Market Perspectives

Long a leader in subscription management, Zuora has been deliberately targeting larger enterprise customers over the past couple of years with a more complete offering. Adding to the ability to scale to serve the enterprise market, Zuora has also built robust support for hybrid revenue models, reflecting the desire of organizations to enable mixed-revenue models that accommodate one-time, consumption- and milestone-based sales as well as the needs of omnichannel selling, including self-service. Stephen Hurrell, Research Director leading Office of Revenue, articulated about the importance of supporting a mixed-revenue model and the need for organizations to integrate and automate their processes and systems in this perspective.

For Zuora, this has meant a shift to enhance its offering to be both an expansive platform play as well as adding to core functionality to catch up with other enterprise monetization and billing platforms. Zuora is also developing and adding new functionality in an effort to create competitive differentiation. Many of these developments are in response to the need for vendors to invest in the automation of subscription management and billing processes to ensure a smooth and frictionless customer buying experience. Stephen Hurrell discusses this topic more in detail here. By adopting an automated platform approach, Zuora is improving its ability to further demonstrate its value to the enterprise.

Expanding beyond subscription management has been prompted, in part, by the emergence of new, lighter touch competitors for SMB and growth companies as well as a desire to expand their average deal size. But this means moving into areas of the market with existing specialist providers, some of whom have come out of the Telco market, long the benchmark for high volume and complexity. To this end, Zuora has made several significant announcements over the last 18 months. In October 2021, Zuora relaunched its configure, price and quote (CPQ) capability, an important feature for B2B customers for whom buying a product or service is a lot more complicated than picking from a list. And this is not just the complexity of choosing the right combination of goods and services but also providing guardrails to ensure valid combinations and at prices that require approval for proposed priced discounts from list or are tied to volume commitments. In addition, having an integrated CPQ allows the terms of an accepted quote to flow automatically into provisioning and fulfillment as well as billing, to improve accuracy and reduce potential errors from manual entries in a billing system. Following these additions came enhancements to revenue recognition capabilities to enable forecasting of billing and revenue recognition schedules as well as helping facilitate the financial close. The importance of correct accounting for subscription and other revenue models is covered by Research Director leading Office of Finance, Robert Kugel, in his recent perspective.

In 2022, Zuora launched its platform capabilities, breaking out the base data and process infrastructure functionality from the areas of billing and revenue. The design was intended to create a horizontal platform of core infrastructure capabilities that would be overlayed with discrete functional offerings and modules to enable the concept of buying into the vision, while purchasing the application in discrete phases as you would an ERP or other core enterprise application.

In August 2022, Zuora announced its intention to acquire Zephr, a subscription management offering developed to deliver a robust experience for media subscriptions. This market is much more adept at allowing customers to test-market different pricing and bundling options, and the promise is that this capability will be made available to all Zuora customers and markets. And this January, Zuora announced new capabilities to enhance its support of consumption pricing, a model growing in importance for a variety of different industries and markets, as both B2B and B2C consumers look for ways to only pay for what they use. For true consumption pricing, applications must support near real-time evaluation of pricing as transactions happen and options such as prepaid drawdown and tiered pricing based on cumulative volume commitments. Likewise, customers need to have visibility into consumption levels to better monitor spend limits. Zuora has integrated these consumption models into its revenue recognition engine, aiding revenue accounting teams to better understand implications and to mitigate financial risks. But, as in many other consumption-supporting applications, Zuora hasn’t yet tackled the issue of forecasting consumption to help in forecasting revenue, an activity that is more straightforward with flat fee subscriptions Consumption pricing in general is in its infancy and one obstacle to wider adoption is the uncertainty it brings to revenue forecasting, something vendors will need to address. But despite this, we believe that by 2025, one-fifth of B2B subscription model organizations will examine usage-based pricing to preserve competitiveness and enhance the customer experience.

Zuora is embracing the need to enhance its functionality to fully support the value of subscriptions in monetization as more traditional organizations increasingly adopt these revenue models. And it is not one or the other but all the above when it comes to providing support for what organizations need. This will be Zuora’s challenge, to convince the wider industrial market that its solutions have both the functional scope as well as the enterprise scale and level of support needed to succeed. In the Zephr acquisition, Zuora is demonstrating its commitment to delivering a more robust subscription experience and to be able to support the rapid testing and rollout of alternate bundles and pricing models. This capability has the promise to deliver rapid change, without IT or professional services, to enable organizations to react to external threats as well as maintain flexibility and adaptability in the face of change. Organizations that are vested in subscription management, mixed-revenue models and the processes for monetization should consider Zuora.