Cloud Computing companies need their own form of invoicing. The subscription revneue model of business that such companies operate is not best suited to conventional invoicing and billing practices and applications.
Earlier this year Zuora, a US start-up, opened up an online service for handing billing, payments and customer orders, set up by ex-Webex and Salesforce.com staffers and backed by Marc Benioff, CEO and co-founder of Salesforce.com. (Benioff's own efforts with Salesforce.com were initially bankrolled and backed by his former Oracle boss Larry Ellison, so there's a pleasing sense of continuinty with Benioff now financially backing another generation of SaaS firm.)
Zuora sets out to eliminate the need for businesses to develop their own billing systems, especially to handle recurring payments or subscriptions. Its Z-Billing Platform handles four main billing-related areas: customer accounts and subscriptions, product catalogues, billing operations, and order management. Client businesses who want to tap into the on demand service just need to sign up, configure their Zuora accounts, import data from their old billing systems, and plug in their sites through a set of application programming interfaces (APIs). Their own customers who then buy items or subscribe to services on their sites will then get handled by Zuora, which tracks orders, invoices and payments.
Zuora CEO Tien Tzuo, formerly chief strategy officer at Salesforce.com, says that bitter experience led him and Benioff to conclude that there is a need for an on demand subscription management service. "I'd been at Salesforce.com for nine years and was aware that the subscription-nature of our business model meant that it was difficult to manage billing with traditional systems," he said. “We could spend millions of dollars on traditional software and it would still not quite work the way we wanted it to. So this is a cool idea that grew out of frustration with our existing billing system."
It was a frustration that was well timed. "Two years ago people were a bit sceptical, but there's been an epiphany when it comes to evangelising the idea that software is not something that you need to buy on a CD," said Tzuo. "The idea is just growing like a weed, it's not specific just to SaaS firms any more. If you go to Wall Street, all they want to talk about is SaaS companies. More and more companies now want to adopt the SaaS model across the enterprise. What we wanted to do was to take all the learning that we had gained at Salesforce.com and create a new billing offering."
A public debut
Zuora's public debut occurred in March, when the company announced that it had secured $6.5m in funding from Benchmark Capital, Benioff, and several other investors. To date, the firm has signed up six clients, three of which have implemented the system. Only one of these has revealed itself - web analytics firm Coremetrics, which is an ideal candidate for this type of solution as the nature of its business means that it has to be able to handle some 27 different pricing models.
While web-centric firms like Coremetrics are well-suited to the SaaS model, more traditional firms are also being targeted. "Customers range from one person companies through to large ones," said Tzuo. "It's the same model that we had been evangelising at Salesforce.com. The sales cycle for larger companies is longer and we are in our first year of operations, so we have seen more smaller firms to date, but we will see the bigger ones coming along."
The firm has adopted a typical SaaS utility pricing mode whereby it takes 2% of all invoiced amounts. The retained percentage increases as payments get bigger and transactions get larger, but is eventually capped. It's an established enough model. The big question now is how appealing all this will be in the billing space? There is no shortage of ERP-centric billing systems and established SaaS vendors like NetSuite who will claim their own billing functionality is sufficient for most of the their customers. Can Zuorta differentiate itself sufficiently to make an impact? Perhaps it can.
"Most [ERP systems] are designed to accommodate one-off quotes, orders and invoices," noted Dwight B Davis of research house Ovum. "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. 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."
Nonetheless Davis sees SaaS firms as being particularly well-suited to Zuora's offering. "The availability of the Z-Billing platform could prove to be the make-or-break differentiator for some SaaS providers," he suggested. “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.”
Tzuo himself has grand ambitions. "Our goal is to create a market, not just to service an existing market," he explained. "We are trying to do what Amazon and eBay did for online retailers. We don't just want to be servicing technology firms. We can approach lawyers, accountants, PR firms, anyone who has a recurring subscription-based business model. That is the business model of the future anyway."
Latest additions
More recently, Zuora has has linked up with PayPal, adding a new Pay-Pal-compatible Z-Payments system to its online invoicing and billing portfolio. "Companies can have problems with customers are who using their services on a recurring basis. Maybe the credit card worked the first time, but then you switched the card and forgot to tell me," said Tzuo.
Users of the new system include data and file-sharing site Box.net, which could no longer cope with manual billing and payment processes. "We were literally losing money because we couldn't track down failed monthly payments," said Aaron Levie, Box.net's CEO.
The firm also introduced plans for Z-Force, a 100% native Force.com application, that pre-integrates Z-Billing and Z-Payments with Salesforce CRM. is fully integrated with Z-Billing and Z-Payments, combining best-in-class on demand billing and payments with Salesforce CRM to provide a fully integrated lead-to-cash system that also provides 360-degree visibility into all customer activity.
The three major modules of Z-Force are Z-Force 360 ,which makes all customer subscription, billing, and payment data visible within Salesforce.com for a 360-degree view of the customer and up-to-date metrics for subscription businesses; Z-Force Quotes, which enables sales teams to easily build customer-ready quotes based on a subscription product catalog. Approved quotes are automatically pushed into the billing system for end-to-end billing and subscription management; and Z-Force E-Commerce:, a fully integrated, shopping cart-like functionality for taking orders directly from websites, with minimal IT resources or involvement.
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