Zuora Launches Third SaaS Product to Serve the ‘Subscription Economy’

Zuora and companies like it are riding the trend of people and enterprises increasingly procuring products and services on a subscription basis rather than buying them.

As a result, companies such as Zuora are emerging to help businesses manage those subscriptions efficiently.

At a user conference Sept. 17 in San Francisco, four-year-old Zuora will unveil a third SaaS-delivered offering for businesses handling subscriptions for customers. Z-Finance, as it’s called, handles accounting for subscription revenues. It complements Z-Billing for collecting monthly payments and Z-Commerce for managing other account issues such as revising service.

“Subscriptions are a more predictable way to run a business,” said Tien Tzuo, founder and CEO of Zuora, which has raised $82.5 million in venture capital since its founding in 2008.

Zuora is servicing the “subscription economy,” where instead of selling a product to a customer, companies provide use of it on an as-needed basis. A perfect example is Zipcar, Tzuo said, in which drivers don’t want to own a car, but pay an annual fee for the service, rent a car online and pay based on the number of minutes they drive it. Zipcar is not a Zuora customer.

A number of publications have written about the rise of the subscription economy of late, including Forbes, the Wall Street Journal and others. An article on the subject in the September issue of Atlantic Magazine is titled “The Cheapest Generation” and focused on consumers.

Bloomberg BusinessWeek reported that the research firm Gartner calculated that by 2015, more than 40 percent of media and digital-products companies globally will use subscription services for their fulfillment, billing and renewals.

But enterprises are using services like Zuora, too, as they increasingly deliver software-as-a-service (SaaS), for instance, as an alternative to on-premise software. Informatica uses Zuora to handle subscriptions for some of its data integration software that it delivers in a SaaS environment.

“[Informatica] created a separate division around this because they knew it was going to be run very differently and had a different business model,” said Brian Bell, chief marketing officer for Zuora.

Z-Finance is designed to handle accounting procedures that are unique to the subscription business model. In most accounting systems, Tzuo said, a contract for a subscription is considered to be deferred revenue instead of recurring revenue, meaning that it can’t be counted as revenue until the contract is completed. As a result, companies selling a subscription service keep a second set of books-not in the fraudulent sense of the word-to get a more accurate picture of the revenue coming in.

“What’s going on is that more and more of what accountants do is flowing out of the accounting system and going into a phantom system that we like to call Microsoft Excel,” he said.

Counting subscription revenue as recurring revenue is more in line with the subscription business model, Zuora officials said.

Z-Finance complements two previously introduced Zuora services, including Z-Billing, its first product, which manages pricing, invoicing and payments. That was followed by the introduction of Z-Commerce in 2010, which provides a variety of other account management services. For example, a customer may want to go online to change the service plan from their cell phone service provider, enabling them to switch to a plan that offers more minutes or more text messages to avoid expensive overage charges.

Besides Zuora, another example of a subscription services provider is Canada-based Fusebill.

Zuora’s services are available on Salesforce.com’s AppExchange and it is “by design,” Tzuo said, that Zuora’s user conference, expected to draw about 1,000 attendees, is being held in San Francisco the same week as Salesforce’s Dreamforce 2012 user conference. It is expected to draw tens of thousands who might be interested in Zuora’s offerings. In fact, Salesforce CEO Marc Benioff is a personal investor in Zuora.