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Wednesday, 27 June 2012 17:21

Consumers and corporates boost subscription economy

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The march to the cloud and subscription style consumption is gathering pace as consumers and corporations shy from big one off outlays. Why buy the CD when you can listen to the tunes on Spotify? Why buy a car when you can sign up to GoGet?

At least that’s the gospel according to Tien Tzuo, founder and chief executive officer of Zuora which develops systems to support the back office functions of managing commerce, billing and finance for what Mr Tzuo describes as “the subscription economy”.

“Two, five, ten years from now you don’t have to own anything any more. That’s a pretty profound change by our estimation and will need a radically different business model.”

Mr Tzuo, currently visiting Sydney, where the company last month established its Asia Pacific operations, said that the transition to this new model was taking pace at a “fast and furious” rate.

Instead of business models based on manufacturing models, 21st century businesses would have to start thinking more like mobile phone companies which measured their success not by the numbers of items sold, but by the number of customers, by churn, by ARPU (average revenue per user).

This subscription approach is now accepted wisdom for most start-up companies – IDC claims that this year more than four out of five new software companies will offer their systems on a subscription model – but increasingly traditional companies also have to offer subscription alternatives to keep their customers happy.

Office space rental company Servcorp for example launched Gnee – a subscription based telephone attendant service targeted at small businesses and start-ups – in April, and according to chief information officer Matt Baumgartner, is using Zuora as the billing engine for the service. Mr Baumgartner said that in time it was likely that the company would move more of its traditional business across to the Zuora platform.

He said that the flexibility and agility of the system was important to Servcorp as it allowed the company to quickly “configure new pricing, new bundles, get to market quickly and tweak prices.”


The system also provides better insight to what Mr Tzuo described as the “new metrics” used in subscription based businesses. “These are more about recurring revenues, recurring profit, churn and renewals,” than traditional profit and loss measures, he said.

However Zuora has been designed so that data from its commerce, billing and finance modules can be integrated directly into existing general ledger based financial systems.

Zuora is offered – not surprisingly – as a subscription based service, and operates out of two data centres in the US. The company takes a clip of every sale that goes through the system, but does offer alternative pricing such as a per customer or per invoice fee structure for those customers that prefer that approach.

“The philosophy is all about PAYG (pay as you go),” said Mr Tzuo.

Employee number 11 hired into cloud computing pioneer Salesforce.com, Mr Tzuo held a variety of roles in the CRM business before founding Zuora in 2007, helped along by some seed investment from Salesforce.com founder Marc Benioff and Benchmark Capital.

Today the company has 210 employees, almost 500 customers, and thanks to a $US36 million additional round of funding last year has begun its international expansion into Europe and Asia Pacific.

Besides a number of start-up companies it numbers industry giants Dell and HP among its customers as they also start businesses based on a subscription model.

In Australia the company is led by John Ruthven, vice president for ANZ. Local customers besides Servcorp include Ninefold, Macquarie Telecom’s storage cloud offshoot and Quotify.

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