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Options for sourcing internet services Essay

Over the years the business of Graphic Designers’ Studio has grown many folds, resulting in a need to move from “home-based” business model, to an office where the 3 support staff and 2 customer service reps and 15 designers can be consolidate at one location.

DEMAND OF ONE OFFICE CONSOLIDATION
One office consolidation, has generated a need of having
1. High-speed Internet access
2. E-mail accounts for everybody
3. Web access for e-mail
4. Ability to handle up to 10 MB attachments
5. Ability to download and upload large graphic files (up to 100 MB) to customers
6. Ability to share files internally in the office

CURRENT SITUATION
1. The support staff and customer service reps are using Dell running Windows Vista and Windows 7, whereas the designers are using Apple Computers running the most current version of Mac OS X, Lion. 2. Currently the company does not run a network, nor does it have any servers. A stand-alone machine is connected to the Internet, which is the only connection to Web/e-mail connection. USB flash drives are used to share information. 3. The company does have an informational and marketing website hosted by a third party. The contract will be coming up for renewal in 30 days. 4. The Company does not have an IT support person and are therefore depended on manufacturers’ support and purchase upgraded site-service agreements.

ALTERNATIVES (Needed more details beyond the basics)
AND RECOMMENDATION

Recommendation (Good)
We suggest that the Company should go with Shaw Business. To begin with we should take their package “Business Internet 50”. It is not only economical as compare to others, but also provide more speed and at the same time can full fill the requirement of 10MB attachment. Another feature of Shaw Business is the flexibility to handle additional load by upgrading the packages. In addition to that, it can also provide dedicated Virtual Private Network (VPN) facility, if required in future. However none of the above packages can meet the requirement of upload and download graphic files of upto100mb.

As a good practice heavy files are not recommended to be sent through emails, as it may chock the connection and hence will delay the transfer of data. We suggest that the Company should create a secured Web hosting server in its office, where the password protected access should be given to the clients. Although the initial cost of the server and the security etc. will be high, however in the long run it will be more cost beneficial. Other short term alternates for files transfer are to get registered with “yousendit.com” or “Sharefile.com”. We will be glad to discuss with you the above issue and the recommendation, during our next meeting and follow through on any decisions you make.

REFERENCES:

http://www.shaw.ca/Business/Internet-Services/50/
http://www.rogers.com/business/nl/en/smallbusiness/products/internet/ http://www.bell.ca/shop/Sb_viewProduct.page?sku=SB_INT_DED®ion=ON http://www.telus.com/en_CA/National/products/Small_Business/Internet_And_Data/Internet_Access/details/natSmbHighSpeedInternetAccess.html#tab2

Answer to Qs 3
EXECUTIVE SUMMARY (3/3)
Zuora Inc was incorporated in December 2007. The management team of Zuora was consist of, Tien Tzuo (CEO), K.V. Rao (President), Cheng Zou (CTO) and Gary Hagmueller (CFO). Their vision was to provide an e-commerce platform that powers the service industry at a low cost. To achieve their vision, Zuora opted to go with “SaaS” through “Subscription Method of Business “.Within 9 months of their launch of their first product, Z-Billing, they had 70 clients and currently they have four products in the market. The emergence of “Cloud Computing”, has forced them to go back to their drawing board to decide their future strategy, its impact on current products and identify the market segment that would provide Zuora with the quickest growth opportunity. The SaaS market has the potential to grow between 22% to 32% compound annual rate. The EV in comparison to Revenue and in comparison to FCF of Public SaaS Companies, year over year has gone down.

At the same time, the PE Ratio, year over year has slightly gone up. However, due to slow down in the economy, acquiring funds at a low rate will be difficult. Zuora Inc has to select between; 1. Scenario 1 – Continue to focus on billing for the SaaS industry 2. Scenario 2 – Expand To Capture The Broader Cloud Computing Trend 3. Scenario 3 – Grow Big Fast And Try To Capture the Broader Subscription Opportunity. 4. Alternative Choice – Proper Road Map to Capture the Broader Cloud Computing Trend And Broader Subscription Opportunities The recommendation is to keep balanced strategy, by initially going with scenario 2; at the same time it should try to retain the existing SaaS clients.

