Marketo, Phil Fernandez Hit Front Page WSJ
This story in yesterday’s WSJ says a couple of things that are net positive for many of us. Marketo’s CEO, Phil Fernandez, is the poster child for emerging companies that focus on B2B and are non-social. Both are important because they show that 1) the economy is coming back and showing enough signs of life that the market for business software and venture investing are both resurgent and 2) the world might travel in a social orbit but social isn’t the answer to every business need. In fact the article makes some stark contrasts between once high flying social vendors and emerging and somewhat boring business software vendors. Like Aesop’s Fable, the slow and boring business tortoise may be overtaking the sleek and fast but now erratic social hare. At least in the financial markets, which come to think of it are not really reality; they’re more of an alternate universe.
Busy April Brings Opportunities
I read Chaucer’s Canterbury Tales in college (yes, in Middle English and no, it wasn’t that long ago) and now every April brings me back to the opening verses about spring time and renewal. This April was especially memorable in our industry and as the month has just passed I wanted to take a moment to discuss some of the things I witnessed.
Mostly, for me, there was an unmistakable sense of renewal in CRM and in the tech sector more generally. Facebook continued to primp for its assumed to be historic IPO and bought Instagram, a company with an application for mobile devices and not much more than a website otherwise. Facebook paid a billion bucks for Instagram, no doubt a sign of the future. Marketo heading for its own IPO at some point bought Crowd Factory combining marketing solutions into a suite that will offer modern and ultra modern marketing.
Thankfully, there was more innovation than just the M&A variety. I went to a couple of analyst briefing sessions that were interesting for different reasons and I will have to assume that the events I couldn’t fit in were much the same. Oracle held a deep briefing to show off progress on all fronts. The event made me a believer that they have a plan or plans that merge into a powerful vision of engineered systems and software that meets some of the challenges of the social/mobile/analytic/big data world we’re moving into at light speed.
SugarCRM raised the bar and showed the world that it is growing rapidly and that its open source approach to business is very much in the mainstream along with operating system, server and database open source projects that support, in one way or another, the innovations in the rest of the industry. It looks to me like Sugar is becoming the go to CRM that everyone has to include on the shopping list. Open source might not be for everybody, but then again Sugar’s growth numbers and recent capital round indicate they just might be.
Salesforce announced its Government Cloud in an effort to capture some of the new business likely to come out of local, state and federal initiatives to cut IT costs and improve constituent service. When government becomes an adopter of a new technology like cloud computing it’s safe to say that it’s not a radical departure anymore.
But that doesn’t mean we stop innovating. As the Salesforce announcement made clear, the big issue for government will be security and, I would add, up time. So I look for a new era of innovation around both security and fault tolerance as cloud computing works to measure up to a nine nines reliability standard found in other utilities.
Finally, sneaking in just under the wire, on April 30, Paul Greenberg announced the second season of CRM Idol, the competition that seeks to discover hot emerging companies with great technology ideas in our space. Full disclosure, I am Paul’s friend, but that category includes about half the world. Last year, Idol’s first, was a great learning experiment. As one of the founding primary judges (others in the U.S. are Brent Leary, Esteban Kolsky, Jesus Hoyos) I was present for all of it and I can say we learned a lot.
We got a stellar crop of finalists last year (both in the U.S. and Europe) including Crowd Factory, Stone Cobra, Assistly and Get Satisfaction, which won the contest. Two of the four were bought — Assistly mid-way through the competition and Crowd Factory last month.
We are expecting big things from this year’s group of contestants too. The announcement by Greenberg on Monday is the opening of the season and companies interested in participating should visit the Idol website for details. There are a few rules that make this a real competition among emerging companies — you can’t be too old or too rich for example — so check it out.
Being a software entrepreneur is not easy. While you might think that venture funding has eased many of the burdens, raising capital is not easy though it can be insightful. VC’s look not just for new companies or new solutions but new categories. And what looked hot last year may no longer be attractive. They’re always looking for something that has never been seen before that nonetheless sparks interest and fills a need. CRM Idol is like that. The companies that do best are those that don’t conform to a pattern but instead break new ground.
If you pay attention to Idol you might get an idea of the future of CRM and possibly other things. Just looking at the Instagram deal tells me potentially that the hottest new companies might be those writing for the smartphone market. That, of course, would be a significant finding — the kind of thing that will make future Aprils so interesting.
