How Zuora Benefited From Recession

An interesting thing happened on the way to the business plan for Zuora, which sells software intended to help online service vendors bill their customers, and its CEO and co-founder Tien Tzuo. It was the recession.

I first met Tzuo last summer when he was shopping his fledgling company to investors in San Francisco, and I figured I should keep my eye on this little company because it might make some noise. Tzuo is a former Salesforce.com engineer and executive who rebuilt the software-as-a-service (SaaS) vendor’s billing system several times over as the company shifted product and billing strategies along the way. So he had a pretty good understanding of the problems faced by SaaS and other online service vendors (think not only software vendors, but NetFlix or the Wall Street Journal, which offer different types of service online).

Apparently, tracking customers and how many seats they’ve bought, whether or not they’ve upgraded their service levels, and what they’re entitled to download is a fairly complex issue that no one has effectively solved.

To get an idea of what this can represent, Tzuo links from his blog to the transcript of a conference session where RedHat CFO Charlie Peters explains the expense and difficulty of building (and rebuilding) a billing system to keep up with his company’s evolving business plan:

You should keep in mind that we have one major project that we’re working on this — we’re spending about $2 million a quarter on some systems work. And it’s all the systems on the customer facing side of the business that go from the time you take a lead, to develop a quote, to entitle an invoice and then collect customer data around in all those entitlements and all the way through renewals. We have 10-20 systems there that need to be integrated, that were designed for a [much smaller] company … and we’re heading to a billion and beyond.

The last time I saw Tzuo, there was an economic slowdown in the offing, but nothing like what we have eventually lived through. So how did that work out for Zuora? A lot better than you’d think, as it turns out. While Zuora has fewer small and mid-sized business customers than Tzuo expected, it has a lot more larger companies, including Sun Microsystems and Reed Business Information.

Tzuo explained over breakfast this morning that smaller companies had to hunker down in survival mode, while bigger companies were able to spend for the right returns. “The larger companies focused on efficiency, and had cash to spend on systems that would help them achieve those efficiencies,” he said.

That’s not entirely a positive – larger companies also take longer to make a decision, need to deal with more legacy data and connections to other software systems and have more people that require training.  But it has put Zuora on the map a lot faster than it might have otherwise arrived, giving it an impressive set of reference customers as well as market share. Its success has also allowed it to attract investors for a second round of capital raising — Shasta Ventures — on top of the initial investments it received from Benchmark Capital and Salesforce.com CEO Marc Benioff.

[Image source: mansikka via Flickr]