Stand by Europe, Zuora is coming – and it’s bankrolled by a round of fresh funding to fuel its ambition to transcend the traditional ERP market and create a new system of record for 21st century business models.
BusinessCloud9 first met up with Zuora back in 2008 shortly after it was set up by a number of ex-Webex and Salesforce.com staffers and backed by Marc Benioff, CEO and co-founder of Salesforce.com. Zuora CEO Tien Tzuo, formerly chief strategy officer at Salesforce.com, explained at the time that that bitter experience had led him and Benioff to conclude that there was a need for an on demand subscription management service.
That essential mantra remains the same, but with enterprise customers that include the likes of Dell, Box.net, Reed Business Information and News International, the company is broadening its ambitions. Tzuo states:
“We are still about billing at the core, but our vision for the future is to transition into billing, commerce and finance. From a positioning standpoint, this is about a much broader footprint to take on Oracle and SAP. So we want to become the 21st century system of record for customers. We will build onto the existing system. We’re putting in a lot more resources. We’re investing heavily in R&D and expanding the product line. For the next 18 months, product billing and finance will consume us.”
This isn’t just about being Cloud ERP, he adds. There are specific issues in the market that traditional ERP concepts just can’t handle anymore:
“We are partners with Workday and NetSuite, ERP firms that are focused on Global 2000 companies. Those firms are just taking accounting and ERP and putting them in the Cloud and there’s nothing wrong with that. From a CRM perspective, that worked well at Salesforce.com. But we think that the concepts are outdated. If you look at what we do, it’s a very different product. We don’t have a catalogue with a price, we have plans – monthly, weekly and so on. We have a different customer master: how many customers did you acquire, did you lose, what’s your customer churn rate, what’s the monthly recurring revenue and so on. That’s completely different to an order management system or an ERP system that knows how to order 230 pencils. ”
He adds:
“When I came over to Europe on this trip, I went to Verizon and I said I wanted to add an international option on my phone. They asked when I wanted to add this, for how long did I want it, how many minutes I might need. Traditional ERP can’t handle that. SAP, Oracle, NetSuite – they’re all fantastic for General Ledger or for manufacturing or for inventory, but they don’t do the heavy lifting for running new subscription-based business models. We want to go to the big companies in the world and say to them ‘don’t do that Oracle R12 upgrade – put us in and use NetSuite for your General Ledger’.”
But isn’t there now increased competition coming from both SAP and Oracle, both of whom have recently gotten Cloud religion and are preaching the gospel to their installed base? Doesn’t that pose a new commercial challenge for Cloud pureplays? Tzuo insists that what Zuora represents is a more radical shift:
“If you were a NetSuite you might be a bit worried, but you have to fundamentally rethink your ERP system to do what we do. If you look at what Oracle and SAP and what’s going on there, there’s no innovation in the core systems. There’s no Version 5 of R3 coming along. There some outlying stuff happening, some social media enhacements, but for Oracle innovation is about trying to make stuff they’ve bought work together on the Fusion platform. CIOs are saying ‘ I don’t want to do this R12 upgrade, there’s nothing new I’m going to get from this’. ”
He cites Dell as an example of the kind of challenges large enterprises are facing up to:
“Dell has been one of the big, big leaders in ecommerce, but it’s 2011 – what are the ecommerce systems that are running behind the scenes? It’s all Tandem computers and green screen terminals. Dell is a $60 billion company but its market capitalisation is half its revenues. The management has said that their way out of this is to acquire high margin businesses in areas such as Cloud Computing. But their state of the art commerce system doesn’t work in such environments,. It doesn’t know how to do monthly pricing. Worse than that, it asks you how many floppy disks you want to have shipped. ”
The solution to this is a new approach, explains Tzuo:
“So Dell is working with us and Salesforce.com on a quote to purchase system. They tried to do it with Oracle, but that didn’t work because Oracle is built for manufacturing companies as SAP is. SAP and Oracle are both great if you want to do warehousing, but they don’t allow you to do pay-as-you-go. It tells you how many units you shipped, but it doesn’t deal with customer retention or the lifetime value of a customer. ”
The other big focus for 2012 is Europe. Zuora was, admits Tzuo, almost dragged into Europe earlier than expected thanks to inbound business coming from outside the US. With that traction there, the firm now intends to capitalise on it:
“Europe is a big focus for us. We have massive expansion plans for Europe. We’ve got ten people here already and we will expand that to 20. If you look just at the customers we have signed this year, we have more than 2 billion euros in the system. Europe is ready and embracing the shift to a subscription model. ”
Europe means London in a big way to start with. Unlike other US Cloud firms, Zuora has chosen to resist the lure of the Irish Government’s Cloud investment drive and is based in London. More startlingly 2012 will also see a data centre set up in the UK (location to be confirmed) to service European customers. Tzuo recalls:
“We drank the KoolAid at Saleseforce.com and built the Irish hub, but since then mobile computing and social networking have made us all much more comfortable with the idea of a scattered workforce. At Salesforce.com we ignored the data centre issue outside of the US. Because we are dealing with credit cards all the time we do need to have a higher level of compliance and security than say Salesforce.com has, so we have had to invest in disaster recovery and redundancy technologies. So we are a bit more sophisticated in our infrastructure than Salesforce.com was at the four year old mark. ”
The big issue with having to have national data centres is the on-going concern about data transfer across national borders, a barrier which a number of US tech leaders have become increasingly vocal about removing in the name of global Cloud market competition. Tzuo agrees:
“It is still a big mess. But something has to happen. It just doesn’t make sense as it is. At Salesforce.com the place we got the biggest push back from was Asia because the Hong Kong banks would be housing information from Middle East clients and they weren’t going to use us if their data was going to be housed in the US. But we are in multi-jurisdictional areas. Swiss banks turn around and say that they have to have the data housed in Switzerland. But then there’s someone in their London branch who accesses it via a terminal, so the data is being consumed outside of the Swiss borders. Who’s to stop someone putting a sniffer on that London terminal and downloading the data that is supposed to be safe in Switzerland? ”
The data transfer row will rumble on, but for now Zurora is set to beat its ‘alma mater’ Salesforce.com to the mark and get a UK data centre up and running. Certainly the funding seems to be there to bankroll such expansionist moves. This week the firm announced $36 million in funding from Index Ventures, Greylock Partners, Benchmark Capital, Redpoint Ventures, Shasta Ventures and Tenaya Capital as well as fresh personal investments from Benioff and Workday founder and CEO Dave Duffield.
Four years on from its inception, Zuora can safely be said to be have exceeded expectations to date. Now with Europe firmly in its sights, the profile of the firm is only set to rise. The ‘21st century system of record’ is a message that subscription-based businesses across the continent can expect to hear a lot more about during 2012.
tags for Zuora: 21st century business in a post-ERP world.
