In its first financial reporting since becoming a public company, Zuora posted some impressive numbers including,
The subscription billing company’s year-over-year subscription revenues grew 39 percent and total revenue grew an amazing 60 percent.
Customers with greater than $100,000 annual contract value (ACV) grew to 441.
Total quarterly revenue was $51.7 million, giving it a run rate that should exceed $200 million in its first year as a public company.
Also, non-GAAP loss from operations was $18.6 million which is a lot of money as a percentage of revenues.
Reading further you discover the company has over $200 million in the bank, mostly from the IPO. Net/net this young company is growing well and it has cash on hand to lift it to profitability. Spending on operations if it includes selling and marketing would seem tolerable since it’s going into growth and the results indicate the strategy is working.
If you’re an optimist and you own the stock it’s likely that you bought on the promise of the As-A-Service economy aka the “Subscription Economy” that the company touts. If memory serves, Salesforce went public with similar numbers and word is that they’re doing okay, so there’s a case for being optimistic.
The key question is whether the company in question represents a new category with great growth prospects or if it’s a me-too. Today a me-too might be an analytics company or a new CRM company, we already have too many of them. But subscription billing, while still a crowded market, has a lot of potential. More traditional companies are launching products as services and finding they need help with the books.
What these numbers might also show, in my opinion, is how difficult it is to launch a company into the financial space. It’s rather conservative after all as shown by the slower growth of cloud ERP companies compared to cloud front office companies.
So from my seat it looks like Zuora is growing nicely, they’ve got cash and if they ensure their spending drives activities that drive further growth, it’s all good.
Next week, Zuora hosts its customers at its annual Subscribed conference. I will be reporting from the scene and it will be interesting to see what they have to say.
Salesforce’s just announced Q1 FY 2019 results beating analyst estimates and causing the stock to rise 3.9 percent. The company had been advising investors that it expected to grow to $12 billion and in the fiscal year and the Q1 results of $3.01 billion keep it on track. That’s a 25 percent increase year-over-year with first quarter operating cashflow of $1.47 billion up 19 percent.
The company adopted an alphabet soup of new regulations in the quarter including ASC 606 which deals with how subscription companies recognize revenue. From the press release:
Unearned revenue, representing ASC 606 deferred revenue less the cumulative timing differences of recognized revenue from ASC 606 adoption, on the balance sheet as of April 30, 2018 was $6.20 billion, an increase of 25% year-over-year, and 23% in constant currency.
That’s an important measure, before ASC 606 subscription companies had various approaches to recognizing booked revenues that had been held in reserve to pay future subscription fees. This points out the power of the subscription model. In contrast to conventional revenues that start at zero each fiscal year, subscription customers commit to purchases well into the future making it easier for a company to hit its growth targets.
The rise of subscriptions had caused some inconsistencies in revenue booking across the industry and ASC 606 and other regulations will help regularize that process. Look for other companies like Oracle to go through a similar adjustment as their cloud strategy takes hold.
Just in time for spring, there’s new information about job burnout and what to do about it. Seems that roughly six months of northern hemisphere winter can induce feelings of ennui and burnout in many people deprived of adequate sunlight and outdoor activity. But we typically tough it out—the job isn’t really thatbad and any personal life has its ups and downs that you learn to roll with. Right? To be clear there’s a different between job burnout and the sub-clinically depressed feelings many people get during winter but there might be enough overlap to seek a common solution.
Two pieces of information came out this month that illustrate my point. A survey of workers in major tech organizations by Blind gives an interesting picture of job burnout and it’s not pretty. Blind, the app, is for forming anonymous communities in workplaces. The tool and communities make it easy to research important questions without a lot of technology and researchers getting in the way. So the app is a place to interact with likeminded people that’s easy and enlightening. There are more than 50,000 active companies on Blind, enough to support statistically relevant samples and Blind slices and dices the dataset like a sushi chef.
The survey in question shows that at any point in time as many as half or more of a tech company’s workers feel burnt out.