If Zuora Inc. goes with Scenario 2, as recommended, there is a risk that the Company may lose the first mover advantage in the broader subscription market, the Cloud Computing Market may not be as big as envisaged and The Company may not be able to capture the Cloud Computing market as anticipated. In case of the failure of the recommended scenario, plan B is to maintaining the existing SaaS clients and continue the business with them while Scenario 2 is implemented.

CURRENT SITUATION (10/10)

1. Background
Zuora Inc was incorporated in December 2007. The management team of Zuora was consist of, Tien Tzuo (CEO), K.V. Rao (President), Cheng Zou (CTO) and Gary Hagmueller (CFO). Both Tzuo and Rao before incorporating Zuora Inc., were working on building the billing solution for their respective employers. Cheng was also working with Rao at WebEx. Because of their background, knowledge of the billing systems and understanding of the market needs, they were well aware of the “Software As A Services (SaaS)”, its future as well as the opportunities and the obstacles. They had also envisaged the market need for an efficient billing system. Their vision was to provide an e-commerce platform that powers the service industry at a low cost Zuora Inc. as a business

To achieve their vision, Zuora opted to go with the strategy, to go for a “SaaS” through “Subscription Method of Business “. This Strategy, allowed them to achieve their objective of offering a low cost, efficient billing system to the market. For customers, because of Subscription method, the cost of buying and installing the software went down and with “SaaS” in place, the maintenance cost of the software and the cost of buying hardware also went down. Hence it was a win – win situation both for the customer, in terms of cost saving and for Zuora, in terms of good return on their investment.

This is evident from the fact that within 9 months of their launch of their first product, Z-Billing, they had 70 clients. In a short span they launched a) Z-Billing – To create and handle different types of billing methods b) Z-Payment – Subscription payments business to manage recurring payment lifecycle c) Z-Force – Billing and payment service for 51,800 customers of Salesforce.com d) Z-Commerce – To cater Java, ruby and Force.com for billing, payments and subscription service management. This product allows customer’s developers to tailor it according to their needs. 3. Zuora Inc – Its past and present

Zuora did well in the first 14 months of their incorporation. During this period they established themselves as the market leaders in the “SaaS billing and payments. At present, the slowdown of economy and the change in the technology has created some issues for them. The issues they have to address are:- a) The emergence of “Cloud Computing”, has forced them to go back to their drawing board to decide their future strategy. b) What will be the impact of the new technology on its current products, which can also be used offline c) Identify the market segment that would provide Zuora with the quickest growth opportunity d) To choose between a too narrow market that will limit Zuora’s growth and a too broad market that could cause Zuora to lose focus.

e) How to ensure the availability of funds, since the funding market is slow, therefore the cost of funding is high and difficult to get 4. Zuora Inc – Main struggles within the SaaS industry to differentiate itself from the competition SaaS allows the customer to replace the need for buying and installing the software on site. This reduces not only the installation cost of the software, but also its maintenance cost. In addition to that it also reduces investment in hardware and the operational cost. In order to differentiate itself from competition, Zuora had adopted a different a) Development strategy ; and

b) Go-to-Market and Sales Strategy

In addition to the above two strategies they have created a Culture of
i. consensus,
ii. hardworking and
iii. being economical,
They have also created a decision making process, whereby most of the decision is taken by the core team and a process of communicating the decision down the line in an effective and timely manner.

5. Cloud computing affects on Zuora Inc’s business model

The issue with cloud computing at this time is lack of the clarity about what is “Cloud Computing”? Therefore for Zuora the issue is two folds. i. Because of the lack of clarity, it is difficult to target the right market ii. SaaS at the moment is blocked by cloud computing.

