ZUORA – Can it be the leader of the next big thing called “Subscription Economy”

Subscribed – That’s where the world is shifting to, a new business model. Fast proliferation of digital and cloud adoptions in organizations has changed the way people buy things. If Cloud and Internet of Things are already making headway in enterprise transformations, the next wave of business transformation will be led by Subscription economy. Customer are migrating from owning things like cars, softwares, servers, hotels to subscribing for same things through services. Few generic examples are Uber, Software as Services, Netflix movie and video on demand subscriptions, Spotify, Box and the list keeps getting bigger. Cloud transformations are exacerbating the need for businesses to adopt to subscription based models. Customers have changed. They’re looking for new ways to engage with businesses. Consumers today have a new set of expectations. They want outcomes, not ownership. Customization, not generalization. Constant improvement, not planned obsolescence. And Zuora led by founder Tien Tzuo are the evangelists right at the heart of this subscription economy, enabling enterprises to adopt the subscription based models thereby converting their customers to subscribers. Zuora is an end-to-end subscription management hub for order-to-revenue processes of a firm. They have brought in entire subscription businesses under one roof of their product platform. They have four vertical products called Zuora Billing, Revpro, CPQ and Collect. Zuora was recognized as a Leader in IDC’s First Worldwide MarketScape for Subscription Relationship Management although Apttus and Salesforce CPQ are leaders in Gartner quadrant. Zuora CPQ is in visionary quadrant for the same. Management has its vision set with complete focus on the transformation to Subscribed Economy as they call it.

Subscribed Institute: The Subscribed Institute is a dedicated think tank focused on the challenges and opportunities of the Subscription Economy created by founders of Zuora. It serves as a unique source of ideas, data, and connections for business leaders and their organizations.

Subscribed Book:Authored by Tein Tzuo is a must-read book to really understand how the transformation is happening at customers level to consume everything under subscription model across industries. This would mean no more ownership led consumption which is evident in the way business models like Airbnb, Uber, Cloud are emerging as clear winners.

Strategic Analysis of Zuora’s Product suites:

Client Base:

15 of Fortune 100 companies as clientele. 82% of customers are having Contract value greater than $100K. Their Upsell Volume is also increasing YoY.

Source – Zuora Presentation

Revenues, Operating Metrics:

2017 year end revenues were $168M with average quarterly invoice volume of $7Bn done on the platform.  Primary revenue drivers are Volume from existing customers, Upsell or Add-on products to existing customers and new logos.

Revenue ($Mn) FY16 FY17 FY18
Subscription $68 $90 $120
Services $24 $23 $48
Total $92 $113 $168
Subscription led growth YoY 32% 33% 39%

Gross Margin for subscription led segment is at around 77%.Gross Profits stood at $94Mn in FY18. Company had operating loss of $35Mn in FY18 at negative 21% margins.

Operating Expenses included Sales and marketing at $70.4 Mn and Research Development cost $37.5 Mn. This is a growth firm and they are clearly investing heavily on growth. 42% of revenue is spent on Advertising and22% of revenue is spent on research & development. If $37.5 Mn is capitalized, then Operating profits would be $2.5 Mn and with more volume growth,firm can attain better margins. Also they have net cash of $175 Mn as of date and has no considerable debt. Zuora is currently valued at an Enterprise value of $1.88 Bn at 8 times revenue.

Per Gartner, By 2022 90% of software providers would have migrated to subscription-based models. And that’s just one industry,businesses across all industries like media, hotels, transportation and industrial will also migrate to subscription-based models. This creates the case for a modern billing and revenue management solution which can handle the fluctuations and flexibility associated with subscribers or customers subscription life cycle. This includes contract life cycle management, allowances management for discounts, real time subscription metering, pricing and billing,and analytics to provide insights into subscription trends.  

Recently Zuora was named Amazon Pay Premier partner for millions of merchants seeking to capitalize on the subscription economy. Zuora is trying everything right to be a leader in the subscription economy value migration.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s