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Sunday, Sep 20th

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Zuora After The Funding - The Outlook

Summary:  In an MGI 360 Rating published On March 27th 2015 we increased Zuora rating from 60 to 61 (out of 100) and re-iterated a POSITIVE Outlook. In this research note (see attachment below) we take stock of recent milestones at the cloud billing vendor and review company opportunities and challenges.

Over the last 24 months Zuora refocused from small, VC-backed startups towards larger more mature business accounts. Company is generating traction in its product sweet spot and has been growing its channel and partnerships while making solid improvements in its implementation methods and services. The product platform has been broadened to include more finance and commerce capabilities. Zuora has also been expanding its direct sales force, partner relationships and geographic footprint. Customer feedback indicates a more consistent and predictable product implementation experience.

Company raised $115Million in institutional funding which should provide a mid-term cushion. We raised the company finance rating to reflect the influx of new capital. We view the current Zuora solution as able to meet 80% of the most main-stream billing requirements of medium volume, speed and complexity – a huge playing field that covers a very large number of accounts. Company aspirations to become an enterprise supplier remain to be fully tested as the market matures and customer adoption picks up pace.

The risk to Zuora is in “focus drift” – trying to aim outside its current sweet spot at highly complex enterprise accounts with long evaluation cycles where the company is likely to face stiff competition and high cost of sales. We view Zuora strategy and messaging undergoing a transition from its launch theme of Subscription Economy to what the company terms Relationship Business Management or RBM. We see potential value in the RBM approach but the company still needs to flush out its core messages, product vision and not lose its focus in the process. We expect 2015 to be a key year in Zuora development when its execution and strategic focus will prove critical in positioning the company for the next major sets of development milestones. Organizations with largely mainstream billing requirements with medium complexity and volume and looking to replace or re-fresh their monetization capability should be evaluating the Zuora solution as one of the strong options.

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