Enterprise

The next big SaaS player will be the company that solves enterprise billing

“The SaaS billing problem has been around pretty much since there have been SaaS companies,” said one investor. And great problems present great opportunities.

Woman at computer

The complicated, unsolved world of enterprise billing might just be the next big thing in SaaS.

Photo: Darryl Leniuk/Getty Images

Even decades after subscription-based enterprise software companies took over the business software market, there still aren’t many viable options when it comes to enterprise billing systems. It’s not just a back-office problem; it's a first-order business decision that directly contributes to growth.

Some companies can get away with homegrown billing systems, but that’s not an option for everyone. The complicated, unsolved world of enterprise billing might just be the next big thing in SaaS.

“The SaaS billing problem has been around pretty much since there have been SaaS companies,” said Bogomil Balkansky, a partner at Sequoia Capital. “It's interesting that the problem is 20 years old but is still an operational challenge for SaaS companies.”

The root of the problem is that most of today’s billing systems were designed for the time before SaaS companies brought subscription-based pricing into the mainstream. Traditional billing systems were architected for one-time product-based transactions, not ongoing subscriptions.

While there are some products in the market like Zuora, Chargebee, Chargify and Stripe, they’re either not good at handling new pricing structures like consumption-based pricing, are lengthy to integrate or aren’t accessible to enterprises, according to industry sources interviewed by Protocol.

But the nascency of the billing software market is actually a good thing for early-stage investors. In the past few months, Metronome raised $30 million in a round led by a16z, Chargebee’s subscription management software was valued at $3.5 billion and SaaSOptics and Chargify raised a combined $150 million from Battery Ventures.

“There's a big opportunity here in the market: When you see a lot of in-house solutions and not a clear vendor of choice, which we haven't seen yet, it's something that gets us interested at Sequoia,” said partner Lauren Reeder.

‘A bit of an octopus’

Billing matters not just because it’s directly tied to revenue, but because it impacts everything from product design to customer retention.

“A billing system is a bit of an octopus,” said Balkansky. “It has its tentacles in so many different places, from the product itself to pretty much any major system that the company has: the CRM system, the ERP system, any sort of customer-facing communication system.”

Still, the roots of modern billing challenges stem from the shift to new pricing models in software businesses that trigger a host of downstream implications. Pricing decisions about software services are complicated because they have to balance providing value to customers with driving revenue, while working around the technical limitations of the underlying billing system.

That’s one reason why enterprise tech companies use wildly different pricing structures, such as Slack’s feature-based pricing, monthly or yearly subscription pricing from companies like Salesforce or the consumption-based pricing AWS pioneered in infrastructure tech. And each of these pricing structures has a different impact on customer growth and revenue. If a pricing model includes a free or low-cost option, that can speed up customer acquisition, but it can leave revenue on the table if the majority of customers aren’t paying.

The technical challenges vary by pricing structure as well. While consumption-based pricing can provide more value to customers because they only pay for what they use, it requires a billing engine powerful enough to accurately track usage data at the hourly, and sometimes even minute-by-minute, level.

But the complications of a billing system don’t start and end with pricing. The interconnectedness of the billing system means that billing can shift from being an accounting problem to a payment problem — and then to a product problem — in a shockingly short amount of time.

Switching pricing tiers, for example, isn’t just a billing issue. “There is inherent complexity in terms of implementing gates in the product itself to be able to lock and unlock certain features,” depending on which features a customer purchased, said Balkansky. For instance, if a customer purchased the free tier of a product, they shouldn’t have access to the premium features. “And so it becomes more of a product problem rather than just a billing problem.”

There are also accounting implications for those changes.

“Every single one of those events — the pause, suspend and resume, changing pricing — those all have downstream revenue recognition implications,” said Amy Konary, vice president at subscription management company Zuora. That’s why some of Zuora’s clients who want to offer new or different pricing models can’t; their accounting departments aren’t equipped to handle that change.

“They're somewhat throttled not so much by their systems capability on the billing side, but maybe by their financial processes needing to catch up to where they want to go from a business model perspective,” Konary said.

A company’s data infrastructure could serve as a bottleneck as well, especially when it comes to consumption-based billing. “The consumption billing problem is first and foremost a data wrangling or data processing problem, because you need to collect very sizable amounts of data about what the customer is actually using,” said Balkansky. “Which basically means that you need to create a fairly robust data pipeline that can collect all of his data fairly frequently and send it to some data store.”

And none of this work ends once the bill is calculated and delivered either, because a new set of complications arise from processing customer payments and handling everything from refunds, credits and chargebacks to expired payment methods. To mitigate the cost of payment errors, a billing system needs mechanisms for trying a failed payment method more than one time or reminding customers to update their credit card information.

Build or buy

There simply aren’t many solutions in the market that can accommodate all these challenges, which is why many companies choose to go in-house.

Both Balkansky and Reeder agree that while some billing products exist for large enterprises using subscription-based pricing, the same can’t be said for consumption-based billing or those that cater to early-stage companies.

When it comes to consumption-based billing vendors, it’s only been within the last year or so that Balkansky has seen early companies emerge. “And so for consumption billing companies, realistically there haven't been any options but to build and maintain it yourself,” said Balkansky.

The result is that many founders build their own low-touch billing systems with limited functionality. But that approach isn’t sustainable as companies scale, because most startups can’t anticipate all the complexity that comes with growth.

“Usually they don't architect the billing system with all these thoughts in mind, and at some point, they get stuck,” which usually ends in the startup rebuilding the entire billing system, said Balkansky.

Increasing competition and industry consolidation are telltale signs that the market may be poised to take off. At Stripe, revenue product leader Vladi Shunturov is bullish about the market opportunity. And he’s been putting his money where his mouth is: In the last several months, Stripe purchased revenue reconciliation company Recko and the company Billflow, which specializes in the customer-facing aspects of billing.

