My Take on the Zuora Acquisition

On October 17, 2024, Zuora announced its acquisition by Silver Lake, a private equity firm, for a total of $1.7 billion. The acquisition was not unexpected. My former employer had already announced on April 17 that it was “exploring strategic options, including a sale”. The buyer was also not a surprise, as Silver Lake had already invested $400 million in Zuora on May 9. Acquiring the remainder of the company cost them only $1.3 billion. 

What is surprising is the price. 

The offer of $10 per share represents a meager 6% increase above the previous day's closing price of $9.42. Yikes! As a shareholder who has been holding underwater shares from an ESPP purchase over 3 years ago, I find this quite disappointing. Sure, you might say that an ARR multiple of 3.7 is what PE companies pay (Zuora expects to make $455.5-461.5 million this year). But that doesn’t make it any better for the investors. The stock closed at $9.91 on Friday which signals that many other investors are unimpressed. 

How did Silver Lake manage to secure such a lucrative deal? 

Zuora pioneered subscription billing and remains the company to beat in this space. It boasts an impressive roster of customers, a highly knowledgeable team, and a broad range of capabilities that none of its competitors can match today. Yet, Zuora’s stock has remained stuck in single digits for almost three years, with no upward movement. 

This stagnation isn’t due to poor execution. The management team has lately consistently exceeded earnings expectations quarter after quarter. The issue wasn’t execution—it was strategy. 

A subscription billing platform operates between orders, payments, and the general ledger—in other words, between CRM, payment processors (PP), and ERP. These are Zuora’s strategic touchpoints; its inputs and outputs. When Zuora first started, it was the only game in town. However, today, all those vendors have added subscription billing capabilities, which puts pressure on the demand for Zuora. Salesforce (CRM), MS Dynamics (CRM), Stripe (PP), Gotransverse (PP), SAP (ERP), and NetSuite (ERP)—they all offer subscription billing today and they don’t need Zuora. 

When you’re being squeezed by all your strategic touchpoints, you must find a way out. One strategic option is to push back by adding capabilities that encroach on their turf. That’s what Zuora did by introducing solutions like CPQ, payment recovery, and revenue recognition. Unfortunately, this fragmented approach didn’t succeed, especially when facing much larger competitors like Salesforce, Stripe, SAP, and Oracle. In such situations, the next strategic move is either to find a new direction for expansion—which, arguably, wasn’t available—or to specialize. 

That’s exactly what Zuora did by deepening its focus on the manufacturing and media sectors. It even acquired a paywall vendor Zephr to strengthen its media solution. However, most manufacturing companies are not good at selling software or data subscriptions, and most media companies already know how to do subscription billing and deal with more existential problems. Focusing on verticals was the right move, but Zuora probably chose the wrong ones. It’s easy to critique in hindsight, but selecting other verticals like insurance, financial services, healthcare, or utilities might have been a better strategy for verticalization. Maybe. 

In the meantime, Zuora began missing out on many software market opportunities, while software is the largest market for subscription billing. Software companies need billing solutions from the early stages as tiny startups, but Zuora’s platform, designed to handle some of the most demanding enterprise billing scenarios, is too complex for startups. What these companies are looking for is a simple billing solution that can be integrated with just a small snippet of code, like the solutions from Stripe or Metronome.  

Zuora was also slow to respond to the rise of usage-based billing, which is a hot topic these days. Whether usage billing is the future remains to be seen, as most customers seem to hate it. However, its emergence created an opening for upstarts like Metronome, Orb, M3ter, and Tioga—the latter eventually acquired by Zuora. Unfortunately, that move came too late to make any significant impact. 

Moving down-market is nearly impossible for an enterprise software vendor; it’s difficult to simplify software built for large enterprises (the opposite is somewhat easier). Acquiring an SMB vendor to target the SMB market was likely not an option for a relatively small publicly traded company with not that much cash on hand. It seems like Zuora wasn’t left with many strategic alternatives here. However, failing to act quickly enough on usage-based billing was another key strategic misstep. 

