Subscription Economy market leader Zuora made Wall Street happy yesterday after turning in a narrower-than-expected quarterly loss of $20.8 million on revenue of $69.7 million, up 21% year-on-year. Subscription revenue grew 24% to $50.6 million.
As is by now traditional, CEO Tien Tzuo came to the post-results analyst call armed with a host of use case exemplars to support what he called “our central thesis”. This is:
We are in the early stages of a broad shift to subscription business models, a shift that we believe will ripple through every industry. And that the needs of the companies in this new world cannot be met by traditional product-centric ERP systems that are not designed for customer-centric, subscription-based business models.
Customers cited as Q2 successes included Airbus, Epson and Poly, the result of the merger between Polycom and Plantronics, among others:
We signed one of the largest electronic manufacturers in Japan. We signed a major manufacturer of ball bearings in Europe. Yet another automotive services provider, one of the largest global consulting firms and one of the top three educational publishers in the United States. So the shift to subscriptions remains strong.
Tzuo cited the importance of having a platform play for customers:
Our real competition remains homegrown and Do It Yourself or DIY systems. Now this is where our Zuora Central Platform comes in. A platform strategy is ultimately what enables our customers to customize and extend their Zuora Billing or RevPro implementations to solve those last mile needs and we are already seeing signs, early signs that this is working.
He referenced Zuora user StackPath as a case in point:
They have been a customer since 2016, but this year, they were able to use the workflow capabilities in the platform and the Central Platform to quickly build custom provisioning close integrations with other systems like Salesforce and Automate customer usually prior to the Central Platform would have been too difficult or time consuming to do. This area is going to be a big, big focus for us.
Meanwhile the overall customer mix is maturing, said Tzuo:
We see a lot of manufacturing companies, we see utility companies, but the bigger change, I think, is four years ago, we had to do a lot more work convincing people that billing was important. And now these companies are coming to us and the good news is they are looking for a billing solution. We don’t have to do as much work.
But there’s still a mix of maturity, he added, citing the idea of four drivers for customers:
Companies might be coming to us, saying, ‘We want to launch something’; companies might be coming to us, saying, ‘Look, we put in a commercial billing system, we put a homegrown billing systems years ago and it’s no longer working’. It might be coming to us, saying, ‘We are doing more and more revenue recognition spreadsheets, because of all these new business models and that’s killing us’; or the SIs might be saying,’ look, as part of your digital transformation, you have got to do a complete bill-to-cash transformation.
Tzuo said that a go-to-market overhaul of the sales team, cited as an issue earlier in the year, has been executed, with better use made of “more experienced leaders”,(although there’s still a vacancy for a head of sales). There’s also been an update to what Tzuo called the “sales formula” to map better onto customer and prospect needs:
Our old model involved a lot of educating and evangelizing. Now the good news here is that the market has matured, companies now understand the importance of subscriptions and less education is needed. But there’s also still a wide range in where companies are in this subscription maturity curve.
Some companies, for example, are looking to launch their very first offering. They want something quick but they also want an experienced partner to guide them through potential pitfalls, others may be outgrowing the homegrown system, but perhaps a first put in when they launched years ago, that it’s now holding them back…These companies are coming to us at different points in their subscription journey and that’s why we updated our sales formulas so that our reps can intersect with our customers where they are in their range of maturity.
A solid quarter in which some necessary housekeeping work has been done in terms of tackling sales challenges and operational execution. The launch of the platform strategy in June is a welcome development and while it’s still in its earliest of days, the next few quarters are likely to see a lot of focus on adoption here. Zuora remains a company in the right place at the right time in a transformational economy.