Salesforce Invests in Europe
Last week Salesforce Ventures said it would invest $100 million in emerging salesforce partners in Europe. The company previously announced a similar program for the Americas and the hope is it will discover valuable new companies and business solutions.
Paul Greenberg and the team at CRM Idol (of which I have been a part) have been doing the same thing trying to discover interesting emerging companies in the CRM space for several years now, minus the money. But even without millions of bucks at stake, the casting call always brings in some cool ideas from around the world so I have no doubt there are plenty of companies in Europe that will vie for a chance at an investment.
This is just one more example of how Salesforce is growing beyond the original CRM space. The company is looking for emerging vendors that will do amazing things with its Salesforce1 platform bringing cloud computing into new markets. That’s the way Salesforce will continue to grow—by selling generic seats of its service configured for specific markets by partners. Of course, this won’t slow the company’s own efforts at penetrating vertical markets but it adds a new dimension.
Salesforce needs to stay close to emerging companies right now to best understand where innovations are coming from. As a multi-billion dollar enterprise it might be becoming a captive its own success necessitating finding another way to stay close to the grass roots. With a 7 billion dollar run rate it needs big new deals to keep the growth engine humming and that means developing new partners and whole markets.
This happens to every successful business but often the company in question either doesn’t see itself becoming hemmed in by its own success or it chooses to ignore it. Microsoft was a case in point; it was tremendously innovative until it couldn’t embrace cloud computing for fear of upsetting the Windows franchise. Consequently it went on to miss big new markets like the smartphone and today has a small share of that market. As that company is becoming aware, it’s hard to get back on the curve once you fall off. I wouldn’t rule out Microsoft because they have a lot of cash and a determined CEO who is trying to turn things around. But still.
So Salesforce is telling Europe that its innovations in tech are just as important and potentially valuable as those from America. The big question now is will the Europeans take up the challenge. I am sure there will be contenders for all that money but my question is whether there will be any blockbuster apps. The history of the tech paradigm hasn’t favored Europe, after all. Europe didn’t compete in CPUs, storage or really anything preferring to take what the U.S. innovators offered up. Back in the day I remember that the Russians directly copied the Digital PDP-11 CPU set including some errors that made things go sideways once in a while.
I know some really smart people in Europe who understand cloud computing, social networking and all the rest but they tend to work for big companies or governments. The idea of starting a company has many challenges and the European nanny state political structure doesn’t make entrepreneurship easy.
At the same time, some of the most interesting innovations in our space leverage data, especially personal data in ways that some Europeans find objectionable. Some studies I’ve seen from Pew Research and McKinsey indicate that conservatism about personal data handling loosens up in younger demographics so I guess we’ll need to wait and see.
Ten years ago, Charles Murray published Human Accomplishment: The Pursuit of Excellence in the Arts and Sciences 800 BC to 1950, it was a good read and not nearly as nerdy as it sounds. The book revealed a huge number of innovations and innovators in all subjects that came out of mostly northern Europe over a more than thousand year span but the continent hasn’t had a lot to crow about in tech.
Maybe Salesforce is playing a hunch; maybe they know that the onus is on European entrepreneurs to pitch some good ideas. Will it play out as “A Tale Of Two Cities” or maybe “Waiting for Godot”?
FinancialForce Investment
It takes prodigious amounts of moola to launch a company these days and that’s especially true when trying to insert a new idea into the collective consciousness. Salesforce spent well over $100 million to convince us that SaaS CRM was real, Zuora has raised nearly 2X that amount defining the subscription economy, and cloud ERP is following suit.
Today FinancialForce, a cloud ERP provider based on the Salesforce1 platform announced a financing round of $110 million from lead investor Technology Crossover Ventures (TCV) and Salesforce Ventures, Salesforce’s corporate investment group. This follows on the heels earlier this quarter of smaller investment announcements by CPQ providers Apttus, and Steel Brick. So what does it all mean?
I think you need to pay attention to the concentration of money and deals in a tight space of ERP and related back office apps. They’re all cloud companies and it strikes me that the investment community is making a decision about ERP granddaddy SAP in the process.
SAP has tried several times to bring forth a suite of front and back office solutions based on modern cloud technology and they’ve been only modestly successful. Microsoft has made greater strides in bringing its multiple ERP products closer to the cloud but progress has been measured. Time’s up and small ERP providers like FinancialForce, IntAcct, and not so small NetSuite have been gathering strength over many years. The economic conditions are right and the market is, I think, making a call that there’s no more runway for legacy ERP vendors to get to the cloud; it’s time to seek out the next generation of solutions.