Out of strategic options, Zuora publicly put itself up for sale. Silver Lake quickly seized the opportunity with an initial investment, and since no strategic buyers emerged, Silver Lake ended up acquiring the entire company a few months later. The modest 6% premium reflects the strategic predicament Zuora found itself in. Silver Lake got a good deal, and now Zuora will need to figure out its strategy under private equity ownership, which is not known for fostering growth through innovation investments. 

I wish Zuora well. It’s a great company that stands as a shining example of category creation, thought leadership, and solid execution. However, I’m unhappy about the stock price. 

Why I Joined Egnyte

Yes, after two years of working on my own as an independent consultant, it happened. One of my clients made me an offer to join their company, and I decided to take the leap. Why did I do that? 

"Lubor, I thought you were done with this space!" said Marko Sillanpaa from Gartner when I joined a recent briefing. Marko and I go way back to our Documentum days. 

Well, it’s true. After spending nearly 15 years in content management companies like Vignette, Documentum, and OpenText, I was starting to get bored. For years, I had been trying to convince customers to manage their content to avoid compliance, governance, and litigation risks. But, aside from companies in highly regulated or litigious industries, most didn’t care. 

Things became even clearer when the new upstarts began pushing Enterprise File Sync and Share (EFSS). In the spirit of "consumerization" and "enterprise 2.0", they claimed that IT was becoming irrelevant, and many companies decided to stop worrying about how their content was managed. Employees were indiscriminately sharing files straight from personal drives. It was madness, but I knew it would take time for people to realize that. 

So, I left the enterprise content management (ECM) world and ventured into business applications, to finally get the experience of marketing to business buyers. Funnily enough, the companies I worked for had a horrible way of sharing and managing content. Their content chaos was a massive productivity drain, and they didn’t even know about it. 

But, I kept an eye on the content platforms. 

For a while, it seemed like nothing would change. Most of the old vendors faded away, and EFSS 'boxes’ became just as boring once they started selling to enterprises. They kept talking about compliance on and on, but no one cared. Content was seen as more of a liability than an asset, with "secure collaboration" being the most exciting positioning they could muster. 

Then, generative AI arrived. 

It quickly became clear that while ChatGPT is awesome, for business use, it needs to work with a company’s private, often sensitive, content. That changed the game for content platforms since they own the content repositories. Even if a lot of content still lives in personal drives, content management suddenly matters again. The focus shifted from reducing risk to boosting productivity. Now that’s cool—AI used for something truly useful! I want to be part of that. 

When I started working with Egnyte as one of my clients, I found a company with leading-edge cloud technology, with all the bells and whistles you’d expect from a modern content platform. Unlike EFSS vendors, Egnyte has always focused on control and security, eliminating duplicates, data leaks, and privacy issues. This becomes crucial when applying generative AI to private company content. Random duplicates can lead to incorrect answers, which isn’t acceptable in business. Egnyte figured this out long ago. 

On top of that, Egnyte has powerful and unique capabilities for managing highly complex content with massive files like CAD files, BIM models, and Adobe creative projects. I saw a company with amazing technology, strong prospects, a great team, good culture, and solid financials. I knew I could make a difference here. So, I said yes.  

Yes, I’m running product marketing again, which is what I love. I’m diving deep into the technology, working closely with product teams, and using all my marketing craft to tell Egnyte’s story. There’s a lot of work ahead, but the opportunity is huge.

I’m excited to be back in the content management space. It’ll be fun reconnecting with industry analysts like Marko Sillanpaa, Cheryl McKinnon, Craig LeClair, Marci Maddox, Alan Pelz-Sharpe, Dan Lucarini, and others. I might check in with AIIM, where I served on the Board for five years, to see what they’re up to. And I’m really looking forward to meeting with customers in person. 

It’s great to be back. We’re just getting started!