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Zuora - no longer just a billing company. CEO Tien Tzuo explains why

Stuart Lauchlan Profile picture for user slauchlan May 23, 2024
Summary:
Total Monetization is the new goal for Zuora.

zuora
(Zuora)

We are no longer just a billing company.

Having pioneered the notion of the Subscription Economy, Zuora CEO Tien Tzuo has a new concept front of mind - Total Monetization. And to help deliver on that, Zuora is acquiring Togai, a provider of metering and rating solutions.

When the deal was announced at the end of last month, the pitch was that:

Togai enhances Zuora’s monetization suite, enabling developers to work alongside finance teams to define and operate any pricing model with a solution that can be easily plugged into their existing data stack. Its metering system facilitates event ingestion from a variety of sources, and its flexible rating engine enables unique ways to package and bundle offerings. Developers can get started with Togai’s self-service interface in minutes, which can support up to a billion events per day and reduce customer disputes with fully auditable and traceable usage data. Its Revenue Simulator and pre-built CRM connectors also alert sales teams of upcoming upsell and renewal opportunities.

Yesterday, as Zuora turned in its latest quarterly numbers, Tzuo went into more detail about the rationale behind this latest move. He said:

You probably know Zuora as the company that predicted and led the shift to the Subscription Economy and this shift has happened. Today you and I, we are buying less and less stuff and it sure seems like every week, the CEO of another Fortune 500 company is declaring a target of shifting some meaningful percentage of their business to recurring revenue models.

But now in the Subscription Economy, this new world is a new normal. People are asking what's next? Well, we believe what's next is a concept that we call Total Monetization. This is no longer just about standalone subscription businesses with monthly fees. It is also about one-time transactions, like product sales or paid review or professional services revenues or the usage and consumption model that Togai helps us power. Total Monetization is about mixing multiple business models in a way that maximizes, the value of your innovations in your target market.

This can be seen in action at organizations such as The New York Times, a long-standing Zuora customer, he added: 

[It] transforms and unbundles how it offers products like games or cooking or news or sports alongside its traditional offering, and they've been able to see their annual digital subscription revenues with this strategy go beyond $1 billion a year. 

Strategic

From Zuora’s own perspective, there are strategic implications. Tzuo  explained:

We’re building what I will call a Total Monetization software stack for powering any business model. And what's unique about this platform is that it is totally modularized. So you can start with billing or metering or revenue or payments. And so when you look at our customer base, you see us owning the entire billing layer in some companies and for other companies where the entire payments layer or the entire revenue layer. Ultimately our strategy is to be able to land with a new logo where our customers' pain point is greatest and then expand with them over time across the entire order to revenue process. In fact this is our own Total Monetization strategy.

Togai also plays into an increase in demand for usage-based pricing from customers, he added:

Our advanced consumption solution is one of our fastest-growing products in terms of pipeline. As of Q1 we have over 50 customers that have selected our advanced consumption offering and usage-based models continue to accelerate even further with the explosion that we are all seeing of gen AI-based technologies. But in supporting our customers around consumption strategies, we have also uncovered a huge need that engineering organizations have around capturing and metering their usage information. This is where Togai comes in.

My take

We believe that our bigger opportunity is to power a company's total modernization strategy and not just simply be a billing provider. 

The Togai acquisition is a useful and logical development by Zuora, with a typically articulate explanation of the drivers behind it from Tzuo. The company’s share price earned itself a nice boost yesterday on the back of some solid numbers for Q1 Fiscal 2025:

  • Revenue of $109.8 million was up six percent year-on-year.

  • A net loss of $13.7 million was down on a loss of $19.3 million for the comparable year-ago quarter.

  • Subscription revenue was up 10% year-on-year to $99 million.

  • Annual Recurring Revenue ended the quarter at $404.4 million, up eight percent year-on-year.

Customers with annual contract values above $250,000 now number 451 against 436 a year ago. There is still slowness among buyers as Tzuo acknowledged:

The lack of large transformational deals coupled with the seasonality of the software business meant a lighter overall new logo quarter. That being said, we’re getting more and more efficient in how we generate pipeline. We are switching to more digital and inbound techniques, and we are already seeing positive leading indicators that show improved response rates and lead generation efficiency. 

He added:

We still feel good about the pipe. There is still demand certainly for shifting to the subscription business models. What we really try to highlight though, especially when you look at new logos, is companies are cautious about the large deals. And so you could define large in many different ways, but if we will just say these are seven digit deals, you're seeing companies continue to hesitate to pull the trigger on signing up a new vendor at that seven digit level. So we are not seeing those deals necessarily go away, but we're continuing to see companies cautious about those deals.

Onwards!

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