Marketo Bought Crowd Factory
Note: I have been traveling so much lately that I haven’t had time to publish everything I have been writing. A little archeology on my MacBook produced this analysis from last week.
Marketo and CrowdFactory are joining forces to produce an integrated social marketing suite. The deal was announced last Wednesday and you can reference the details here: (Barney can you add the url for the PR when it comes out?)
Here are my takeaways.
- Marketo is a hot emerging company focusing on digital marketing, is a good place to hang your hat if you want to collect venture capital and have an IPO. While digital marketing is an important thing today, I think it is showing signs of reaching maturity. It’s been around long enough that the category creator, Eloqua, has already gone public and the solution class is becoming well known. This is not to say that everyone has digital marketing in-house or even knows what it is. But there’s ROI, or as Marketo might tell you RPM for revenue performance management. Nonetheless there’s a lot of market space left.
- CrowdFactory is also emerging but it is at an earlier stage than Marketo. It’s solution type is also newer and less well understood. CrowdFactory is a social marketing solution that I first became aware of during 2011’s CRM Idol contest. As a primary judge in the competition, I saw their earliest briefing and was impressed. They use social techniques to more actively involve customers in marketing campaigns and the solution set includes some aspects of the still nascent idea called gamification. But as a social campaign solution they are more tactical than Marketo in some ways.
The combination of Marketo and CrowdFactory gives the combined company greater ability to play in the strategic as opposed to tactical realm. I can see Marketo as more of a B2B play and CrowdFactory as more of a B2C offering. The combination not only cross fertilizes each area with it’s opposite member’s best ideas, it also gives more of an end to end marketing twist to companies that go after each kind of market.
More importantly I see marketing changing in the general direction that the combined forces of Marketo and CrowdFactory are proceeding. Conventional B2B marketing with more of an accelerated B2C flavor would undoubtedly warm the cockles (a technical term) of many sales managers souls. Likewise, B2C marketing campaigns with more of a thought leadership (as opposed to buy this now!) approach might elevate that conversation.
It’s my belief that in the near future we need to find more ways to understand opportunities and automate them to help reduce the overhead and time it takes to more deals ahead and for this reason alone I like this merger.
Salesforce Ecosystems Grows
You can gauge the success and financial health of almost any company by looking at revenues. At least this is true in the short term. Since revenue is a lagging indicator — with the exception of monthly recurring revenue (MRR) that subscription companies measure — it only tells you where you’ve been not where you are going.
We could very profitably spend our time discussing various other metrics that can also give us an incomplete picture of how well a company is doing. For example, increases in MRR. While tracking increases is valid though it is incomplete without churn and new bookings. Nonetheless, when I started I was looking for something more macro, which is my tendency, and eventually it dawned on me that one of the better metrics of long-term viability and not simply revenue might be the size and growth characteristics of the partner community or ecosystem.
The ecosystem presents the possibility of multiplier effects that you see in the economy at large unless you are a Neoclassicist, but generally purchases drive other purchases in a virtuous circle that helps ensure the health of all in the ecosystem.
For another good but crude analogy think about baleen whales. Strange to contemplate whales in a piece on the CRM industry but consider this. Baleen whales are a whole class of very large animals that feed on some of the tiniest creatures in the sea, plankton. Baleen is a structure in the mouth that acts as a filter that the animal uses to remove the little critters from a mouthful of seawater. Since the whale depends on plankton, which might be at the bottom of many other food chains, you can infer a direct relationship between the health of the ecosystem at the lowest level by observing the largest predator.
At any rate, that’s my hypothesis and it brings me to the health of such companies as Salesforce.com and many others. But let’s just stay on Salesforce for this. Salesforce has an estimated 30,000 company customers, more than 1.1 million installs, 3,000 partners and thousands of products in the AppExchange. All are growing and in each case, because this is an ecosystem, each has found a way to make a living in Salesforce’s shadow.
The partners provide what Salesforce might not provide or might not wish to, or they provide specialized products and services that form stand-alone businesses. There are numerous examples. Zuora provides a subscription billing and payments system, a business Salesforce has stayed out of. Cloud9 provides an analytics driven sales forecasting solution that takes significant complexity and makes it simple for sales people. Marketo and others provide marketing automation that generates leads — the lifeblood of any enterprise. Xactly does sales compensation, another complex task that Salesforce has decided is not in its wheelhouse. The list is long and it grows whenever the core offering grows and opens up new niches.