“If you look at enterprise software, Zuora and Stripe are the two biggest players in the space and we compete for deals very frequently,” said Shunturov. But “because Stripe is investing very aggressively in this area, we have the opportunity to out-invest other billing platforms and deliver that unified stack faster,” he said.

The few other vendors that do exist like Zuora, which counts Zoom, Zendesk and Microsoft as clients, have limitations. “At the larger end of the market, people tend to go with something like a Zuora, which you need an Accenture contract to help you implement and connect to all of your systems,” said Sequoia’s Reeder. But that extensive implementation process is more than many startups can stomach. “I think that the investment to add one of the tools like Zuora is typically a six- to nine-month process, and for an early-stage startup, that's not really an option.”

But building a billing system in-house isn’t necessarily any easier. Reeder, who worked at both Segment and Twilio, said that both companies built their own billing engines but also have substantial engineering teams to maintain them. Of course, not every company has those resources.

“And it's also not something you can get wrong. Bills are highly personal, it's your direct revenue. So it's a high-stakes project — you can't just have a junior engineer go try to build this by themselves,” she said.

In the future, the combination of data analytics, artificial intelligence and automation may solve many of the challenges facing modern billing systems, including helping enterprises more accurately predict their consumption and testing out how changing pricing models will impact customers and vendors. If billing software companies can manage to figure all this out, the complicated world of enterprise billing could become the next big SaaS market.

“I think this is bigger than the accounting space. I think this is bigger than the ERP space in the long run,” said Shunturov.

Policy

Google is wooing a coalition of civil rights allies. It’s working.

The tech giant is adept at winning friends even when it’s not trying to immediately influence people.

A map display of Washington lines the floor next to the elevators at the Google office in Washington, D.C.

Photo: Andrew Harrer/Bloomberg via Getty Images

As Google has faced intensifying pressure from policymakers in recent years, it’s founded trade associations, hired a roster of former top government officials and sometimes spent more than $20 million annually on federal lobbying.

But the company has also become famous in Washington for nurturing less clearly mercenary ties. It has long funded the work of laissez-faire economists who now defend it against antitrust charges, for instance. It’s making inroads with traditional business associations that once pummeled it on policy, and also supports think tanks and advocacy groups.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Sustainability. It can be a charged word in the context of blockchain and crypto – whether from outsiders with a limited view of the technology or from insiders using it for competitive advantage. But as a CEO in the industry, I don’t think either of those approaches helps us move forward. We should all be able to agree that using less energy to get a task done is a good thing and that there is room for improvement in the amount of energy that is consumed to power different blockchain technologies.

So, what if we put the enormous industry talent and minds that have created and developed blockchain to the task of building in a more energy-efficient manner? Can we not just solve the issues but also set the standard for other industries to develop technology in a future-proof way?

Keep Reading Show less
Denelle Dixon, CEO of SDF

Denelle Dixon is CEO and Executive Director of the Stellar Development Foundation, a non-profit using blockchain to unlock economic potential by making money more fluid, markets more open, and people more empowered. Previously, Dixon served as COO of Mozilla. Leading the business, revenue and policy teams, she fought for Net Neutrality and consumer privacy protections and was responsible for commercial partnerships. Denelle also served as general counsel and legal advisor in private equity and technology.

Workplace

Everything you need to know about tech layoffs and hiring slowdowns

Will tech companies and startups continue to have layoffs?

It’s not just early-stage startups that are feeling the burn.

Photo: Kirsty O'Connor/PA Images via Getty Images

What goes up must come down.

High-flying startups with record valuations, huge hiring goals and ambitious expansion plans are now announcing hiring slowdowns, freezes and in some cases widespread layoffs. It’s the dot-com bust all over again — this time, without the cute sock puppet and in the midst of a global pandemic we just can’t seem to shake.

Keep Reading Show less
Nat Rubio-Licht

Nat Rubio-Licht is a Los Angeles-based news writer at Protocol. They graduated from Syracuse University with a degree in newspaper and online journalism in May 2020. Prior to joining the team, they worked at the Los Angeles Business Journal as a technology and aerospace reporter.

Entertainment

Sink into ‘Love, Death & Robots’ and more weekend recs

Don’t know what to do this weekend? We’ve got you covered.

Our favorite picks for your weekend pleasure.

Image: A24; 11 bit studios; Getty Images

We could all use a bit of a break. This weekend we’re diving into Netflix’s beautifully animated sci-fi “Love, Death & Robots,” losing ourselves in surreal “Men” and loving Zelda-like Moonlighter.

Keep Reading Show less
Nick Statt

Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

Workplace

This machine would like to interview you for a job

Companies are embracing automated video interviews to filter through floods of job applicants. But interviews with a computer screen raise big ethical questions and might scare off candidates.

Although automated interview companies claim to reduce bias in hiring, the researchers and advocates who study AI bias are these companies’ most frequent critics.

Photo: Johner Images via Getty Images

Applying for a job these days is starting to feel a lot like online dating. Job-seekers send their resume into portal after portal and a silent abyss waits on the other side.

That abyss is silent for a reason and it has little to do with the still-tight job market or the quality of your particular resume. On the other side of the portal, hiring managers watch the hundreds and even thousands of resumes pile up. It’s an infinite mountain of digital profiles, most of them from people completely unqualified. Going through them all would be a virtually fruitless task.

Keep Reading Show less
Anna Kramer

Anna Kramer is a reporter at Protocol (Twitter: @ anna_c_kramer, email: akramer@protocol.com), where she writes about labor and workplace issues. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

Latest Stories
Bulletins