The number of Web 2.0 start-ups I see with undeveloped business models is frightening. "We'll figure it out later" might work if you're talking about a product line expansion strategy, but revenue? I maintain that if you're truly innovating in technology and have a product in beta, you might want to apply the same discipline to your revenue model and start beta testing it as well. Once you have a million users, it's a bit late to start thinking about your business plan.
So Zuora, with its new Z-Billing offering, is at once exactly the right product for the times, and a big risk in terms of customer acquisition, since many companies that should use it won't start thinking about it until it's too late.
Z-Billing is a service that handles subscription billing for Web 2.0 companies. Many Web companies, once they do turn on their for-pay services, set up a "good-better-best" system, where, in addition to a limited free option, they offer customers different tiers of services, with overage charges should they use the service more than they are contracted to.
In other words, they treat you just like your mobile phone company.
The Z-Billing platform exists so these companies don't have to write the billing procedures themselves. The platform can handle the complexities of penalty billing, "rollover" credits for unused monthly services, and pro-rating customers' fees when they change plans mid-cycle. The service can also tie into the authorization or provisioning systems a company might have to manage who has access to what.
Zuora starts off by charging its customers 2 percent of bills collected, with the fee going down as collections go up. Presumably the billing is handled by the Z-Billing product itself. Its first customer is Core Metrics, an analytics and digital marketing company.
The whole idea of running a billing service for Web 2.0 companies is very smart. Small companies building Web apps shouldn't be saddled with creating billing software from scratch any more than they should write their own accounting software or e-mail apps. And the Zuora business model has analogs in the telecom world, in particular in Portal Software, a telecom billing company that was founded in 1985 and acquired by Oracle in 2006. The downside to the model, as I said, is not so much a lack of customers but a lack of knowledge among potential customers that they should be working on integrating a Z-Billing-like solution sooner rather than later.
See previous coverage: Benchmark, Benioff invest $6.5 million in Zuora.