At one Zuora paving the way

Posted: April 29, 2009 in CRM
Tags: , ,

Zuora, the on-demand billing service for on-demand companies, is turning one year old.  Last week, the company announced one hundred product improvements with its 2.0 version and said that it had attracted one hundred customers in its first year.  Why all the attention to this start-up?

I think what’s cool about Zuora is that they are the first on-demand infrastructure company delivering their product as an on-demand service.  They may not have invented the car, so to speak, but they are inventing asphalt and in some ways that’s better.

We’re now accustomed to thinking about on-demand solutions as rather commonplace and that’s good for the industry.  But it’s worth remembering that we are in a transition state moving towards an on-demand world and that will be the case for a while.  Until Zuora, part of the transition meant that on-demand companies had to use conventional billing applications.  That may not sound like much but it’s a big deal.

Conventional billing systems deal with selling a product, usually once.  The concept of recurring billing is common enough but the subtleties of billing for on-demand services go beyond the conventional definition of recurring billing.  As a result, on-demand service providers have been constrained by their billing systems to more or less offer products that the billing system understands, not necessarily what the customer wants.  It is not an overstatement to say that a company can only make and sell what it can get paid for.  If you don’t sell and you have no revenues you have a hobby, not a business. 

Zuora is interesting to people like me because it represents the first piece of on-demand infrastructure.  A company can run its billing operation from the cloud with Zuora instead of from some printing press; more importantly though, that company can customize its offerings because of Zuora. 

There may be other billing systems that do these things but they tend to be owned by the wireless carriers and those proprietary systems cost many millions of dollars to develop.  At least some of them are not on-demand and I don’t know any that are available to the general market.  The wireless industry has shown us that a company’s billing system is at least part of its secret sauce. 

So Zuora is making secret sauce available to any company that wants it and that ultimately means having the ability to tailor not only products but also product terms and conditions to the needs of the customer, and that’s part of what the big deal is.  The other part is that Zuora enables companies to do this kind of thing for large numbers of customers with minimal error.

In the short year it has been in the market Zuora has delivered billing and payments functionality as well as a platform and integration with what else Salesforce.com.  They’ve also struck up some interesting partnerships with companies like PayPal.  All in all a good year’s work.  There’s plenty to like about Zuora so far and I expect they’ll be another company that’s a lot of fun to watch evolve, sort of like Salesforce itself.

The evolution will indeed be interesting.  In the first year of its life, Zuora has taken us from an industry constrained by billing systems to the opposite, though I don’t know what to call it.  This oppositeness is most starkly brought to light by the newspaper industry. 

You can’t point to a major or even minor city in the US whose local paper is in good financial health.  We know the outlines of the story once lucrative classified ads have left the print world and headed to the Internet where they are cheaper and instantaneous.  Help wanted, personals and for sale ads are all being done on the Web taking a lot of revenue with them. 

At the same time, the papers have done without mitigation a terrible job of monetizing their Web presence.  Part of the reason is the newspaper business model that is rooted in the industrial revolution news publishers manufacture bundles of paper and ship it just like any other manufactured good.  Unfortunately, we all know that the news business is about content, not manufacturing, though the papers have yet to catch on. 

There might have been a point in time when papers were constrained by the delivery model but today they are at least equally constrained by their subscription model.  A subscription billing model like Zuora’s is one part of a solution for the papers, a way to charge for content that is effective even at a few dollars per week per user.

It would be great to see at least one paper decide to think different and at least experiment with an on-line subscription model.  The paper could still print for its diehard local customers, but beginning the transition to on-line subscriptions might do a lot to stem the flow of red ink. 

The debate rages.  Some analysts say a subscription model won’t make papers profitable but these people are not banking on other structural changes that would come with the change.  For example, what if the papers got competitive at selling on-line classifieds?  You have to start the process.

Papers are just one example.  I wonder what other products or services might convert to an on-line subscription in the next few years.  It makes me curious to know what Zuora will look like on its tenth birthday nine years hence.

Comments
  1. swaldrum says:

    It’s great to see subscription billing services getting a bunch of attention this year. Denis, you certainly do your part to bring some light to the industry. On-demand billing of recurring services has been around for quite some time and there are a number of vendors with great solutions. Zuora has been leading the way on the marketing front but others such as IP Apps have been doing a lot of work in the on-demand billing space. Specifically, subscription service companies with reseller channels have been trying to figure out how to enable their resellers while maintaining visibility into their channel. Certainly been a hot topic for us this year.

So, what did you think?

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