• May 20, 2008
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

Zuora's New SaaS: Subscriptions-as-a-Service

Most of the talk around software-as-a-service (SaaS) since it became popular has been about saving money for the vendor and the customer, or speeding delivery of operational services and technological updates. Few companies have addressed how to institute payment processes for this fundamentally different software-delivery model -- and today that small club gained a new member, with the launch of Redwood City, Calif.-based Zuora. The company's first product, Z-Billing, is a scalable platform that integrates flexible subscription-based billing with existing infrastructure.

Zuora Z-Billing is a single system for all subscriptions, billing, and account management, supporting one-time, recurring, usage, metering, and volume tier pricing increments. "The world is moving from products to services, but subscription businesses don't yet have the right tools to support their complex needs," Chief Executive Officer Tien Tzuo said in a statement. "The vision of Zuora is to enable subscription businesses of all sizes to spend less time on operations, and more time growing their business."

Tzuo, the former chief marketing officer and recently chief strategy officer of SaaS pioneer Salesforce.com, should be familiar to readers of CRM magazine. Tzuo's co-founders are K.V. Rao (president) and Cheng Zou (chief technology officer), both former executives with WebEx, the Web-based video-conferencing and collaboration provider recently acquired by Cisco Systems. Zou, in particular, designed and led the implementation of a homegrown order-to-cash system to manage WebEx's subscription lifecycle process. Along with Zuora Chief Financial Officer Gary Hagmueller, these executives were able to secure an early $6.5 million round of funding led by Benchmark Capital, one of Silicon Valley's top venture-capital firms, as well as from the personal (as opposed to corporate) checkbook of Marc Benioff, Tzuo's former employer at Salesforce.com.

Benioff's not the only industry heavyweight who's confident about Zuora's value to the SaaS market. "Zuora's got some serious legs; if you take the long view, if on-demand technology is successful then it spawns an on-demand economy," says Denis Pombriant, founder and managing principal of CRM consultancy Beagle Research Group. "That will require a different infrastructure. A service company has only one thing to sell, and success is determined by how many ways it can be packaged. Product-oriented billing systems aren't designed to deliver product on a recurring basis, or at different rates."

Zuora and its potential competitors answer the billing question that has plagued many SaaS vendors, Pombriant says. "Most on-demand companies that have solved the problem of subscription billing have done it by building their own billing system[s]," he says. "Ironically, the companies that have figured it out are the very old ones: the utility companies."

While Zuora attempts to make business life easier for on-demand vendors, obviously it will have to watch out for others who have their own ideas of how to provide SaaS billing. "This will invite competition pretty quickly," Pombriant says, adding that other billing automation companies -- including, but not limited to, Aria Systems, FreshBooks, and PaySimple -- "may have their own twist."

In fact, in an move that seemed timed to coincide with Zuora's official launch, Aria Systems announced yesterday that Dave Labuda, co-founder and former chief executive officer of Portal Software, a pioneering billing and revenue management provider eventually acquired by Oracle in 2006, "has invested an undisclosed sum in Aria Systems and joined Aria's board of directors," according to a company release. In the statement, Labuda offers a fairly concise rationale for hopping aboard the emerging trend: "The market for on-demand billing is exploding."

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