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Why enterprise billing is the new ERP

Protocol Enterprise

Hello and welcome to Protocol Enterprise! Today: why enterprise billing is still a problem 20 years into the SaaS revolution, Oracle’s hefty stake in a board member’s startup, and the week ahead in enterprise tech.

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Bill me later

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. And billing isn’t just a back-office problem: It's a first-order business decision that directly contributes to growth.

Today’s billing systems weren’t designed for the SaaS era. Traditional billing systems were originally engineered for one-time product-based transactions, not ongoing subscriptions, experts told Protocol this week.

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

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, Chargebee was valued at $3.5 billion and SaaSOptics and Chargify raised a combined $150 million.
  • “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.

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 Bogomil Balkansky, a partner at Sequoia. “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 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 comes with different technical challenges. Consumption-based pricing, for instance, requires a billing engine powerful enough to track usage data at the hourly or even minute-by-minute level.

But the complications of a billing system don’t start and end with pricing. 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, is also a product problem because if a customer purchases the free tier of a product, they shouldn’t have access to the premium features.
  • 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.
  • And none of this work ends once the bill is calculated and delivered either, because a new set of complications arises from processing customer payments and handling everything from refunds, credits and chargebacks to expired payment methods.

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.

  • 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.
  • There also aren’t many vendors suited for smaller companies. “At the larger end of the market, people tend to go with something like a Zuora,” said Sequoia’s Reeder. But “you need an Accenture contract to help you implement and connect to all of your systems.”
  • But building a billing system in-house isn’t necessarily any easier. While companies like Segment and Twilio built their own billing engines, Reeder said they also have substantial engineering teams to maintain them, which not every company has.

If billing software companies can manage to solve all these problems, the complicated world of enterprise billing could become the next big SaaS market.

  • At Stripe, which recently acquired Recko and Billflow, revenue product leader Vladi Shunturov is bullish about the opportunity. “I think this is bigger than the accounting space. I think this is bigger than the ERP space in the long run."

— Aisha Counts (email | twitter)

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Oracle’s cozy relationship with Ampere

Oracle’s ambitions in cloud computing are no secret and to further that end, the veteran tech business has been quietly funding a server chip startup run by one of its board members.

The size of Oracle’s stake in Ampere became apparent when Oracle reported a wider-than-expected operating loss for its fiscal third quarter Thursday — the company blamed it partly on Ampere’s losses. According to accounting rules, Oracle's inclusion of Ampere’s operating losses in its earnings implies that it owns 20% to 50% of Ampere.

Oracle made an initial $46 million investment in 2017, and upped its stake by $40 million in 2019. It made a second $40 million investment in 2020, and plopped $300 million into Ampere in March 2021, bringing the total to $426 million, according to SEC filings. In addition to Oracle’s equity investments, the company also gave Ampere a $25 million prepayment for its processors.

Prior to the 2017 investment, Ampere CEO Renee James was considered an independent member of Oracle’s board, but the company changed her status after the funding round. James has served on Oracle’s board since 2015 and was formerly president of Intel.

— Max A. Cherney (email | twitter)

Coming next week

GitLab is announcing financial results on Monday at 1:30 p.m. PT.

SentinelOne is hosting its earnings call on Tuesday at 2 p.m. PT.

Adobe’s Summit on digital experience starts Tuesday at 9 a.m. PT.

Protocol Climate will launch next week to explore how the tech industry — including enterprise tech — is tackling climate change.

Around the enterprise

The U.S. Senate passed legislation requiring “critical infrastructure operators” to notify the federal government if they are hacked or make a ransomware payment, sending the bill to President Biden, who is expected to sign it.

The chip shortage isn’t improving: Wait times for new orders increased to 26.2 weeks in February after showing brief improvement in January.

SAP is making some changes to its partner program that could increase its cut of partner sales, according to Bloomberg.

The federal government is not doing a very good job improving its server utilization rates, according to a Government Accountability Office report.

A MESSAGE FROM ADOBE

Get inspired as we make the digital economy personal at Adobe Summit 2022. Explore the top industry trends and insights, expand your skills, discover the latest innovations from Adobe Labs, and connect with peers and experts from around the world.

Learn more

Thanks for reading — see you Monday!

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