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Summary:

Tien Tzuo is the founder of startup Zuora, a company that is staking its claim to be the platform on which future subscription-based companies will be built. Salesforce.com sold the world on the idea that software can be sold as a service to which you subscribe […]

Tien Tzuo is the founder of startup Zuora, a company that is staking its claim to be the platform on which future subscription-based companies will be built.

Salesforce.com sold the world on the idea that software can be sold as a service to which you subscribe and not as a physical product that you purchase. Today more than 1 million people subscribe to Salesforce.com’s CRM services, making box-packaged software a relic of the past. And this trend towards subscription services isn’t limited to software. From DVDs to cars, products that we once purchased are transforming into services to which we now pay for as we use. Why buy a DVD, when you can subscribe to Netflix and choose from a whole library? Why buy a car when you can subscribe to ZipCar and get a whole fleet?

However, one problem remains that prevents a subscription services world from becoming reality: Older business operations systems, built for a manufacturing-centric world in which products are purchased, don’t translate easily to subscription-based businesses.

In the product world, completing a sale is straightforward: A product ships, an invoice is sent, the customer pays, and the financials are complete. In the subscription world, the financial relationship is ongoing and ever-changing. Invoices are generated on a recurring basis –- monthly, quarterly, annually or even daily. And customers can request service changes anytime: add more users, add more services, change pricing plans, cancel service –- changes that must be handled by supporting financial systems.

At Zuora, our goal is to create an enabling platform that handles business operations and subscription billing as dynamically as subscription service businesses deliver their own services to customers. Coremetrics, a classic subscription service provider, offers its marketing optimization solution as an ongoing service; its sales are based on a dynamic relationship with the customer, and pricing depends on many variables. With its subscription business rapidly outgrowing its billing system, Coremetrics faced a challenge: Existing systems built for one-time transactions in the product world just didn’t fit the bill.

Today’s business operations systems are inadequate; they force subscription businesses to adopt overly simple pricing plans that don’t monetize their services well. Manual processes remain that prevent the systems from scaling, and the systems provide inadequate information for managing a complex subscriber base. Old infrastructure holds SaaS companies like Coremetrics back.

Our platform aims to change that. In the case of CoreMetrics, we handle all Coremetrics’ customer accounts and subscription information: Each billing cycle, the Z-Billing application collects relevant subscription data, automatically computes the recurring and variable charges, and delivers invoices to customers in a timely manner. It helped reduce billing errors and streamlined recurring bill processing. With Z-Billing, Coremetrics has eliminated eight different spreadsheets and now meets regulatory and compliance requirements.

I now believe that subscriptions aren’t just the future of software; they are the future of our entire economy. The drivers are simple: greater control and fewer upfront costs. With the right tools in place, subscription services make it easy for everyone to spend less and access more. Salesforce.com subscribers pay as they go, eliminating the need for up-front capital investment. ZipCar subscribers lose the costs of owning a vehicle for the flexibility of reserving one whenever they want. Subscription is, I believe, simply a better economic model — one that distributes resources more efficiently and forces vendors to take a services mindset and create value closest to customer needs.

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