Easing the SaaS-to-cash cycle

Easing the SaaS-to-cash cycle

Summary: The credit crunch has put a premium on the ability to generate cash. But if you're a startup with a great SaaS proposition, how can you be sure of reliably collecting those payments?


The credit crunch has put a premium on the ability to generate cash. If we are facing a recession, I personally think that presents a tremendous opportunity for SaaS vendors. All those small businesses out there, doing their best to sell more and keep their costs down, will pay sound money for SaaS offerings that deliver tangible business value.

But if you're a startup with a great SaaS proposition, how can you be sure of reliably collecting those payments? Back in the free-and-easy days of Web 2.0, all you'd have to do to generate a modicum of cash was open a Google AdSense account and start earning ad revenues — often enough to tide you over until you could pick up VC funding or get acquired.

Zuora logoAs Tien Tzuo, CEO of subscription billing vendor Zuora, said to me in a briefing last week, there's never been an equivalent to AdSense in the subscription world — a simple service that startups can just plug into their Web offering and run with. At a starting price of $500 a month, the Z-payments service that Zuora introduced this week demands a bit more revenue visibility than AdSense (which requires no upfront payment). But I admire Zuora's aspiration to offer a subscription platform that's as easy to plug in and as universal as Amazon is in retail, PayPal in payments and Google in ads.

Z-payments is the second application in the platform, complementing the Z-billing component announced when the company launched. Following on from the recent appointment of PayPal's president to Zuora's board, Z-payments comes with built-in integration to PayPal but also works with other payment processors, such as Authorize.net. The value of a payment management system like Z-payments is illustrated by the case study of data sharing service Box.net, which has tens of thousands of customers paying a monthly subscription, mostly by credit card. "We were literally losing money because we couldn't track down failed monthly payments," says Aaron Levie, Box.net's CEO. "Z-Payments helps us automate all the issues and exceptions that arise with recurring payments."

Another case study brings the subscription payment model to Facebook, demonstrating that there is hope after all for the notion of cash in the Web 2.0 economy. Teach the People allows any Facebook user to offer online classes to other Facebook users, and charge a one-time, monthly or annual fee for the service. As Tzuo noted, the typical Facebook developer team consisting of a couple of guys in a garage or an attic is one that can really use a service like Zuora's. "These guys really need to monetize," he said. "It's a great example of a non-ad based monetization strategy for a Facebook app."

Topics: Enterprise Software, Banking, Social Enterprise

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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  • Credit crunch

    Monetization of services becomes all the more critical in these times. As volumes increase operational efficiency becomes critical. At eVapt we therefore go beyond allowing service providers to plug in eVapt billing and payment capabilities. We allow users to scale and automate collection and analysis of data needed for billing.

    - Ranjit Nayak
  • SaaS is a cash hemorrhage.

    SaaS is just another way to make the customer pay over-and-over-and-over again for a product that they already bought. It offers no benefit to the customer, and a huge no-cost revenue stream to the supplier. In these days of ever-tighter budgets and credit-crunch, customers are not -- and will not be -- looking for a cash hemorrhage.

    Customers want to buy the products they need, and extract the maximum value from them. SaaS is the polar opposite of this.

    Rental software is the goblin of the deep dark centralized mainframe days, returning as a new boogieman to threaten computing's future.

    We aren't buying into it.

    Software providers should try writing usable, stable, and secure solutions instead of trying to wring more cash out of their victims (umm ... I mean customers). Better solutions will drive more sales and thus create more profit for the vendor. This is the true path toward sustainable growth.

    As always, this is just my $0.02 USD based on nearly 30 years in the industry.

  • RE: Easing the SaaS-to-cash cycle

    Another way of easing the order-to-cash issue for SaaS start-ups is to embark on a shared risk approach. One way of doing this is to work with a SaaS aggregation platform (like Jamcracker -- selfish plug!) to enable different types of distribution partners to resell their services. Whether it's a large telco, or a smaller MSP, selling thru a channel partner allows SaaS ISVs to off-load the billing, collections, sales, and support aspects to a 3rd party.