Deals

Zuora takes in $20M to help companies deliver online subscription services

Zuora, provider of a business-to-business online service for managing subscriptions and billing, announced today it has raised $20 million in its third round of funding to further CEO Tien Tzuo’s vision of what he calls the “subscription economy.”

Zuora basically handles everything that happens behind the scenes when a user signs up for a recurring subscription on a site like GigaOm Pro. The company provides businesses with software to create and micromanage any recurring revenue model, and make tweaks whenever they want. Zuora also includes an analytics suite in its software to help business determine which payment models are working and which ones aren’t.

Subscription models have become increasingly attractive for content providers like Netflix and Hulu, which announced a premium service earlier this year called Hulu Plus, which runs on a monthly subscription. The whole recurring subscription market is worth around $7.1 billion yearly — of which Zuora says it has already captured $1 billion.

The announcement came on the heels of another major billing service provider’s funding news: Vindicia, which raised $20 million earlier this month, focuses on providing software to manage billing and fraud protection. But one difference is that Zuora allows for a greater degree of micromanagement than just automating the management of payment models.

“People have a tendency to say, ‘are you guys just a back-end function?’” said Tzuo. “That’s not exactly right, though it’s close — we want to provide people with a way to innovate their payment models and not just manage them.”

Zuora plans to use the funding to hire another 100 employees or so as it expands internationally. The company currently has around 110 employees. It announced it became cash flow positive in the first quarter of the year — so it’s not like Zuora actually needed the funds to manage operating costs, Tzuo said.

The Redwood City, Calif.-based company has raised $41.5 million to date from investors Shasta Ventures and Tenaya Capital. Redpoint Ventures led the most recent round of funding, and Redpoint Ventures’ Tim Haley will join Zuora’s board as part of the funding agreement. Zuora’s clients include business collaboration software provider Box.net and online news publication GigaOm. It has also partnered with PayPal to use it as a billing provider for subscriptions.

[Photo: Martz Agency]

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