When Tien Tzuo was the chief strategy officer at Salesforce.com, he sat in on a pitch to CEO Marc Benioff for an on-demand software tool startup looking for funding. Benioff was lukewarm to the idea. “If there was one thing you would want to outsource, what would it be?” asked one of the pitching executives. Benioff and Tzuo looked at each other and told the supplicants that what they really needed was an on-demand billing package. Frustrated with the original commercial billing system they started out with at Salesforce, they had to build their own from scratch to manage not just billing, but different subscription packages.
That spark turned into Zuora, an on-demand billing and subscription-management service. At the end of 2007, Tzuo left Salesforce after nine years to join K.V. Rao, an early WebEx employee and one of the entrepreneurs who had been pitching that day, to become the CEO of Zuora. The other co-founder and CTO is Cheng Zou, who had built the subscription billing system at WebEx. Benchmark led a $6.5 million A round in which Benioff invested personally as well. “I always support those who have supported me,” says Benioff.
Think of Zuora as a Salesforce.com for online billing. More and more businesses are adopting online subscription models—everything from Salesforce to Netflix to Zipcar. But there is no good on-demand service that these companies can outsource their billing to. The closest thing is Portal Software, which was bought by Oracle, but that is an expensive enterprise application geared more towards Fortune 500 companies.
Zoura is more a pay-by-the-drink model along the lines of Salesforce and every other software-as-a-service enterprise startup out there. In fact, it is those startups who need Zuora the most because they charge customers a recurring subscription. Tzuo explains the deficiencies of the current billing software alternatives:
The existing systems are built for manufacturing companies who bill each customer a one-time charge, instead of recurring billing like a phone company. If you are going to have a service online, you can give it away for free and hope to make it back on ads. Or you can go with PayPal if it is a one-time charge. But if you want a customer to open an account with you, and track their fees, that is the product we are building.
The service is being designed not just to send out monthly invoices, but to manage subscriptions as customers change plans and dispute charges. Tzuo wants to automate all of that. The startup already has one pilot customer (not Salesforce), and plans to charge per billing account. It is not unusual for companies to spend as much as 6 to 8 percent of their revenues just on processing invoices and collecting payments. Tzou is convinced he can cut that in half and still make a profit.
It’s a winner. Building your own highly complicated and still people-dependant billing system is a necessary evil that does absolution nothing for your top line or your customers. Much better to buy than build.
Online billing is certainly appable.
Aria Systems (www.ariasystems.com) does exactly this already but competition is always good. It’s going to be hard to cut the 6%-8% in half though since 3% is probably credit card fees…
Interestingly – why Zuora? There are also other billing solutions. Can be on the transaction some reasons about which it has not been told have affected still?
Are we talking about the same company here? This looks like a competitor to Benioff’s company from a PaaS.
The website does not discuss anything about billing other than Amazon references.
“Frustrated with the original commercial billing system they started out with at Salesforce,…” – I wonder which system this was?
Our revenues are generated on a subscription basis. We currently building systems to automate payments from PayPal to Salesforce using PayPal’s API data. For those customers who choose to pay by providing credit card details over the phone, we’re stuck with manual transactions and faxing authorization forms.
As you can imagine, a Salesforce/Zuora app would be a God-send.
what about amazon flexible payment service? i’m pretty sure it can do subscription-based billing and micropayments, though i still haven’t gotten a beta invite (hint hint).
FreshBooks has a huge head start… they’ve been doing it, quite well, for 5 or 6 years.
Weewar.com has been using Spreedly.com for exactly that reason and with great success. They are for selling our subscriptions every day
Recurring and all.
Haven’t adult-oriented subscription sites been using these types of services for years? How is this different than a company like Epoch or CCBill?
Can it beat Freshbooks. Thats the question
It’s interesting to see the comparisons to Freshbooks. I might be wrong on this, but my perception of Freshbooks is that it is targeted to individuals or small businesses (designers, developers, lawyers, etc.) who have a relatively low volume of invoices – e.g. < 100 invoices per month. It appears that Zuora is aiming for larger companies but staying away from the Fortune 500. I think there is plenty of room for multiple players here to serve different types of companies.
Innovative solution to a hairy problem that even the largest SaaS vendors have failed to grapple with effectively. Big market that will only continue to grow, great ceo, and a user experience that should make Scoble re-think the attractiveness of enterprise software. Zuora will be one of the next SaaS success stories
“But there is no good on-demand service that these companies can outsource their billing to.”
Do your homework instead of just reading the press release. There are several; Aria Systems, Lacayla/Opsource, just to name a few.
this is no salesforce! there are bunch of solutions and remember outsourcing billing isnt outsourcing collections—collections is the hard part not billing. what this is however is a missing feature core to netsuite that salesforce never built themselves….so salesforce will buy this if they get good traction. ceo good guy, although no leader.
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