Billing As A Service

A new generation of web billing solutions has emerged in support of recurring revenue business models. These solutions are known by several different names including on-demand billing, subscription billing, and billing as a service. Whatever you call them, these solutions address the following market needs:

• SaaS vendors that deliver software on a subscription basis rather than as a one-time purchase are in need of a solution to manage billing in light of different service levels, promotions, upgrades and enhancements.
• The "freemium" business model used by many smart phones apps needs a comprehensive billing solution that's radically different from the venerable shopping cart. 
• The unpredictable, real-time need for micropayments in online gaming can't be economically addressed by simply charging the user's credit card for each individual purchase. 
• Telecommunications has always been billed on a monthly basis; new service provider entrants can benefit by leveraging web billing services rather than sinking millions into yet another back-office system. 
• Online publishers offer tiers of access to content, and need to support micropayments for individual purchases. 
• Online retail and franchise- or agent-based financial services businesses, insurance, energy, and utilities are planning or have recently launched subscription-based products or services and will need secure, scalable recurring billing capabilities.

In all of these examples, there is a need for secure and flexible support for user self-registration, activation, and service level management or customers won't be able to scale their business. They also need currency conversions and country-specific tax calculations if they intend to sell internationally. Then there's exception processing: What if the credit card expires half-way through a one-year subscription? What if the user is due a refund for some service anomaly? What if fraud is detected?


In all of the examples cited above, we're talking about how an emerging business is monetized. That gets people's attention, including from analyst firms such as IDC and Saugatuck. According to IDC:

Billing as a service is a natural development in the emerging SaaS (application services) and cloud (infrastructure resource services) business services market. Not only are billing services core to the online operations of any ecommerce site, but they are also of particular importance in the business of customer monetization for SaaS and cloud software providers themselves, as the market shifts from on-premise software licensing models to subscription- or demand-based pricing and billing.

Although there are a number of vendors who provide billing solutions, three start-ups have attracted attention in this emerging field: Zuora; Vindicia; and Aria Systems. Each of these companies has a unique perspective, shaped by their respective backgrounds. Zuora's founder and CEO came out of Salesforce.com, and approaches the billing as a service space with a deep understanding of SaaS and CRM. Vindicia's CEO, CTO and EVP Engineering previously worked at eMusic, which had its own subscription service and because if the nature of their business had to have an especially strong fraud management solution. Aria Systems' founders came out of the telecommunications/ISP space, known for having some of the most comprehensive (and complex) billing systems of any industry. 


Ed Sullivan, founder of Aria, describes a common scenario that serves as an example of how recurring billing might be more complicated than it first appears:

For example, let’s say you have a customer referred to you by a commissioned reseller to be billed monthly for a usage based service. In the course of the month, they suffer a service outage and dispute their bill. How would your billing system handle this scenario? Would it be able to offer a service credit, a refund or a dollar amount credit? How would your billing system deal with the reseller’s commissions, and to make it more complicated, what would your system do if the reseller was on a multi-tiered commission level? 

An automated subscription billing system can handle the exceptions detailed above because it goes through the reconciliation process before calculating the invoice. A subscription billing service should be built on five pillars: reconciliation, calculation, presentation, collections and remittance. Our system is set up to go through this process automatically every time before an invoice is presented.

The "billing as a service" label sells this category short, since vendors such as Aria Systems go beyond billing to provide a complete subscription management solution. Here's an example, again from Ed Sullivan of Aria:

With access to real-time information on how different customers are using the software, it becomes a fairly simple exercise to create different pricing schemes for different user groups and decide how best to construct pricing. Evidence may show, for example, that for one company, the most profitable and user-accepted pricing plan would combine a monthly charge with a charge per seat. Yet another company might find that pricing based on levels of use (utility-based billing) would be more appropriate. Either way, the ability to see how customers are using software provides pricing flexibility, which in turn leads to much greater revenue potential. 

Companies can aim even higher than pricing by thinking bigger. For example, when you offer software as a service via the cloud, it gives software developers and other third parties the opportunity to create market-specific products based on your offering, as well as plug-ins, extensions and even new features of your core product. 

Each such development not only increases revenue for your base offering, but also can provide you with a recurring revenue stream via a percentage of every sale the third-party developer makes. 

Of the three on-demand billing vendors Aria Systems has emerged as the market leader, supporting over 2.5 million users in over 200 countries at the rate of over $1 billion per year in transactions -- and growing fast. Saugatuck lists the following as Aria's specific strengths in the marketplace:

• A functionally complete, robust telco-grade billing and payments solution with exceptional customer and subscriber management and exceptional partner and reseller management capabilities
• End-to-end PCI and SAS 70 Level 1 compliance
• Fraud management capability developed for the online gaming industry
• Support for more than 20 payment gateways and processors, including Chase PaymentTech, Global Collect, PayPal, and CyberSource's Authorize.net

Another capability that has enhanced Aria's market position is support for two-way synchronization with NetSuite and salesforce.com.


Aria's success to date has attracted the attention of leading investors and market analysts. The highly respected venture firm Venrock led the most recent round of financing. Aria was recently named a "Cool Vendor" by Gartner, and was recognized as a "Top 50" startup at TiEcom 2010. Even more impressive is the fact that PayPal, the worldwide leader in online payment services, selected Aria for its subscription management solution, an endorsement that generated a fair bit of buzz -- see here and here.


Aria was the original pioneer of demand billing solutions six years ago, and has steadily grown their business since. Again, quoting from the Saugatuck report:

Aria's differentiation focuses on delivering a robust, proven billing and customer management solution that can monetize Cloud solutions and other recurring revenue or subscription businesses. In delivering the Aria Billing solution, in both Standard and Enterprise editions, Aria claims a six-year record of success, and the ability to manage, transparently, very high volumes of transactions for its customers.