Subscription billing and payments pioneer, Zuora, today announced its series E funding. The tranche of $50 million brings the company’s total capital investments to $132.5 million, much of it spent on sales and marketing. This convinces me that the hardest thing about being a disruptive technology is the cost of getting the idea into people’s heads. Salesforce spent a similar amount on sales and marketing while getting going and it’s reasonable to say that this is now the formula.
The really good news is that all of the company’s original investors have ponied up repeatedly to buttress the company and that includes individuals like Dave Duffield founder and co-CEO of Workday and Marc Benioff, co-founder and CEO of Salesforce.com as well as conventional venture companies like Benchmark Capital, Greylock Partners, Redpoint Ventures, Shasta Ventures, Tenaya Capital. You could say the smart money is on Zuora in anticipation of an IPO at some undisclosed point in the future.
All the cash gives the company a cushion that translates as an IPO someday but on its terms, there’s no rush. And the financial news and prognostications are nice but the underlying fundamentals say even more. They say that Zuora got it right in 2007 when the company identified the back office of subscription companies as the place most in need of help to make the model work. Co-founder and CEO Tien Tzuo had an intuitive understanding of the back office having seen first hand what a fast growing subscription company had to deal with each month getting its billing done right.
At Salesforce, Tzuo was chief strategy officer and, when he recognized the need, he built a sort of version one of what would become Zuora but he didn’t stop with billing at Zuora. The company now offers solutions for payments, or commerce, and finance but even more than this, it is innovating around the idea that the subscription business model is fundamentally different from the conventional product or service models we’ve lived with since the Medici invented double entry bookkeeping. Keeping an eye on the business model means the company will be able to innovate around the core idea for a long time and that’s a good thing.
Zuora makes its mark taking the broad view, which is in part why I like them. The response from the market and the venture community tells me they’ve struck a nerve and the fact that there are many other companies plying the same waters tells me this is important.
So, good on you Zuora. I am looking forward to speaking at their user conference in a couple weeks in San Francisco. It should be quite a party.
News out in the virtual world is that some analysts have trimmed their sails regarding Oracle’s financial picture. The company missed its revenue forecast last time and today the financial guys are concerned about competition in the database business and lack of strong market support for the company’s hardware.
Competition from companies like SAP with its in-memory database solution offers potential to disrupt part of Oracle’s database business. Oracle also has a memory based strategy and there are other factors to consider. For instance, how do SAP customers feel about buying their database services from their application provider vs. from their database company?
The same kind of question can be asked about hardware from Oracle, traditionally a software company. Oracle’s purchase of Sun a couple of years ago changed that equation and you can argue that Oracle is more of a hardware company than SAP is a database company but I think this all misses the point.
Whether we’re talking about in-memory databases, very large computers, data storage and analytic appliances, we are seeing fundamental disruption in multiple markets. What’s interesting about these disruptions is that the incumbent leaders in these markets are leading the creative destruction themselves.
In a more conventional market disruption we could expect a crop of small companies flying under the radar to create products and nip at the heels of the big guys for a few years until — Oh my gosh the sky is falling! — the moment when the little guys tripped up the big guys. That’s not happening here. The big guys, especially Oracle, are doing their own disrupting.
Perhaps it’s because hardware is no longer a place where Steve Wozniak can put a few chips together on a breadboard and invent the new, new thing. It takes big bucks and lots of R&D to build what Marc Benioff derisively calls a new mainframe or the data storage and analytics appliances the Oracle has brought to market in the last two years.
Oracle has done its job, it has brought out some impressive next generation technologies and it has seeded its biggest customers, the early adopters, with the gear. It has also received good reviews albeit with some first generation glitches.
Wall Street is doing its job too, though you might want to question the rationale. The Street has a ninety-day time horizon; we know this. But disruptions have their own internal clocks and they don’t kowtow to the analysts. So we have a situation in which Oracle is having some lackluster results regarding market uptake of its newest and priciest products. Not to worry, I say.