Once the market is properly identified, the next step will be to identify the changes needed to move the SaaS applications to cloud computing. Having identified the issues on SaaS of cloud computing, the advantages of cloud computing to Zuora will be; i. Additional source of revenue, as both computing provider and cloud service provider will need a billing and payment solution. ii. Comparatively easy for the small and medium business to move to SaaS, as they can foresee their next move to cloud computing iii. More consumers will get use to paying for online for the services they use. 6. Zuora Inc’s strengths and weaknesses within its industry

i. STRENGTHS

a) Strong and knowledgeable management team
b) Hands on experience of the management team on SaaS billing system
c) Ability to release new versions of its application every six to eight weeks
d) Faster and Cheaper development strategy
e) Low cost, high value off shoring strategy
f) Strong Go-to-market and sales strategy
g) The culture of focused, hard working and economical
h) Strong in house communication system

ii. WEAKNESSES
a) Do not have their own data centres
b) Microsoft applications are widely used applications, however at Zuora, they use Google applications for email and spreadsheets etc. c) Existing staffing policy is to have a “Jack of all traders”, rather than having staff with expertise to perform specific tasks.

CRITERIA (5/5)

1. Market Potential
There is a big potential for SaaS market. According to Gartner the SaaS market will grow by 22 percent compound annual rate, whereas according to Interactive Data Corporation the SaaS market will grow by 32 percent compound annual rate. The first fourteen months of Zuora Inc. also confirms the potential in the Market. Hence the market has the potential, for Zuora it is important to identifying the market segment that would provide Zuora with the quickest growth opportunity while remain focused. The speed with which Zuora will be booking recurring and set up fees will be the source to measure the action of Zuora Inc.

2. Financial implication.

The economy at the moment is going through a difficult time, therefore, the funding market is also slow, hence the cost of funding is high and difficult to get. i. Acquiring funds at a low rate will be difficult. Therefore projections and feasibilities should be focused and should be properly supported ii. Currently Zuora has cash balance of 16,499.

The future requirement of Zuora Inc and the cost at which it is acquired will be the source to measure the action taken

3. Technical feasibility.

The emergence of “Cloud Computing”, has forced them to go back to their drawing board to decide their future strategy. They have to align their product to cater the needs of Cloud Computing, which is foreseen as the future of the SaaS business. They also have to come up with the strategy to cater the needs of customers who prefers to work off line What strategy Zuora Inc. comes out to cater the needs of cloud computing while maintaining the need of offline customers will determine its success

4. Organizational feasibility

Between a period of 8 months from May-08 to Dec-08, the head count of Zuora Inc. almost doubled. Similarly recurring bookings have gone up from 6 in May-08 to 279 in Dec-08. Under the new scenario, Market Potential, Financial implication and Technical feasibility will form the basis of Organizational feasibility.

5. stakeholders and company value

The Enterprise Value in comparison to Revenue and in comparison to Free Cash Flow of Public SaaS Companies, year over year has gone down. At the same time, the Price Earnings Ratio, year over year has slightly gone up. Zuora will have to come up with the strategy to improve the overall Company value which will also improve the value of the stakeholders. This strategy will be based on the four criteria already discussed above.

ALTERNATIVES AND RECOMMENDATION (15/15)

Scenario 1 – Continue to focus on billing for the SaaS industry The strategy will be good in short run, where the growth will be small and the company will stay cash flow positive. The Company may also be able to provide more developer tools and may go with the partnership with companies like Google and Amazon. However for middle to long term this strategy will not work. The Law of equilibrium will come into effect and more Companies will come in the market, some of them will follow the path of Zuora and some will go for new initiatives.

As the competition will grow, the profit margins will squeeze and this will lead to exit from market of many. However, survival of the fittest is the name of the game in technology base service. Hence those who kept their technology updated and able to provide the best to their customer will continue growing, else Zuora will fade away with the passage of time. Therefore, this Scenario is not a recommended one or Zuora.