Kredit Karma leads the ranking with more than 70 percent of its employees answering yes to the following question:
Are you currently suffering from burnout?
The only allowed answers were yes or no.
Bringing up the rear is Netflix with 38.89 responding affirmatively. In between are famous names lie Cisco, Oracle, Salesforce, Intuit, Amazon and many more.
What does it mean?
Perhaps we need to just chalk this up to modern living. In the long-ago rickets (vitamin D deficiency) and scurvy (vitamin C) were hazards of living in areas where the sun didn’t always shine and the diet was less than one Michelin star. Maybe burnout is just a modern analog who knows?
But it’s worth recalling that modern living became modern because enterprising people among us decided to do something about the status quo. Today we have better food and vitamins are in hyper-abundance. Case closed.
By the same token there ought to be something we can do about job burnout and similar diseases of modern life and it turns out there might be. The New York Times publishes a newsletter, “Smarter Living,” that just published an article on, wait for it, Burnout. “Your Best Tips for Beating Burnout” by Tim Herrera is a collection of tips from readers about what they do to deal with occasional fits of burned out-ishness.
Deadlines, co-workers, bosses, impossible deadlines all contribute to the pressure cooker feeling that precedes full burnout and Herrera notes that
Herrera might be surprised by the Blind study. This looks like a real problem.
The reader suggestions Herrera published all seem to center on taking a break from work, not taking it home, making friends, and developing hobbies and developing a real outside-of-work existence. None of this is new but the attention it’s getting might be symptomatic of having already passed a breaking point.
“Bowling Alone: The Collapse and Revival of American Community,” by Robert D. Putnam, was published in 2000, well before social media and smartphones. The book chronicles an innocent change in American life around the turn of the century, namely that we once bowled together after work and in leagues but not anymore.
As the review on Amazon notes,
Putnam shows how we have become increasingly disconnected from one another and how social structures—whether they be PTA, church, or political parties—have disintegrated. Until the publication of this groundbreaking work, no one had so deftly diagnosed the harm that these broken bonds have wreaked on our physical and civic health, nor had anyone exalted their fundamental power in creating a society that is happy, healthy, and safe.
Interestingly, very little has been done since publication to alleviate the symptoms either—unless you count the birth and rapid expansion of social media which might have only worsened the problem. Yes, Google, Facebook, and Twitter are on the list too which might only prove they drink their own champagne.
So what to do? Suggestions are out there. They’re in the Times article, books, and online but as they say in the 12-step business, step one is admitting you have a problem.
Werner von Braun (left) and President Kennedy at Cape Canaveral. At left an early model of a Saturn V rocket designed by von Braun.
On May 25, 1961, 57 years ago today, President Kennedy addressed a special session of Congress with what is now called the Moon-Shot Speech. It was a month after the Bay of Pigs fiasco, the country was still climbing out of a recession that dogged the presidential campaign, and JFK’s first hundred days didn’t compare well with the first hundred days of Franklin Roosevelt. In today’s golf terminology we might say he needed a Mulligan, a do-over, and the Moon-Shot speech was the vehicle.
Looking back at the success of the Apollo program you might think going to the moon was no big deal, but from the perspective of 1961, it was a big ask, a heavy lift. The US and USSR were already competing in space with launch vehicles which, to that point, were designed to lift the occasional satellite or more likely a nuclear warhead.
The Russians had much bigger rockets than the US, mostly because their nuclear program could only produce a warhead that weighed an incredible 11,000 pounds compared with the much smaller but no less lethal US warheads. They had bigger rockets because they needed them; we didn’t. Still that was something we didn’t discuss. All we could admit was that the Soviets had superior space lift ability.
They’d launched Sputnik a few years earlier and put the first man into space, Uri Gagarin. A few weeks before the speech the US had launched Alan Shephard making us officially number two in a two-nation space race.
