When Tien Tzuo was the chief strategy officer at Salesforce.com, he sat in on a pitch to CEO Marc Benioff for an on-demand software tool startup looking for funding. Benioff was lukewarm to the idea. “If there was one thing you would want to outsource, what would it be?” asked one of the pitching executives. Benioff and Tzuo looked at each other and told the supplicants that what they really needed was an on-demand billing package. Frustrated with the original commercial billing system they started out with at Salesforce, they had to build their own from scratch to manage not just billing, but different subscription packages.
That spark turned into Zuora, an on-demand billing and subscription-management service. At the end of 2007, Tzuo left Salesforce after nine years to join K.V. Rao, an early WebEx employee and one of the entrepreneurs who had been pitching that day, to become the CEO of Zuora. The other co-founder and CTO is Cheng Zou, who had built the subscription billing system at WebEx. Benchmark led a $6.5 million A round in which Benioff invested personally as well. “I always support those who have supported me,” says Benioff.
Think of Zuora as a Salesforce.com for online billing. More and more businesses are adopting online subscription models—everything from Salesforce to Netflix to Zipcar. But there is no good on-demand service that these companies can outsource their billing to. The closest thing is Portal Software, which was bought by Oracle, but that is an expensive enterprise application geared more towards Fortune 500 companies.
Zoura is more a pay-by-the-drink model along the lines of Salesforce and every other software-as-a-service enterprise startup out there. In fact, it is those startups who need Zuora the most because they charge customers a recurring subscription. Tzuo explains the deficiencies of the current billing software alternatives:
The existing systems are built for manufacturing companies who bill each customer a one-time charge, instead of recurring billing like a phone company. If you are going to have a service online, you can give it away for free and hope to make it back on ads. Or you can go with PayPal if it is a one-time charge. But if you want a customer to open an account with you, and track their fees, that is the product we are building.
The service is being designed not just to send out monthly invoices, but to manage subscriptions as customers change plans and dispute charges. Tzuo wants to automate all of that. The startup already has one pilot customer (not Salesforce), and plans to charge per billing account. It is not unusual for companies to spend as much as 6 to 8 percent of their revenues just on processing invoices and collecting payments. Tzou is convinced he can cut that in half and still make a profit.