among people who have a little money but not a lot and who can’t pull together the cash needed for an outright purchase.  That would increase demand and possibly drive employment.

One of the big challenges in moving to a subscription economy is cultural.  Companies need to figure out how they can show positive results if the thing they once sold for a million bucks now only brings in $100,000 as an annual subscription.  The numbers are, of course, all over the map and this example is purely hypothetical.  But for sure, subscriptions will bring in less revenue regardless of whether that revenue represents profit or some other cost from a supplier.

And shareholders are accustomed to getting their numbers a certain way and as many look at it, lower revenues mean lower profits and lower profits means a less valuable company on the stock market.  The tipping point comes when enough people realize that subscriptions are the new normal and that the higher margins of outright purchases may not be coming back.

In spite of all this, subscriptions are making progress as an alternative business model.  Most frequently we see the subscription model used by startups but again, established companies are making progress bringing subscription products to market as well.

So the infrastructure for a subscription is present from individual services to advanced billing and payments systems like Zuora.  Maybe in addition to cash mobs we should consider subscription mobs when we’re thinking globally and acting locally.  Just a thought.

Kudos for Zuora

Posted: April 4, 2012 in CRM
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On demand billing and payments company, Zuora, has been named the OnDemand 100 Company of the Year by AlwaysOn, a Silicon Valley web property that tracks activities in emerging companies.

As you know if you’ve been here before, Zuora was one of the earliest movers in the market for on demand billing services for companies that sell through the subscription channel.  The company realized early on that subscriptions were much different from conventional products in how they are bought and paid for.  One of the founders, Tien Tzuo, dealt with billing challenges at Salesforce.com when the company was young and trying to figure it all out.  That led to Zuora.

Zuora has raised more than $77 million in its 5-year history and $36 million came in the recently completed series D funding round.  The company is spending its millions on expansion, sales and marketing.  It has opened offices in Europe and is expanding internationally.

The timing was right for Zuora.  A huge new class of subscription companies proved the value of subscriptions and began bumping up against operational issues like billing and Zuora provided a solution.  It’s not over yet.  A lot of data gets generated in subscription commerce and sophisticated subscription companies can leverage it to measure and manage their businesses.  Zuora still has other fields to conquer and one of them will surely be an IPO at some point.


You can gauge the success and financial health of almost any company by looking at revenues.  At least this is true in the short term.  Since revenue is a lagging indicator — with the exception of monthly recurring revenue (MRR) that subscription companies measure — it only tells you where you’ve been not where you are going.

We could very profitably spend our time discussing various other metrics that can also give us an incomplete picture of how well a company is doing.  For example, increases in MRR.  While tracking increases is valid though it is incomplete without churn and new bookings.  Nonetheless, when I started I was looking for something more macro, which is my tendency, and eventually it dawned on me that one of the better metrics of long-term viability and not simply revenue might be the size and growth characteristics of the partner community or ecosystem.

The ecosystem presents the possibility of multiplier effects that you see in the economy at large unless you are a Neoclassicist, but generally purchases drive other purchases in a virtuous circle that helps ensure the health of all in the ecosystem.

For another good but crude analogy think about baleen whales.  Strange to contemplate whales in a piece on the CRM industry but consider this.  Baleen whales are a whole class of very large animals that feed on some of the tiniest creatures in the sea, plankton.  Baleen is a structure in the mouth that acts as a filter that the animal uses to remove the little critters from a mouthful of seawater.  Since the whale depends on plankton, which might be at the bottom of many other food chains, you can infer a direct relationship between the health of the ecosystem at the lowest level by observing the largest predator.

At any rate, that’s my hypothesis and it brings me to the health of such companies as Salesforce.com and many others.  But let’s just stay on Salesforce for this.  Salesforce has an estimated 30,000 company customers, more than 1.1 million installs, 3,000 partners and thousands of products in the AppExchange.  All are growing and in each case, because this is an ecosystem, each has found a way to make a living in Salesforce’s shadow.

The partners provide what Salesforce might not provide or might not wish to, or they provide specialized products and services that form stand-alone businesses. There are numerous examples.  Zuora provides a subscription billing and payments system, a business Salesforce has stayed out of.  Cloud9 provides an analytics driven sales forecasting solution that takes significant complexity and makes it simple for sales people.  Marketo and others provide marketing automation that generates leads — the lifeblood of any enterprise.  Xactly does sales compensation, another complex task that Salesforce has decided is not in its wheelhouse.  The list is long and it grows whenever the core offering grows and opens up new niches.

Yesterday, a couple of companies announced a merger that will add to the ecosystem.  Cloud Sherpas and GlobalOne joined up, retained the Cloud Sherpas name and raised an additional $20 million in funding.  The combo fits nicely into the ecosystem.  Cloud Sherpas was the Google Enterprise 2011 Partner of the Year and GlobalOne is a Salesforce platinum consulting partner.

Google products run a gamut from word processing to analytics to social networks to who knows what.  While Salesforce has been friendly to integration with Google Apps in the past some companies, especially large ones with complex requirements, have sought help in accomplishing it.  Having Google and Salesforce services under one roof seems to make sense for large customers with complex requirements.

To be sure, Cloud Sherpas is not the largest implementation partner in the ecosystem but the company’s exclusive orientation on cloud computing and its expertise in Google’s cloud applications should be appealing to many new and existing Salesforce customers.

Cloud Sherpas also bring experience in integrating cloud with conventional applications and you can certainly expect that the company’s customers will have an eclectic combination of conventional, cloud and legacy applications to deal with.  To me it’s fairly obvious that for cloud computing to continue to grow more integrations among all types of computing will be needed.

So, even if you don’t know much about software, I think it would still be evident that healthy companies like Salesforce or SugarCRM, with its large open source community or Microsoft and Sage, with their significant partner communities, are likely to endure simply because their ecosystems are so strong.

Companies like Cloud Sherpas need to think and choose wisely because many subsequent decisions hang on whose ecosystem you join.  The new funding suggests that other wise people have faith in this pairing.