the seismic shift to recurring revenue models & what it means for your company

Slide 1 − Zuora Confidential, not for distribution beyond intended recipientSlide 1 − Zuora Confidential, not for distribution beyond intended recipient

Why ZuoraZuora Provides a BluePrint to Succeed in the

Subscription Economy!

A Real World Look at Perpetual vs. Recurring

By Trav is Huch ZUORA

Slide 2 − Zuora Confidential, not for distribution beyond intended recipient

The Gartner Report on Adobe

• Adobe is betting the farm on the new model • The “cloud” is mostly provisioning and rights

management • Big customers who always upgrade will benefit• Innovation will be faster • The relationship with Adobe’s channel partners

will probably change

Slide 3 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

We Celebrated When We Heard This

Slide 4 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

Pundits Predicted Peril for ADBE

Slide 5 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

The 6 Month Chart for ADBE

Dec 12 – Earnings announcement

Slide 6 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

Highlights from the Quarter

Slide 7 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

This Guy is a Hero

“We are leading the software industry in transitioning our business to the cloud, which is enabling us to target higher top-line growth and greater recurring revenue”.

- Mark Garrett, Exec VP and CFO

Slide 8 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

Adobe Solved Two Big Problems

• Setting the subscription pricing

• Rights / license management

Slide 9 − Zuora Confidential, not for distribution beyond intended recipient 9

Slide 10 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

How Did They Sell CC to users?

Slide 11 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

Perpetual to Recurring Pricing Analysis

Before: Creative Suite 6 = $2600 Creative Cloud = $50 per month with annual commit = 4.3 years B/E (2.8 years discount retail)

$75 – Cancel at any time price per month

Photoshop = $999Creative Cloud = $20/month with annual commit= 4.16 years (2.7 years discount retail)

Slide 12 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

95% Move to Annual Plans

Slide 13 − Zuora Confidential, not for distribution beyond intended recipient 13

Slide 14 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

Why Does Wall Street Love Adobe Again?

Slide 15 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

GAAP vs Non GAAP Revenue

Slide 16 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

A Look at Price to Sales Ratios

Stock Market Cap Price to Sales TTMAdobe 33.77B 8.42Workday 17.26B 42.94Salesforce.com 38.39B 10.25Oracle 172B 4.57SAP 95.29B 4.36CA 14.61B 3.19Nuance 4.84B 2.6

Slide 17 − Zuora Confidential, not for distribution beyond intended recipient

The Basic Issue with GAAP Traditional Income Statements are Backward Looking

Income StatementFor Period Ending December 31, 2013

Traditional income statements measure revenue based on how much money you made this past period.

Slide 18 − Zuora Confidential, not for distribution beyond intended recipient

Again, GAAP is good for ManufacturingTraditional Income Statements are One-timed Focused

Traditional income statements do not differentiate one-time from recurring revenue or expenses.

Income StatementFor Period Ending December 31, 2013

Slide 19 − Zuora Confidential, not for distribution beyond intended recipient

Annual Recurring Revenue $100

Churn (10)

Net ARR 90

COGS (20)

G&A (10)

R&D (20)

Recurring Profit 40

Recurring Profit Margin 40%

Growth (40)

Net New ARR 40

Ending ARR $130

Retention Rate

Recurring Profit

Margin

Growth Efficiency

Index

The Three Metrics That Matter in SAAS

Slide 20 − Zuora Confidential, not for distribution beyond intended recipient

Wall Street Uses GAAP, But The Picture is Incomplete

Revenue is the only relevant information in GAAP…but it is just a piece of the picture.

Slide 21 − Zuora Confidential, not for distribution beyond intended recipient

Analysts are Getting Paid to Calc Churn

Wall Street tries to back into The 3 Metrics that Matter… but it is really just an estimate.

Slide 22 − Zuora Confidential, not for distribution beyond intended recipient

You then end up at a new ARR

level, kicking off the next period

you invest in growing ARR by acquiring new

ACV

you do a good job & minimize the amount of ARR that goes

away

ARRn – Churn + ACV = ARRn+1

you start the period @ some

recurring revenue rate

The Formula for Looking at a SaaS Business

Slide 23 − Zuora Confidential, not for distribution beyond intended recipient

The Subscription Economy Income Statement

giving you your

recurring profit margin

you spend to service the

base

First,you begin w/

ARR…

you then anticipate

churn…

giving you an expected recurring income

Annual Recurring Revenue $100

Churn (10)

Net ARR 90

COGS (20)

G&A (10)

R&D (20)

Recurring Profit 40

Slide 24 − Zuora Confidential, not for distribution beyond intended recipient

Enough With The Wall Street Stuff

Slide 25 − Zuora Confidential, not for distribution beyond intended recipient

Sign up

Validate CC Validated

Create Bill Process Payment

Create Account

Link Account

Confirm Sign Up

Welcome Email

Create Subscription

Provision Service

WE

BS

ITE

BIL

LIN

GC

RM

PLA

TF

OR

M

Slide 26 − Zuora Confidential, not for distribution beyond intended recipient

Pricing QuotesOrders

Commerce FinanceSubscription

BillingSubscription Subscription

Subscription LifecycleBilling Payments

Real-Time Bookings, Cash & Revenue

Payment Gateways Accounting/GLCRM Systems

Our Platform

Slide 27 − Zuora Confidential, not for distribution beyond intended recipient 27

Z-Business is used by 500+ Subscription Economy customers across multiple industries

High Tech SaaS Cloud Infrastructure

TelecomDevices

Media

Education Healthcare

Slide 28 − Zuora Confidential, not for distribution beyond intended recipient

Infinite pricing options

Summary

• Stories of Adobe’s Demise were premature

• Recurring revenue models do not require a SaaS architecture

• The market craves predictability

• Don’t overcomplicate making a move

• If you make the decision to go, let us help you with the analysis and implementation

Slide 29 − Zuora Confidential, not for distribution beyond intended recipient 29

travis@zuora.com@travishuch

Slide 30 − Zuora Confidential, not for distribution beyond intended recipient 30