Scenario 2 – Expand To Capture The Broader Cloud Computing Trend Every product has a life cycle. By keep on upgrading the product qualitatively or quantitatively, the product life cycle can be increased. This is exactly what Zuora need to do. Zuora will have to go for Cloud computing if the management wants to compete in the market. Zuora has already established itself in SaaS market, and with cloud computing it will broaden itself beyond software application. Although this will result in increase in head count and expenses and will require the Company to go for Series C funding, still in a longer run this will maximise the profits and will keep the Company in the market. Scenario 3 –Grow Big Fast And Try To Capture the Broader Subscription Opportunity.

Higher the profit higher will be the risk. Zuora is only a 14 month old Company. An aggressive approach like this without setting up strong footings may back fire. Another question will be the ability of Zuora to address large consumer markets, as well enterprise markets. Hence, although the growth, year on year is high but the operating margins are very low. Therefore this scenario is not recommended.

Alternative Choice – Proper Road Map to Capture the Broader Cloud Computing Trend And Broader Subscription Opportunities There is no second opinion that to survive in the market, Zuora will have to keep upgrading its technology. At the same time it will have to grab the opportunities that come. Therefore, Zuora Inc will have to come up with the plan to go for Cloud Computing and at the same time, till the Company establish itself in this area, not only continue with the existing subscription clients, but also keep updating its services in this area so that when the Company is ready to go for this in full swing, it has the clients and the experience.

Recommendation:

The recommendation is to keep balanced strategy, by initially going with scenario 2, i.e. to expand to capture the broader cloud computing trend and, at the same time Zuora should a. Maintain its existing SaaS customer and keep giving them the required services till the time they can be moved on cloud computing. b. Come up with a strategy to capture the broader subscription market in a short term. These include not only retaining / providing services to the subscription clients in contact, but also keep upgrading the services for them. These clients will not only keep Zuora in the market but will always be the future reference for many more clients to come in future.

RISK ANALYSIS (15/15)

If Zuora Inc. goes with Scenario 2, as recommended, there is a risk that i. The Company may lose the first mover advantage in the broader subscription market. ii. The Cloud Computing Market may not be as big as envisaged. iii. The company may not be able to capture the Cloud Computing market as anticipated. iv. The Company will have to raise a Series C fund, which due to slowdown of the economy will be expensive. Technology is something that changes very fast. In this market the advantage of first mover is not as much as is of providing the quality service. This is confirmed by the fact that Zuora is releasing new versions of its application every six to eight weeks. In a slow economy the first step is to retain the existing clients and then go for the new one.

Secondly, Cloud Computing and Subscription is not the two ends of the poles. The culture of timely communication of the decisions down the line and if Zuora keeps its aim to ultimately go for Subscription business, while remaining on cloud computing environment and plan and communicate its future strategy accordingly, the risk of losing the first move advantage will be mitigated. Zuora in the period of 14 months have established themselves in the market with their fast pace, hardworking and being economical for the client, they will continue the good results in that area even if they go for Cloud computing.

Another factor to be the Price Earnings Ratio, year over year of the SaaS industry has gone up. This further confirms the potential in the market. Therefore there is good probability that Zuora will be able to get funds at competitive rates and will be in position to repay the same on time. Currently Zuora does not have its own data centres; they are running their business of SaaS through other Companies. However once decided to go for Cloud Computing they will have to decide about having their own cloud computing centres or to use the centres of other Companies.

Plan B in Case of Failure

Maintaining the existing SaaS clients is a part of the fall back plan in case the plan recommended does not succeed. Although in the recommended plan the focus is not on billing for SaaS industry, still because of the expertise available it is important to continue with the existing SaaS clients. At this point I again emphasis on the fact that with cloud computing Zuora Inc. will broaden itself beyond software application, but still can manage the SaaS. Further, with Go-to-Market and Sales strategy of Zuora, communication with current and prospective customer will not difficult to handle.


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