At Dreamforce, Zuora, like many other emerging companies allied with Salesforce.com, decided to hold a user group meeting. As long as the customers jointly held by Salesforce and Zuora were in town, the logic went, why not have them in for a day of education, listening and a pep talk from the boss?
It was a fine idea. Customers came to San Francisco a day early to hear Zuora CEO Tien Tzuo tell his audience that conventional ERP would be dead in a matter of a few years. He used the word “dead,” too. Such an outrageous statement could have easily been taken as so much hyperbole from a leader who had raised tens of millions in venture funding and showed the world a new way to bill and collect for subscription services, which are increasingly coming to dominate the economy.
Tzuo’s statement began to look significantly less flamboyant and even on track on Tuesday as he and Workday CoCEO Dave Duffield announced an alliance between their companies to drive some nails into ERP’s coffin. Workday financials and Zuora billing and payments is a solution that will help enterprises take the steps they need in order to compete in what Tzuo calls the “subscription economy.”
Malaise and Revolution
The step requires a big change in business model for many companies as they pivot and begin to sell their output as services rather than products. Unlike products, services can be changed, fluctuating according to need. But until now, there was a limited number of ways that companies could bill and receive payment for their wares, and the software — from companies like Oracle and SAP — that supports one-time product transactions is not easily turned to billing for subscriptions.
The drive for demand for subscriptions can be traced to two key events: the social revolution boiling around us and the economic funk we’re in. Social media like Twitter and Facebook have given people a new understanding of the “power of now.” We expect instant answers from the connected universe, rapid solutions to problems and just-in-time information, and increasingly we’re expecting that kind of response from our vendors.
If we buy something online, we expect to adjust the purchase and amend the conditions of use as often as we need to. We’re also broke. As individuals and companies, we might be able to afford the monthly payment, but not the bolus of cash required to buy things. Together, these two phenomena are driving the need for subscriptions.
What’s a company to do?
Automation Makes the World Go ‘Round
The only thing a smart vendor should do is to say, “Sure, let’s do business with you the way you want to interact with us.” Simple right? That’s where the billing system comes in. Companies wanting to get into the subscription economy have to deal with balky back-office billing, payments and financial systems that don’t make this style of commerce easy.
Realistically, if you can’t bill and collect for your output, you can’t realistically engage with your customer as your customer wants. Many companies are trying to make their obsolescing billing systems play in this new world, but it’s like death by a thousand paper cuts.
The subscription business model runs on thin margins and relies on automation for everything from selling to service to billing and payments. If you need to insert human labor into any of this, such as to make all the changes and upgrades that people expect today work in your billing system, then you end up running an unprofitable subscription business, and who wants that?
So that’s the disruptive moment. Old billing systems and an increasingly restive customer base beginning to move to new and nimble competition all signal a need for a new business model. The model exists, but the software that enterprises now have doesn’t support the new model.
ERP is ripe for disruption, and ironically I’ve heard some of them talk this year about the need to deliver their systems in a SaaS model, but that misses the point. In addition to using SaaS principles for their technology, ERP vendors need to build product to support SaaS and subscription services. They aren’t doing a very good job of it, and that is why the Workday and Zuora announcement is so important.