Cash is the new black for cloud apps

For a long time I've rued and railed against Web 2.0's dependence on indirect funding — primarily advertising — and the concomitant lack of an effective platform for cloud-based applications to make money from subscriptions and other pay-as-you-go business models. Whatever Chris Anderson says, you can't make money with free, not unless you actually end up selling something.

Thanks to current economic conditions, developers are finally starting to realize that the simplest way to generate cash is to bill customers (doh! — for more straight-talking advice from me on monetizing SaaS, check out this short video). Now, just in the nick of time, a company has introduced a developer-friendly way to build billing and payments into a Web-based application and instantly you wonder, why on earth did it take so long?

Announced yesterday and currently in private beta pending a full launch once deployment has ramped up, the Z-Commerce Platform from SaaS billing startup Zuora is a set of APIs that expose functions from the company's existing product set, Z-Billing, Z-Payments and Z-Force (the third of which is a subscription management console and quotes engine built on Salesforce.com's Force.com platform). The APIs can be embedded in any cloud service built on Amazon Web Services, Force.com, Google AppEngine or even Windows Azure, which can then call services within the Zuora product suite. Application builders will still have to buy the Zuora products to run the back-office services once their application goes live, but use of the API platform itself is free to developers while in the develop and test phase. Zuora provides toolkits for popular languages such as Java, .NET and PHP, there's a reference implementation ('Z-Store') and of course a community site, where developers can collaborate and share best practice.

I don't intend to denigrate the undoubted capabilities of other SaaS billing vendors such as Aria Systems, Vindicia, eVapt [disclosure: a recent client] and IP Applications — or even of more conventional vendors like MetraTech, which powers online billing for Microsoft's recently launched Online Services. But all of them take a traditional, project-based approach to implementation that means the usual to-ing and fro-ing before you can get anything up and running. Whereas Zuora lets developers work directly with its APIs, charging nothing until the service is ready to go into production. That's a major advance and one that means developers at last have a low-threshold option for including proper subscription management and collection in their pay-as-you-go applications. The API calls in the Z-Commerce Platform cover functions such as pricing management, account maintenance, usage metering, invoicing, adjustments and collections, plus a one-step 'suscribe now' call that registers an account, creates a subscription and collects the initial charge as a single, integrated process.

Of course some of those cloud platforms already have some form of billing capability, most notably Amazon DevPay and Force.com's Checkout. But they have the uncomfortable side-effect of leaving the developer even more locked-in to a specific platform, and in any case have typically been designed for a narrower range of use cases. I asked Zuora's CEO, Tien Tzuo, specifically about DevPay.

"Our feeling is Amazon is never going to build a billing system of the robustness that the market needs," he told me. "The vast majority of companies using Amazon have a different pricing model that Amazon's payment system doesn't support."

Zuora already has some charter customers it's been working with to fine-tune the platform — and a total of 70 customers in total acquired in 2008, which is not bad considering the company only launched in the first half of the year. But it will still have a battle on its hands to convert most developers, who assume that collecting a subscription is a simple process they can create from scratch in a few lines of code. That's why Tzuo is emphasizing that Zuora is selling a business solution (his blog yesterday was headlined Introducing the Business Cloud), rather than merely another layer of cloud technology. "A business cloud that's separate from a technology cloud is an important concept to bring out," he told me in a briefing late last week. Meaning, this is about commercial realities, which business-minded technologists and business managers are more likely to grasp than diehard developers.

That gives Zuora an education challenge to bring its customers up-to-speed with the nuances of its platform. "People don't have an intuitive feeling for how subscription businesses work because it's a newish concept," said Tzuo. A subscription catalog is not at all like a shopping cart, where you're just dealing with lots of distinct items. Subscriptions usually have different levels — basic, professional, advanced — plus add-on options, and customers often want to move from one level to another, or change their add-on choices, part-way through a subscription agreement. As a result, said Tzuo, "developers quickly get confused when they first get started." So when they sign up with Zuora they're offered a lot of help to understand the subscription business model, and how to manage aspects such as offering different packages, handling add-ons and upgrades, doing amendments, and so on.