The succession plan for replacing legacy ERP is well under way with a surround strategy that first positions cloud ERP as a helper application that can consolidate data, process it, and feed it up to the legacy system. This is a meta-stable state and will eventually result in the surrounding solutions supplanting the legacies, achieving over time what a much despised rip and replace would ordinarily accomplish without all the wailing and gnashing of teeth.
Much of this is still in the future but for now, FinancialForce has taken an important step in preparing for a larger role in what is likely to be a big fight. The objective of the fight will be to secure stable cash generating relationships for many years to come.
Finally, more than once Marc Benioff, CEO Salesforce.com, has said he had no interest in building ERP but it looks like ERP is coming to his company regardless via the powerful platform technology, Salesforce1, that his company provides. Apttus, FinancialForce, Steel Brick, and other financial apps all coexist with Salesforce1 and some, like FinancialForce, are completely rooted there. Their success is also great validation for the platform.
I’d really hate to be a legacy ERP provider today.
CPQ’s Time to Shine
Configure, price, quote (CPQ) software was once a barely thought about branch of CRM falling under the heading of sales enablement. But lately, it’s been getting a lot of attention from a familiar source, Salesforce.com. The question is why?
You can easily argue that many forms of business don’t require CPQ so that’s a possible reason it’s been in the background forever. For instance, if you sell a service, chances are reasonable that you need to develop a customized statement of work with calculated estimates of time, materials, labor and few of those things come out of a catalog. Services sales has its own version of CPQ but it’s different and a story for another day.
CPQ’s sweet spot focuses on line items, quantity, extended prices, add-ons and discounts but why Salesforce’s sudden interest in CPQ? I can think of some reasons. Some, if not most, CPQ systems like Apttus, also manage contracts and you can’t really have a valid contract about a deal unless there’s an itemized list of materials, promises, and all the rest. The same can be said on a services statement of work (SOW) but that’s, again, another story.
In today’s marketplace many deals are consummated almost without human contact. Two people might get together to specify a need and the sales person will develop a quote and the haggling is conducted electronically, if at all. But the pace of business is so torrid these days that the turnaround time needed to develop a quote, get it approved by your boss, and into the hands of the customer is shrinking. If you can’t deliver quickly, your competition can, which would place you at a serious disadvantage. Subscriptions add a new wrinkle since those deals can be consummated with zero direct human contact. Customers have come to expect contracts as quickly as they can make selections.
So in thermonuclear terms you could say that there’s an arms race ongoing in many markets to ensure that each sales team is adequately supplied with the tools that enable rapid and accurate quoting. Understandably, vendors like Salesforce want to ensure they can offer their customers a choice of quality solutions and they need to be able to do this at the enterprise level which often requires that the emerging vendors staff up.
So, a few weeks ago Salesforce Ventures, Salesforce’s corporate investment group swung into action. They led an investment round (the B round) that garnered $41 million for Apttus, a high-flying CPQ vendor. Apttus’ claims to fame are multiple and include being built on the Salesforce1 Platform (very important to Salesforce) and offering some innovative technology that enables the user to access and use Microsoft Office products like Word and Excel to build quotations. No more wrestling with product catalogs and hand writing the first draft for your department admin to decipher. It’s a productivity tool for certain.
Not to be outdone, Steel Brick made a similar announcement raising $18 million in a series B round led by Shasta Ventures with participation from existing investors Emergence Capital and new investor, (tada!), Salesforce Ventures. That’s two CPQ vendors running on the Salesforce1 Platform that Salesforce has taken an interest in.
It’s not strange to see a big dog like Salesforce stuff multiple arrows into its quiver and it’s a big market so I am sure the CPQ players will be able to differentiate well enough for the time being.
What’s ahead? It’s just me, but I don’t think CPQ by itself is enough to build a story around that you can take to the public markets. In an era of universal platforms CPQ is a good thing to have but it is a feature at the end of the day. It will never be a platform outright, we are too far down that road. All that plus larger vendors’ thirst for end-to-end product and business process coverage suggests either a merger or acquisition or both — the order of events is not clear.
You could imagine such a scenario for almost every category in the Salesforce AppExchange yet that won’t happen because Salesforce needs a well functioning ecosystem capable of generating billions in annual revenue if it is to reach its goal of becoming one of the biggest software companies in the universe. But CPQ is different, in many ways it is core to selling and CRM, and for that reason I could envision a scenario where one or both of these companies gets acquired by Salesforce as many other core competency companies have already. By investing early, Salesforce might be seeking to identify the right time and price.
