As any PYMNTS reader knows, new types of business models are developed and launched continuously, many that aim to keep high engagement with customers and build a long-term relationship. This is especially apparent when it comes to subscription model businesses, which generate about 23 percent of revenue through upsells and expansions to existing customers.
As a result, these companies’ success depends on reducing attrition and maximizing the revenue opportunity from existing subscribers.
“Zuora believes that all of the Fortune 500 companies will be running subscription business models in one way, shape or form and are confident of powering that transformation in a market forecasted to exceed $100 billion by 2020,” said David Gee, CMO of Zuora. “And that’s no surprise. Subscription Economy companies are growing nine times faster than those in the S&P 500 and four times faster than U.S. retail sales.”
Since its founding in 2007, San Mateo-based Zuora has found its place in that trend quite comfortably, by building an end-to-end subscription business management platform with capabilities and insights needed for businesses hoping to grow a robust subscription service with customers that stay on board for the long haul.
“Zuora’s core platform is a SaaS solution that includes billing, commerce, finance and revenue recognition, which solves the complexities of subscription billing that cannot be addressed by legacy financial systems,” said Gee. “[The company] also adapts dynamically to changes that legacy systems, like ERP, were not designed to address, as these systems were built for a product-based world of ‘one-time’ sales transactions.”
The core platform tracks subscription payments, invoices, pricing, product catalogs and taxation, while also providing its clients with reporting and analytics, ranging from customer demographics, to behaviors, to financial performance. The product is also compatible with other business applications and has an app development marketplace for customers requiring third-party integrations.
“Zuora is not a generic financial suite based on lowest common denominator business needs, instead providing a relentlessly focused solution that helps businesses rapidly transition to subscriber-centric, digitally enabled business models,” said Gee. “Having studied the shift to recurring revenue-based business models for almost 10 years, the company excels at taking care of the subscription business management, so the customers can focus their efforts with creating great outcomes and experiences for their subscribers.”
Regarding digital payments, Zuora integrates with Stripe, Worldpay, Ingenico, PayPal, Adyen, SlimPay and others. Zuora partners with Avalara, Vertex and Wolters Kluwer and is used alongside many CRM, ERP, ETL, analytics and sales performance providers.
Gee said the idea of the company sparked nine years ago during a meeting at Salesforce between Salesforce CEO Marc Benioff and then Salesforce CMO Tien Tzuo, who complained about the challenges with recurring billing for subscription-based SaaS companies (such as Salesforce) and companies selling individual products.
“While there are huge benefits to subscriptions, they’re more complicated than transactional sales with recurring billing, upgrades, downgrades and different pricing bundles,” said Gee. “Not to mention a whole new set of subscriber behavior metrics and disparate data sets.”
Tzuo, who is now the CEO and founder of Zuora, had the original idea that companies with subscription models are most likely building out their own billing systems, when they should spend their money more efficiently by buying a system. The team started to trial-and-error the idea and concept, speaking to companies and then building a prototype with 50 potential consumers.
“We actually sold a few contracts before the product was completed,” said Gee. “The contracts contingent on the product being delivered, of course. At first, we thought a simple billing system was enough.”
The company was officially launched in 2008 by its founding members — K.V. Rao, Cheng Zou and Tien Tzuo – after a Series A from Benchmark and Marc Benioff. Over time, much more was needed for and by customers. The company has added APIs, payment systems, commerce platforms and tax engines. Now, to date, the company has been through six rounds of funding, totaling nearly $243 million. Customers range from automotives (General Motors), to home security (ADT), to publishing (The Wall Street Journal) and more.
The company has about 600 employees and has offices across the world: Atlanta, Boston, Denver, San Francisco, Amsterdam, London, Munich, Paris, Beijing, Sydney and Tokyo.
At one point, however, Gee said the company grew too fast.
“Our departments weren’t communicating, and we essentially lost touch with our mission — to help our customers evolve and take their place within the Subscription Economy,” said Gee. He added that, to get back on track, the company had to rally around the customers’ needs. “We took the entire company — from the receptionist to engineers — offsite to develop a customer service formula. The same nine principles kept surfacing: Price, Acquire, Bill, Collect, Nurture, Account, Measure, Iterate and Scale.” Those nine principals, according to Gee, were transformational and created a more unified company.
As for what’s next for Zuora and the subscription business world, Gee said it all focuses on ownership. He believes that consumers will not have to “buy” much of anything. Using millennials as the first adopters, he said apartment living, car ownership, entertainment and food needs, travel plans — all will change.
“This is going to happen much faster than we think, and that is what the world is going to look like five years from now,” said Gee.