The alternative to really big iron is widely distributed iron and it will be interesting to see how this plays out. A widely distributed scenario can use smaller and older technologies, but you lose economies of scale, even in a cloud computing situation.
So although Oracle is experiencing slower demand for its new products, I think the situation is temporary. The new gear strikes me as the disruptive innovation that the market needs and we are going through a normal process of market uptake. The only difference between this and a more conventional disruption is that as a big public company, Oracle is going through this in full view of all the critics.
Ahh, what a difference a good night’s sleep makes. The Greeks are still threatening default on their bonds, the economy is still in the loo, the major stock indices are teetering on a bear market precipice and Marc Benioff is still going to speak at Oracle OpenWorld or at least next door. But there is some clarifying news.
First, the guys at Oracle can claim that they didn’t cancel Marc, they simply moved his talk to Thursday. Unfortunately, Marc is getting on a plane this afternoon to go on sales calls back east (The man still visits customers and asks for the order. Not making any comparisons, just sayn).
The trip was planned for weeks according to my sources at Salesforce so there was no way to reschedule. I am sure that was communicated when Oracle offered the choice 8 am slot on Thursday morning instead. It’s sort of like saying, no, your vacation was not really cancelled, it’s just been rerouted to Siberia.
There’s been some good analysis by Larry Dignon suggesting that the audience is being played and I think there might be some truth in it.
Last year, if you recall, there was a minor contretemps in the press between Ellison and Benioff over cloud computing. Larry had introduced his compute server, Exalogic, and Marc was deriding it as a cloud in a box. “Beware of the false cloud,” he said. We all laughed and reported all of it. Larry got coverage, Marc got coverage and it was all good for business.
I am sure this was not collusion, just two guys who know each other’s moves and how to play a certain game. This resembles improvisational comedy quite a bit or maybe it is real life imitating improv. Here’s how it works — two funny people can riff on an idea for a long time without ever having a script by knowing a simple rule or two.
The first is be funny and the second is always say yes. In other words, regardless of what the other comedian says, accept it as valid and build on it, just never say no, I don’t think so, and the sketch can go on for a long time.
Don’t you think?
Like many human activities improv resembles an arms race with each iteration ratcheting up the stakes. Start with an insult, end with a war. Perhaps. There are some grains of truth in all this but as with improv, it is hard to determine how much.
For certain, Larry’s talk on Sunday was a train wreck panned by even the mainstream press. Was there concern that Marc would upstage Larry in his own venue? I believe Larry speaks this morning also. Marc will certainly talk about cloud computing and software and deride Oracle’s hardware despite the obvious fact that at the end of every cloud rainbow there is not a pot of gold but a server farm.
On the other hand, Oracle is late to the game with its Fusion products that would give them a whole cloud story. I sat in a briefing yesterday with nine IT executives and CTOs of companies that were in the Fusion beta program. We couldn’t report names of companies, but they exist and appear to be happy. That’s the state of Oracle’s newest cloud software though certainly products like CRM On-Demand have been around almost as long as Salesforce. Not to worry though, I think Oracle has made excellent progress, as I relate here, in the two years since Larry first derided cloud computing at the Churchill Club.
At any rate, the Larry and Marc show will go on today. It will be great theater and, like great improv, there will be a grain of truth in everything said by the participants.
A couple years ago Marc Benioff dazzled the audience at Dreamforce by pulling four phones out of his suit jacket to make the point that his products run across many platforms and technologies. The high point of the talk happened when, after pulling out all those phones, Benioff pulled out an iPad from his pants. We all laughed and he made his point.
Now though there is an implied challenge from Oracle at OpenWorld. Oracle has made a faux iPad which is on display at Oracle OpenWorld. It’s a 70 inch HD TV displaying screens from Oracle applications. It’s not real but it’s fun. The next move might be Marc’s or not.