If the economy tanks, will subscriptions become a panacea?

Zuora debuts online payment service with PayPal connection, the second product from a start-up focused on the software-as-a-service business.

Chalk it up to happenstance, but Zuora founder Tien Tzuo couldn't have timed it any better.

The company on Tuesday morning announced Z-Payments, an online payment service for subscription-based businesses. Interestingly, the product will also accept payments from PayPal.

Along with the announcement, PayPal's president, Scott Thompson, has joined Zuora's board of directors.

What with the stock market in a funk and companies acutely concerned about the impact of a slowing economy on their bottom lines, the pitch Tzuo plans to make is that Z-Payments can handle the job of collecting recurring payments more efficiently and at a lower cost than doing it themselves--especially compared with paper-based payment processes. So the question becomes: If the economy tanks, will subscription services like Zuora's benefit?

In an interview, Tzuo made the case for the subscription model. In a post he wrote a few days ago, he laid out the same argument:

For one, the cost to subscribe is much more affordable than it is to buy. Look at Zipcar, for instance. It's far less expensive to subscribe to an entire fleet of cars vs. purchasing your own. Not to mention, many can't get the credit they need to buy a car or other goods right now, making subscriptions the only option. Likewise, it's more cost effective for businesses to use SaaS applications. Companies operating under this model have an advantage to win more business for that reason alone. Salesforce.com, as an example, thrived during the recession from 2001 to 2002.

Also on the subject of cost savings, it's less expensive for companies to offer their apps as a subscription. Building a Web app can be very inexpensive compared to a desktop app or one that you buy off the shelf. Paying for server space vs. manufacturing and shipping is also a consideration that many businesses are taking into account as they build out their products.

This marks the company's second product in the online subscription segment. In the spring, Zuora introduced Z-Billing.

I kidded Tzuo about the PayPal arrangement, suggesting it may be the prelude to a marriage between the companies. But it's not so far-fetched. PayPal doesn't do billing, and in an interview with ZDNet's Phil Wainewright, Thompson gushed about the extension of Zuora's pay-as-you-go model.

"All these enterprise software vendors sell you a chunk of stuff, most of which you don't want," he said--and it becomes a burden, he added. "Your business is slowed down because you're dragging along this big anchor."

 

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