Zuora Releases Z-Commerce

The first external service (SaaS) that actually understands the complex billing models of the cloud providers (which account for monthly subscription fees as well as automated metering, pricing and billing for products, bundles and highly individualized/specific configurations) arrived in mid-June in the form of Zuora’s Z-Commerce. An upgrade to Zuora’s billing and payment service that is built for cloud providers, Z-Commerce is a major development. With Z-Commerce, storage-as-a-service is able to charge for terabytes of storage used, or IP address usage, or data transfer charges. Cloud providers can also structure a per CPU instance charge or per application use charge and it can take complexities like peak usage into account. Zuora has provided 20 pre-configured templates for the billing and payment models that cloud providers use.

What makes this development so interesting that that Zuora is using what they are calling the “subscription economy” for the underlying rationale for their success: 125 customers, 75 employees and profitability.

Tien Tzou, the CEO of Zuora (also the former Chief Strategy Officer of Salesforce.com, described subscription economy below:

“The business model of the 21st century is a fundamentally different business model.

The 21st century world needs a whole new set of operational systems — ones that match the customer centric business model that is now necessary to succeed.

The business model of the 20th century was built around manufacturing.  You built products at the lowest possible cost, and you find buyers for that product.

They key metrics were all around inventory, cost of goods sold, product life cycles, etc. But over the last 30 years, we’ve been moving away from a manufacturing economy to a services economy. Away from an economy based on tangible goods, to an economy based on intangible ideas and experiences.

What is important now is the customer — of understanding customer needs, and building services & experiences that fulfill those customer needs.  Hence the rise of CRM.

But our financial and operational systems have not yet evolved!  What we need today are operational systems built around the customer, and around the services you offer to your customers.

You need systems that allow you to design different services, offered under different price plans that customers can choose from based on their specific needs.  So the phone companies have 450 minute plans, prepaid plans, unlimited plans, family plans, and more.  Salesforce has Professional Edition, and Enterprise Edition, and Group Edition, and PRM Edition, and more.  Amazon has Amazon Prime.  ZipCar has their Occasional Driving Plan and their Extra Value Plans.

You need systems that track customer lifecycles — things such as monthly customer value, customer lifetime value, customer churn, customer share of wallet, conversion rates, up sell rates, adoption levels.

You need systems that measure how much of your service your customers are consuming.  By the minute?  By the gigabyte?  By the mile?  By the user?  By the view?  And you need to establish an ongoing, recurring billing relationship with your customers, that maps to your ongoing service relationship, that allows you to monetize your customer interactions based on the relationship that the customer opted into.

The 21st century world needs a whole new set of operational systems — ones that match the customer centric business model that is now necessary to succeed.”

To summarize, what he is saying is that the model for future business isn’t the purchase of goods and services, but rather a price provided to a customer for an ongoing relationship to the company. Under this model, the customer is able to structure the relationship in a way which provides them with what they need to accomplish the job (s) that the company can help them with (which can be a variety of services, products, tools and structured experiences).

This is also interesting because your business is measuring the customer’s commitments to you and the other way around in operation terms, even as the business model is shifting to more interactions than ever before. If you are looking at traditional CRM metrics like CLV, churn, share of wallet, adoption rates and more, as they apply to a business model that has continued to evolve away from pure transactions, Tien is saying that the payment/billing, to him, is the financial infrastructure for this new customer-centered economic model (i.e. the subscription model).

Denis Pombriant of Beagle Research Group, LLC commented on this on his blog recently, pointing out that a subscription model does not guarantee a business will be successful. What does have significant bearing on the success of failure of a business is how well the business manages it or has it managed (i.e. by Zuora).

This can be applied to the subscription economy. Zuora is highlighting what they have predicted: that companies are increasingly moving their business models to subscription based pricing. This is the same model that supports free software and hardware, which charges customers by the month. How it is managed is another can of worms, but for now Zuora has done a service by recognizing that the customer-driven companies are realizing that the customers are willing to pay for the aggregate capabilities of the company in an ongoing way—as long as the company continues to support the customer’s needs in solving problems that arise. To learn more about cloud computing and the subscription model, contact a Nubifer.com representative.

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