INSIGHTS
1-Year-Old Zuora Is Paving the Way

Zuora, the on-demand billing service for on-demand companies, is turning 1 year old. Last week, the company announced 100 product improvements with its 2.0 version and said that it had attracted 100 customers in its first year. Why all the attention to this startup?

I think what's cool about Zuora is that it is the first on-demand infrastructure company delivering its product as an on-demand service. It may not have invented the car, so to speak, but it is inventing asphalt, and, in some ways, that's better.

We're now accustomed to thinking about on-demand solutions as rather commonplace, and that's good for the industry. However, it's worth remembering that we are in a transition state, moving toward an on-demand world, and that will be the case for a while. Until Zuora, part of the transition meant that on-demand companies had to use conventional billing applications. That may not sound like much, but it's a big deal.

Spreading the Secret Sauce

Conventional billing systems deal with selling a product, usually once. The concept of recurring billing is common enough, but the subtleties of billing for on-demand services go beyond the conventional definition of recurring billing. As a result, on-demand service providers have been constrained by their billing systems to more or less offer products that the billing system understands, not necessarily what the customer wants. It is not an overstatement to say that a company can only make and sell what it can get paid for. If you don't sell and you have no revenue, you have a hobby -- not a business.

Zuora is interesting to people like me because it represents the first piece of on-demand infrastructure. A company can run its billing operation from the cloud with Zuora instead of from some printing press; more importantly, though, that company can customize its offerings because of Zuora.

There may be other billing systems that do these things, but they tend to be owned by the wireless carriers, and those proprietary systems cost many millions of dollars to develop. At least some of them are not on-demand, and I don't know any that are available to the general market. The wireless industry has shown us that a company's billing system is at least part of its secret sauce.

So, Zuora is making secret sauce available to any company that wants it, and that ultimately means having the ability to tailor not only products, but also product terms and conditions to the needs of the customer. That's part of what the big deal is. The other part is that Zuora enables companies to do this kind of thing for large numbers of customers with minimal error.

Constant Evolution

In the short year it has been in the market, Zuora has delivered billing and payment functionality, as well as a platform and integration with (what else?) Salesforce.com (NYSE: CRM). It's also struck up some interesting partnerships with companies like PayPal. All in all, a good year's work. There's plenty to like about Zuora so far, and I expect it'll be another company that's a lot of fun to watch evolve, sort of like Salesforce itself.

The evolution will indeed be interesting. In the first year of its life, Zuora has taken us from an industry constrained by billing systems to the opposite -- though I don't know what to call it. This oppositeness is most starkly brought to light by the newspaper industry.

You can't point to a major or even minor city in the U.S. whose local paper is in good financial health. We know the outlines of the story -- once-lucrative classified ads have left the print world and headed to the Internet, where they are cheaper and instantaneous. Help-wanted, personal and for-sale ads are all appearing on the Web, taking a lot of revenue with them.

At the same time, the papers have done -- without mitigation -- a terrible job of monetizing their Web presence. Part of the reason is the newspaper business model, which is rooted in the industrial revolution. News publishers manufacture bundles of paper and ship them, just like any other manufactured good. Unfortunately, we all know that the news business is about content, not manufacturing, though the papers have yet to catch on.

Think Different

There might have been a point in time when papers were constrained by the delivery model, but today they are at least equally constrained by their subscription model. A subscription billing model like Zuora's is one part of a solution for the papers, a way to charge for content that is effective even at a few dollars per week per user.

It would be great to see newspapers think different and experiment with innovative ways to make an online subscription model work. They could still print for their diehard local customers, but beginning the transition to online subscriptions might do a lot to stem the flow of red ink.

The debate rages. Some analysts say a subscription model won't make papers profitable, but these people are not banking on other structural changes that would come with the change. For example, what if the papers got competitive at selling online classifieds? You have to start the process.

Papers are just one example. I wonder what other products or services might convert to an online subscription in the next few years. It makes me curious to know what Zuora will look like on its 10th birthday.