Index’s roots are in Geneva, Switzerland. We know that large Swiss government organizations are generally not “early adopters” of technology. So, when the folks at Zuora told us that the Touring Club of Switzerland had adopted them for their subscription billing services, we knew something was up…. Today, we are delighted to announce our Index Growth investment is Zuora.
The web has shaped so many things around us. One of the biggest changes is the increased shift from a product economy to a subscription economy. We all buy products and use them every day. But what products actually provide us is an experience or a service. A car is actually a transportation (maybe also an entertainment?) service. A newspaper is actually an information service, and so on
The web has allowed us to buy the services as a subscription, which is much closer to the value we actually get from them. Some industries have been in subscription business models for some time – telcos and utilities are prime examples of these. These businesses have created good value for both the creator of the service (telcos really love the fact that we are subscribers) as well as for consumers of the service. This is particularly true of businesses that require high fixed costs to create the service in the first place.
But now this shift from a product economy to a subscription economy is happening in virtually ever sector around us as both new companies as well as established companies launch new services. Think of the software industry, which is undergoing an enormous transition from products to SaaS. Or think of media’s migration from depending on physical media to subscriptions services like Netflix or Spotify. This trend is just beginning.
The challenge with this migration, however, is that it imposes major changes in the way businesses relate to their customers. The first is how to price the services. For example, should a service be priced based on consumption or based on just access? The second is how to engage in a lifetime relationship rather than a single transaction. Imagine what shifting from a “bronze plan” to a “gold plan” mid-month does to the billing and financial systems. The third is the financial implications of these subscription models. When can you recognize revenues for a service? Finally, there is the complexity of integrating the subscription services into the existing enterprise systems ranging from CRM to Finance & Accounting to the ERP.
Enter Zuora. Tien Tzuo and his team at Zuora had seen this problem first hand as they scaled Salesforce.com from a newcomer in the CRM space to being the exemplary SaaS company over the last decade. They created a SaaS-based billing systems which allows all new services to shortcut their way, in a mature and fully-featured way, for monetizing their relationships with customers. The first act of that was the billing and payment operations as well as the taxation system. As it turns out, the simple act of sending the right bill to a customer is not so simple. Especially since, billing is a primary method for “engagement” between a service and its customers. The fact that Zuora itself was a SaaS really helped as the service providers could avoid the complex task of deploying and managing their billing systems.
Over the last 4 years, Zuora has had to figure out the complex world of enterprise software integration as well. They have connected into countless CRM, Accounting, and HR systems as well as a range of payment gateways. They have made friends with Saleforce, Workday, Netsuite, Oracle, SAP, and many others. Few systems touch as many elements of the enterprise infrastructure as the billing system. One thing I learned from my years managing the Service Provider business at Cisco, was that the billing system was sacrosanct. Only a select few were allowed to touch that portion of their infrastructure. Zuora has placed itself in that role.
Zuora has also accumulated an impressive list of customers ranging from established market leaders like News Corp and Dell to newcomers like Tata Communications and Box.net. The experience accumulated through these customer deployments puts them in a class of their own in this market segment. Of course, like many companies at this stage, Europe is becoming an attractive market to them – and we at Index, are here to help.
Of course, no Index investment story is complete without talking about the team. We met Tien at our offices in San Francisco for the first time. Even though Tien had enjoyed a successful career at Salesforce.com, it was pretty evident that he had a lot to prove. The drive and passion to build a great business was evident in the first 10 minutes of the conversation. Tien has assembled a world-class team around him from leaders in the SaaS and software – Netsuite, Oracle, Webex, Vitria, Paypal, and many more.
As an Index Growth investment, we are also fortunate to join a roster of terrific investors that saw the potential of Zuora before we did. Congrats to our friends at Benchmark, Redpoint, and Shasta for having backed this great team. We are privileged to join them in supporting Tien & Co.
We’re proud to say that our colleagues in Switzerland will not be looking at the TCS in the same way again. In fact, every time we look at an invoice we receive, we’ll think that they will all come from Zuora some day in the not too distant future.