According to Gartner, more than 80% of software providers will have migrated to a subscription-based business model by the year 2020. Another research estimates the global subscription economy for the SaaS industry to be a $100 billion market opportunity by 2020. But not all companies were set up with the complications of a subscription-based billing model in mind. Mountain View, California–based Zuora, a Billion Dollar Unicorn is helping companies migrate to this model.
Zuora’s Financials
Zuora was founded in 2007 by Webex and Salesforce.com veterans, K.V. Rao, Cheng Zou, and Tien Tzuo. The trio wanted to build an offering that could help businesses address the complications surrounding billing, upgrades, and pricing bundles for a subscription-based service. They built a platform that could offer an end-to-end subscription management service to cater to the business’ needs of automating recurring billing, collections, pricing, and quotes. It tracks subscription payments, invoices, pricing, product catalogs and taxation, and provides access to reporting and analytics, that can vary from customer demographics, to behavior, and to financial performance.
Zuora earns revenues in the form of a commission which is a percentage of the subscription revenues billed through its platform. It does not disclose its financials, but analysts estimate that it was managing nearly $42 billion in invoices in 2015. In a recent report, Zuora did mention that it had surpassed the milestone of a $100 million run rate for 2017. The company is expected to be cash-flow positive and it continues to invest in revenue growth.
Zuora has been venture funded so far with $242.5 million in venture funding from investors including BlackRock, Wellington Management, NextWorld Capital, Northgate Capital, Vulcan Capital, Benchmark Capital, Marc Benioff, Shasta Ventures, Lehman Brothers, Redpoint Ventures, Tenaya Capital, Index Ventures, Greylock Partners, and Dave Duffield. Last year, it had raised an undisclosed amount at an undisclosed valuation. Prior to that, Zuora had raised $115 million in 2015 at a valuation of $740 million. Analysts estimate that it is presently valued at more than $1 billion.
Zuora was expected to go public last year, but probably the slow market conditions deterred it from listing. Many believe that the company would probably list this year as the tech market picks up.
Zuora and Oracle
According to reports, in the US alone, consumers spent $420 billion on subscriptions, 90% of adults in the UK subscribe to a subscription service, and 75% of Australian businesses expect a revenue increase by adopting the subscription model. The high market penetration has driven bigger players such as Oracle and SAP into the industry as well.
Oracle has expanded its presence in the market with the release of the Oracle Monetization Cloud. The new cloud service accelerates time to market for digital and subscription-based products and services by enabling the full life cycle of customer on-boarding, offer creation, rating and discounting, billing, customized invoicing, and reporting. Additionally, Oracle also has the e-Business Suite that comes with several out-of-the-box adapters that can seamlessly integrate on-premise and cloud applications and make them work with a variety of databases and services.
Questions for the Zuora Board
Zuora has always accepted SAP and Oracle as some of its biggest competitors and realizes that their giant purse strings will be tough to compete with. But, it is hopeful that these legacy driven companies will find it difficult to evolve at a fast pace. Some of this is evident in Forrester’s report on the sector. Forrester put Zuora along with Aria Systems and Gotransverse in the leading quadrant in the industry while Oracle and SAP were named as contenders in the space. But, what is Zuora really doing to stave off this competition? Oracle has been on a perpetual acquisition spree, and adding Zuora to its arsenal may not be all that difficult.
If an acquisition doesn’t happen soon, and the larger players choose to go at it on their own, then what does the adjacent set of problems look like within Zuora’s sphere? What are the related $50M, $100M, $200M product opportunities that are well aligned and that their existing customers and new ones would expand into?
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