‘Land and expand’ is a common strategy across the tech sector, but Tien Tzuo, CEO of subscription economy enabler Zuora, reckons his firm has a different spin on it:
Where other SaaS companies talk about landing and expanding within a single company, we focus our land and expand on entire industries.
As the company turned in third quarter numbers yesterday - revenues of $61.6 million and a net loss of $17.9 million - Tzuo elaborated:
The fundamental bet that this company is built on is the continued wide spread of the subscription economy that we're all seeing will lead to continued strong demand for the unique technology solutions that only we have delivered.
When looking at Box’s earnings earlier this week, I had a moan about the lack of named use cases on show from the firm. No such complaints from Zuora, as Tzuo drilled down on vertical markets to illustrate his point. While the tech sector still accounts for around half of Zuora’s business, new industry sectors are opening up, he said, not least media:
After going through years of hurt, newspapers today are finding growth again through digital subscriptions. Now, we saw the shift early and began to focus on this industry years ago. We started working first with News Corp UK in 2011 - they publish the Times of London and The Sun. That helped us land the Financial Times later that year. Then Fairfax Group of Australia, in 2012; The Guardian, in 2014; The Wall Street Journal and The Telegraph in 2015; and then the Seattle Times, The Boston Globe; The Straits Times, of Singapore; The Bonnier Group, which publishes the biggest newspapers in the Nordics.
We also landed magazine publishers, like Time UK, which is now TI Media; Bloomberg; and Penske Media, who owns Rolling Stone and Variety Magazine. So you're seeing the network effect really starting to take hold. We also expanded to other media companies like HBO, Perform Group, and also B2B publishing companies like S&P Global. Today, we're working with about 20 major newspaper publishing groups. We help them launch new digital offerings, experiment with new bundles, scale their businesses, and handle different payment methods around the world, like Amazon, PayPal, or direct debit.
This is now a growth sector, he added:
We can actually see it in our servers; transaction volumes for this segment, through the Zuora Billing system, have grown over 30% on average over the last five years. The perception that people won't pay for news turned out to be wrong. In fact, millennials are now the fastest-growing demographic. A 2018 Reuters report showed that the majority of new subscriptions over the past couple of years is coming from people under the age of 35. And this signals long-term structural growth for the industry.
So what does that all mean for us? It means that our early bet on newspapers has turned into one of our major growth engine. The growth rate that we've seen in subscription revenue from media and publishing companies has averaged about 35% a year over the last seven years, has become one of our largest verticals, representing approximately 13% of our overall subscription revenue.
Tzuo’s thesis is that Zuora can help industries to unlock growth through subscription business models. It’s also well placed to tap into sectors that are mid-disruption, such as the automotive industry:
We now have six of the Top 10 auto manufacturers, with Toyota and Kia Motors onboard. But what's going on here? Probably obvious to anyone who's used Uber or Lyft that we are all very likely going to buy fewer and fewer cars over the next years and decades. Self-driving cars, when they come, will only accelerate this trend. So the major manufacturers, they all know this. And they're all turning to services for growth, content services, navigation services, diagnostics, analytics.
A 2016 McKinsey report says that services could actually expand auto revenue pools by 30%. And if you've ever been down in the mall below the World Trade Center, Ford has a whole exhibit that showcases their vision from morphing from a car company to a mobility services company.
Again Tzuo says that Zuora spotted these shifts early on and began to put a stake in the ground:
[We] began to execute the same land and expand playbook, picking up early leaders and then becoming the overall leader for the vertical. Today, in addition to the six of the top 10 OEMs, we also have Daimler Trucks, as well as connected services like Volkswagen's Wheel Service in Europe, OnStar, and Sirius XM. I think it's fair to say, we are now the leading provider of subscription solutions for the entire automobile industry. So what you're seeing is the same dynamics that play in autos as we did in newspapers, just staggered by about five years. Any industry facing disruption looks to subscription revenues for growth, and they come to us, not only to handle the revenue complexity, but also to help them spin up new service and get to market faster.
The life sciences sector is another case in point, he said, citing Viva as an exemplar:
They're a leader in the life sciences space, fantastic SaaS success story…Viva has been public for a while. They’re now talking about hitting $1 billion of revenue next year, and what ASC 606 [revenue recognition regulations] really put a spotlight on was how complicated revenue recognition has become for them. They spent a lot of effort to become ASC 606 compliant last year, but using manual operations. Then this year they came back to putting in an automation solution, and they selected RevPro this quarter to help them to efficiently scale this part of the business.
That’s an increasing theme among users when it comes to regulatory changes, he adds:
Our value proposition is now more centered around automation and efficiencies, versus simply compliance….there’s a big, big difference between being compliant and being competitive. And that was the reason to bring on the RevPro product in the first place. The need for revenue automation is not just driven by ASC 606 compliant. It's a larger issue with many of these companies as the complexity of revenue recognition limits their ability to efficiently scale and meet their business goals.
A solid quarter for Zuora, but it’s the customer examples that stand out. As we never tire of saying, it’s the customers that tell the vendor’s stories the best.