Kennedy would not accept being second and throughout the weeks prior to the speech his staff looked for something else we could be first in but there was nothing. At a press conference Kennedy was prescient but also irrelevant saying, “I have said that I thought that if we could ever competitively, at a cheap rate, get fresh water from salt water, that it would be in the long-range interests of humanity which would really dwarf any other scientific accomplishments.”
According to Kennedy’s Science Advisor Committee chair Jerome Wiesner, as of April 1961, “Kennedy was, and was not, for space. He said to me, ‘Why don’t you find something else we can do?’ We couldn’t. Space was the only thing we could do that would show off our military power . . . . These rockets were a surrogate for military power. He had no real options.”
Though the speech is primarily remembered for Kennedy’s stirring call to go to the moon it was really designed to give him a few legislative wins. In all he made 9 proposals mostly for incrementally adding to budget appropriations for everything from Polaris submarines to missile systems, to job training, civil defense, and reorganizing the Army and Marine Corps. He was offering congress pork barrel spending that could easily pass giving him a needed legislative victory.
But when he got to proposal 9, space appropriations, the speech changed gears. That part of the speech is twice as long as the average for the other proposals and the language is different. He had begun by speaking about “the lands of the rising peoples” the non-aligned countries of what would become the third world and the importance of winning their hearts and minds.
The Soviets were actively recruiting those same countries and Soviet leader Nikita Khrushchev was launching small wars of national liberation and the US and its allies were finding it difficult to snuff out those brush fires once they started. So Kennedy needed a recruiting tool to conclusively prove that our system of democratic capitalism was better than totalitarian socialism. The space program was that tool.
You know the rest of the story. We beat the Soviets to the moon. But more importantly, the economic stimulus of the space program transformed this country from a manufacturing colossus to one that oozed high technology. It prodded a generation of kids to study science, technology, engineering, and math and not just in the US but globally. It’s no exaggeration to say it made today’s world.
From all that came the modern computer, the Internet, geostationary satellites for communications, predicting weather and running GPS systems. In all thousands of practical inventions can trace their origins to the space program but not Tang, the orange breakfast drink.
Today we live in different times. Too often we thirst for power and wealth for their own sake without committing to the demanding work needed. But if history teaches anything, it is that even now, a motivated and committed people can achieve almost anything.
Salesforce’s embrace of Rimini Street’s third-party support services is a significant departure that has transformed the support vendor from competitor to partner—at least with Salesforce. It might also offer insight into changing cloud business models. At least it helps to make sense of recent litigation involving Rimini and Oracle.
Rimini Street began life as a support vendor for enterprises running Oracle and SAP software in the traditional on-premise model. In this incarnation Rimini quickly and inevitably became a direct competitor taking support revenue from enterprise vendors. Competing for support revenue is legitimate provided the third-party vendor conducts itself lawfully, respecting patents and copyrights to intellectual property concerning the systems being supported. The third-party also has to grapple with providing patches and updates that an OEM can provide.
Typically, enterprise software vendors charge a flat percentage of the licensed software fee for support services. Regardless of the terms of the deal a business strikes with a vendor over the software purchase, the services fee is almost always calculated on the list price; so with fees around 20 percent an enterprise can end up re-buying the product every five years or so.
To be fair, there’s a significant cost built into providing service and support which includes on-going R&D, patches, updates, fixes, and bulletins, as well as live support based on a service level agreement of SLA. Customers are always trying to get a better deal and vendors need to hold the line on pricing to cover their costs and generate a profit, which is the point after all.
Third parties have a lower bar—since they don’t write the original software or upgrades their overhead is lower. But that’s the point. They don’t own the source code and so they can’t patch it, a key reason for buying support in the first place.
Rimini has announced what we can call “patches to patching” which it named holistic and virtual patching. But each of these ideas works several levels of abstraction above the source code never actually patching it. The result is that systems are still in jeopardy. So the basic low cost inducement of third-party support vendors is in some cases, specious. They charge less but they also deliver less and the difference can leave an enterprise vulnerable to hacking, and down stream effects like brand erosion and lost trust and lost revenue.
