Emergence Capital: The Sequoia of SaaS, aka the House that Salesforce.com Built
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use its cloud-based software for sales, marketing, and customer service, not to mention its hosting and database infrastructure (see yesterday’s Xconomy profile of Heroku), there’s plenty of room for other companies to develop Web-based services that make life easier for businesspeople.
“Our thesis is that Salesforce.com is going to continue to hoover up a lot of these interesting startups and get bigger and bigger, but they are not going to be able to cover all the bases equally well,” says Ritter. That leaves openings for Emergence companies like Veeva Systems, which is developing a customer relationship management software tailored for pharmaceutical companies, and Lithium Technologies, which helps companies engage with customers over social-media channels. Says Ritter, “There are lots of vertical opportunities that are going to be enormous where Salesforce.com isn’t going to be the winner.”
Only a couple of things could derail the SaaS movement, from Emergence’s perspective—and maybe only one. Cloud-services outages like the one that affected thousands of users of Amazon Web Services for several days in April are still a concern. But Spain says he thinks companies that depend on the cloud are getting more thoughtful about how to design around such eventualities. “You can’t just assume that Amazon is going to provide a fail-safe infrastructure,” he says. “The good news is that this failure will cause everyone in the ecosystem to become a lot better at handling these situations.”
That leaves a more threatening problem—privacy. But not the kind you’re probably thinking about. As SaaS companies host more and more of their clients’ data on their own (or Amazon’s) infrastructure, there will be a growing temptation to mine that data to extract interesting or useful patterns. Since such data is usually about a client’s customers, it can only be used with extreme care; a single misstep could cost a company all its customers’ trust.
“The positive side of this is that having aggregated all this data, we can use it for good, to help our customers get better at whatever they are working on,” says Ritter. “The risk factor is that if you are seen as harvesting data or selling it, that would be a disaster. We’ve seen a little of that in the consumer space, and if it happens in the business space it will be a disaster.”
But you can bet that it’s one Ritter, Spain, and their partners are working hard to prevent at their portfolio companies. In the mold of the very technologies they invest in, they’re offering reassuring outside assistance that keeps their companies from having to reinvent the wheel. You might even call it Venture as a Service.
“Back in 2002, we said the world doesn’t need another VC firm if there is not some area where we can help our customers, the entrepreneurs,” says Ritter. “And we’ve been very lucky. In what we do we have the best track record and the best companies behind us. And [SaaS] has become the biggest trend in IT.”