Yesterday, a couple of companies announced a merger that will add to the ecosystem. Cloud Sherpas and GlobalOne joined up, retained the Cloud Sherpas name and raised an additional $20 million in funding. The combo fits nicely into the ecosystem. Cloud Sherpas was the Google Enterprise 2011 Partner of the Year and GlobalOne is a Salesforce platinum consulting partner.
Google products run a gamut from word processing to analytics to social networks to who knows what. While Salesforce has been friendly to integration with Google Apps in the past some companies, especially large ones with complex requirements, have sought help in accomplishing it. Having Google and Salesforce services under one roof seems to make sense for large customers with complex requirements.
To be sure, Cloud Sherpas is not the largest implementation partner in the ecosystem but the company’s exclusive orientation on cloud computing and its expertise in Google’s cloud applications should be appealing to many new and existing Salesforce customers.
Cloud Sherpas also bring experience in integrating cloud with conventional applications and you can certainly expect that the company’s customers will have an eclectic combination of conventional, cloud and legacy applications to deal with. To me it’s fairly obvious that for cloud computing to continue to grow more integrations among all types of computing will be needed.
So, even if you don’t know much about software, I think it would still be evident that healthy companies like Salesforce or SugarCRM, with its large open source community or Microsoft and Sage, with their significant partner communities, are likely to endure simply because their ecosystems are so strong.
Companies like Cloud Sherpas need to think and choose wisely because many subsequent decisions hang on whose ecosystem you join. The new funding suggests that other wise people have faith in this pairing.
Venture Outlook Bullish on Cloud, Enterprise Startups
I was hoping to save this idea for either a year-end story or something focusing on the new year but events seem to have a mind of their own. The story, whenever it would be issued, would go something like this: Enterprises are picking up more cloud computing solutions and as they do there is a willing audience of customers happy to jettison the legacy systems that have increasingly hamstrung them.
In the last few weeks we’ve seen an increasing number of articles and reports, and I have written about them, that indicate building or built up frustration with enterprise software, especially the legacy on-premise variety. We all know the drill, legacy software is expensive to buy and costly to maintain. It cramps your style and it requires legions of people to manage. And try as we might to remember that business today leverages information to make a buck, information management is for most companies an external thing. It’s not core to doing the business of making widgets.
But all those observations by pundits don’t add up to much. What we need is proof before decision-makers plunk down scarce cash. We got a bit of that this morning in an article in the Wall Street Journal about venture capital investments.
According to the piece by Ben Worthen, VC’s are investing heavily in the enterprise cloud application sector and it cites recent investment news from companies like Workday, Zuora and Marketo. The latest investments in Workday give that company a $2 billion market capitalization according to the article. Perhaps it’s time to think of an IPO?
But Workday is far from alone. Zuora just raised $36 million in its series D round placing its valuation at $300 million up 100% from a year ago. Marketo recently raised $50 million but I don’t know what that does to the company’s valuation though I could guess.
Want more proof? The article goes on to say “In the third quarter, venture capitalists put a total of about $1.2 billion into start-ups that sell business software online, sometimes known as ‘cloud’ companies, nearly double the $758 million they invested in the year-earlier period and 50% more than in any other recent quarter, according to VentureSource.”
While all this capital is certainly nice for the startups mentioned it also bolsters the trend I alluded to above. These enterprise cloud companies are the tip of a spear aimed at the heart of legacy enterprise software. These guys are lean and focused and they have solutions that are better fits and have greater relevancy to today’s world than some of the legacy products that may have been designed during the Reagan administration.
I think that’s the story. The preponderance of evidence strongly suggests that after many years of dissatisfaction about the state of legacy software, many companies are about to discover, if they have not already, that they have a new array of options.
Interestingly, this sea change in the making is not happening in CRM to the same degree and that’s all thanks to cloud computing. The front office had its change over the last decade when it changed out legacy CRM for the cloud variety. Given the flexibility of cloud computing and the more iterative way improvements and updates are distributed it will be interesting to see if the front office will ever have a similar change again. The front office may be entering the same condition. So let’s speculate in a later piece about what that might mean to the software industry, OK?
Finally, this kind of activity is a net good for the economy. As companies reduce their overhead for IT and spend money on new systems they become more competitive and in many cases require less credit for purchases because cloud computing is a pay as you go affair. Legacy software isn’t going away soon but its advance may have stopped especially if the VC’s intuition is right.