Oracle has had a long simmering law suit against Rimini, which exhausted the appeals process recently. In the verdict, Rimini was shown to have “borrowed” materials from Oracle by simply downloading them from support sites.
After Rimini lost on appeal, it issued a strange statement that was carried in the UK Register and elsewhere saying,
“The Court of Appeals, while affirming the jury’s finding of ‘innocent’ copyright infringement for processes that Rimini Street claims are no longer in use since at least July 2014, stated that Rimini Street‘ provided third – party support for Oracle’s enterprise software, in lawful competition with Oracle’s direct maintenance services,”
Which roughly translates as, we did nothing wrong and we won’t do it again.
It’s quite hard to provide in-depth support if you don’t have inside knowledge of how systems work and don’t have the source code which you need to make a patch. Oracle’s case revolved around Rimini Street’s appropriation of copyrighted support materials produced by Oracle. Specifically, the enterprise vendor accused Rimini of violating up to 93 copyrights on its support and materials and the judgements, including appeals, went against Rimini though some monetary awards were later reduced.
A new model
Since the rulings and fines, Rimini has been seeking a better way to do business and it may have found it with Salesforce. If so, it could be a new model for other cloud vendors as well.
Rimini provides 24/7/365 support for selected Salesforce applications, which now include Salesforce Sales Cloud and Service Cloud, with 15 minute response time. Salesforce and other cloud vendors offer services for their products too but generally customers have to pay more for the advanced features that Rimini provides standard. So the competition is between Rimini and, in this case, Salesforce’s advanced support services, a choice that customers are free to make. Judging by the announcement of the services, Salesforce is in favor of the arrangement and views Rimini as a partner.
Here’s why. Rimini Street CEO Seth Ravin recently told ZDNet,
“The SaaS world is different in that maintenance is included in licenses and mostly bare bones.”
Simply put, there’s more room in a cloud situation for Rimini to add value.
Let’s separate call center service from updates and patches. Only Salesforce patches its products and it does so whenever needed as well as with three annual updates. So, the thorny issue of third-party patching is off the table in the Salesforce model. No patching requirement makes it much less likely that Rimini or anyone else will need to do the things that Rimini was found guilty of in the Oracle case.
With a cloud business model a vendor builds support costs into the monthly fee and that includes further product development and enhancement as well as some amount of live support but the cloud vendor gets paid no matter what. There’s no haggling over service fees—either the customer buys what the OEM has or goes to a third-party and pays there. As a result it’s far easier for Rimini to be seen as a partner by a cloud vendor, than as a competitor.
So the difference in how support is delivered and paid for may turn out to be a significant additional inducement to legacy customers contemplating a move to the cloud. In any event, it is reasonable to conclude that the on-premise version of service and support may be going away.
At some point companies like Oracle might begin to view third-party support service providers more as partners than competitors just as Salesforce does. But the change won’t be quick or uniform. Oracle’s bevy of cloud products still have numerous configurations that enable customers to straddle cloud and on-premise positions with different support modalities. For instance, Oracle’s BYOL, Bring Your Own License, program enables customers to move an on-premise app to Oracle’s infrastructure cloud (IaaS). So, the application retains its legacy character, and presumably its support liability, even though it runs in the cloud.
Deploying a modern, cloud version of the app might remove the annual support bill but at the cost of an incremental SaaS fee by the month or contract year.
Few enterprises will decide about moving to the cloud over the cost of application support alone. The move involves a complex matrix of costs for hardware and software—including everything in the stack. There are also considerations for labor. Given Oracle’s new push into automated products in database, security, integration and other areas we can expect cost savings for some premise-based systems but that remains to be seen.
Oracle is making its customers’ move to the cloud as cost effective as it knows how and it’s likely that early movers will get the best deals. Something else to consider for the vast majority of Oracle’s customer base with its feet planted firmly on the ground.