Dwight B. Davis
Zuora offers subscription management to SaaS providers and others
With software-as-a-service (SaaS) rapidly gaining traction, independent software vendors (ISVs) have been scrambling to adapt their products, licenses and business models to accommodate this deployment model. Among the most challenging of the tasks faced by such transitioning ISVs, as well as by pure-play SaaS vendors, is that of implementing and managing a business based on subscription sales. Today, a Redwood, California start-up company - Zuora - launched a hosted subscription management service designed to capitalize on this mushrooming market opportunity.Zuora's Z-Billing platform evolved from the company founders' experiences at their previous firms, notably salesforce.com and WebEx. The lack of good third-party products forced both of these SaaS pioneers to create their own subscription billing systems, which required diverting lots of valuable resources away from their core SaaS offerings. Zuora CEO Tien Tzuo, formerly chief strategy officer at salesforce.com, says that he and salesforce.com CEO Marc Benioff both thought there was a need for an outsourced subscription management service, and Tzuo left salesforce.com to pursue that idea.Zuora's public debut occurred in March, when the company announced that it had secured $6.5 million in funding from Benchmark Capital, Benioff, and several other investors. Prior to today's Z-Billing launch, Zuora had already sold its new service to around six SaaS customers including Coremetrics, a vendor of digital marketing optimization services. However, Tzuo emphasizes that Z-Billing isn't limited to SaaS customers. The system can be leveraged by any subscription-based business, be it a provider of online content, a movie rental service such as Netflix, or even something like the Zipcar car-sharing operation.There is no shortage of ERP-based billing systems in the world, but most are designed to accommodate one-off quotes, orders and invoices. Subscriptions, by contrast, require ongoing management, can come in myriad varieties and may require changes as customers add or drop services or dispute bills. There are subscription management systems that can handle these requirements, with the most familiar being the mainframe-based billing systems operated by the major telcos. But there have been few, if any, subscription management systems or services with the pricing, usability and scalability characteristics necessary to support any type of subscription model at any size of firm.Z-Billing may be able to fill this gap with its four functional modules: a customer account module, a product catalog (the pricing and packaging engine), a subscription management module (order workflow, discounting, etc.) and billing operations. The system offers an intuitive interface for Zuora's customers, and is designed to interoperate with most popular CRM and accounting systems. The Zuora service can support any kind of charge model or combination of models, including one-time, recurring, usage, metering and volume tier pricing.Zuora's initial pricing for its service is to charge customers 2% of the total amount they invoice, but it may explore other pricing models as well. The company says Z-Billing can interface with telco billing systems (if, for example, an SaaS provider has a relationship with a telco that publishes an integrated bill) and can also be used by aggregators that combine services from multiple SaaS providers using different subscription models. The system isn't currently able to allocate payments to channel partners that sell or support subscriptions, but a future version of the platform will support that capability, according to Zuora.The availability of the Z-Billing platform could prove to be the make-or-break differentiator for some SaaS providers. Many still handle billing and subscriber management via spreadsheets and manual-intensive procedures, which is costly, inflexible and often results in poor support for customers and constrained pricing models for the vendors. The Zuora service is flexible and simple enough that even small SaaS providers and other subscription-based businesses can craft and offer variable subscription models that match the needs of different customer segments or provide different combinations of features and subscription terms.Zuora fancies itself as the provider of the next major Internet-based platform, following in the footsteps of Amazon (online retailing platform), PayPal (online payment platform) and Google (online advertising platform). It will be a tall order for 30-person Zuora to match any of these earlier market makers, but the company is on target in identifying subscription management as a rapidly growing, and largely untapped, market. It will be interesting to see if Zuora can live up to its ambitions or - perhaps more likely - if it is acquired by a larger player (salesforce.com? Microsoft?) that can see the value of owning what could become a popular and profitable subscription management and billing services.
