While advertising revenues have been disappointingly low for most applications on Facebook and other social networks, another option app developers are increasingly turning towards is micropayments for virtual goods or premium features. Both Facebook and MySpace have admitted that they are working on their own payment systems, and Apple could play a role as well since it already has a payment system in place for iPhone apps (although even Apple is running into some bumps).
While the bigger players are fiddling with their payment system plans, nimbler startups are moving in to fill the gap. One of these is Spare Change Payments, which is trying to become the Paypal of micropayments. A year after launch, more than 700 apps across Facebook, MySpace, and Bebo use Spare Change for micropayments. Spare Change is processing $2.5 million a month in micropayments, which is a $30 million annual run-rate. The apps that are having the most success with micropayments are games and ones that sell virtual goods.
Now, the company is making it easier for consumers to pay through Spare Change with a new payment widget that pops up in each app instead of sending people off to a separate payments page.
How much would you pay for a Facebook app? For most apps, most people would probably pay nothing. But for some apps, such as member-to-member online tutorial services, charging could become an option. At least Tien Tzuo hopes so. The CEO of Zuora is bringing his billing subscription service to Facebook, which has more than 50,000 apps in search of a business model. Tzuo argues:
It is very easy to build an application and easy to get distribution, but nobody’s really making money and everyone is still talking about advertising. Advertising never really worked for apps. Subscriptions are the missing ingredient for people to make money.
Zuora lets app developers charge recurring monthly subscriptions for their apps or premium features. Subscriptions can be weekly, monthly or yearly, and as little as 25 cents or $1. Teach the People is already using Zuora. Tzuo is looking for five more developers to test out his beta (sign up here).
Zuora, an SaaS startup that offers online services to manage and automate customer subscriptions and payments, has raised $15 million in a second round of funding from Shasta Ventures and Lehman Brothers Venture Partners, Venturebeat reports. The company had previously raised $6.5 million from Salesforce CEO Marc Benioff and Benchmark Capital (who also participated in this round), bringing the total of funding to $21.5 million.
Zuora, the SaaS startup run by industry veterans from Salesforce and Webex, and backed by the face of SaaS himself, Marc Benioff, is launching its online billing solution today.
As Erick explained in March, Zuora aims to alleviate the need for online businesses to develop their own billing systems, especially to handle recurring payments like those associated with subscriptions.
Its so-called “Z-Billing Platform” that goes live today handles four main billing-related areas: customer accounts and subscriptions, product catalogs, billing operations, and order management. The whole offering is provided a la Salesforce as an on-demand solution. Online businesses just need to configure their Zuora accounts, import data from their old billing systems, and plug in their sites through a set of APIs. Customers who buy items or subscribe to services on their sites will then get handled by Zuora, which tracks orders, invoices and payments.
Naturally, Zuora has opted for a utility-like pricing model. The company will take 2% of all invoiced amounts, with that percentage increasing decreasing as payments get bigger and eventually getting capped completely for particularly expensive items.
The startup has already signed up six clients, three of which have implemented the system, but only one of which has been disclosed: Coremetrics, which provides Omniture-like web analytics. CEO Tien Tzuo says that Coremetrics demonstrates the capabilities of Zuora’s billing system particularly well because it requires 27 different pricing models, each of which must be handled appropriately.
Since the founders of Zuora come from a SaaS background, you can expect them to partner initially with other SaaS companies. However, the platform is not limited to this category; it potentially can be implemented for a wide range of services from music streaming to online dating.
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.
