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By Brian Jacobs
With the completion of its purchase of SuccessFactors, SAP has planted its SaaS flag just 4 miles from Oracle’s world headquarters and less than 2 miles from Salesforce’s San Mateo cloud incubator.
Everyone thought it was cute, when Salesforce.com first hoisted its logo onto Tom Siebel’s original building in San Mateo. But we have seen that it was no joke to Marc Benioff, CEO of Salesforce, who is publicly defying Larry Ellison to challenge him as the undisputed global leader of SaaS. While Salesforce is building a new urban campus in San Francisco, it continues to fly its flag defiantly in Oracle’s hometown.
But, there is a new challenger in clouds above San Mateo. SAP needs to become a global SaaS leader quickly or it will be irrelevant in the cloud. It is ready to fight and by buying SuccessFactors, the world’s second most valuable SaaS company, the Germans are signaling that they will bring the battle right to Oracle’s doorstep.
Across town, Larry Ellison is also preparing for combat. He is assembling a vast arsenal, including Oracle On Demand, the former Siebel business, now a SaaS offering, and recent SaaS acquisitions, Taleo and RightNow. Meanwhile, Oracle’s kid SaaS step-brother, NetSuite is guarding the mountain pass along Highway 92 to the West.
The leading business application vendors are lining up for the prizefight of the century – global leadership of the business cloud. The showdown is coming, and the fight will occur on the streets of San Mateo.
But the cloud is equidistant from every company on Earth. It touches every country, every city and every company. It connects the largest companies on Earth with end-users across the world. It gives the ultimate geographic flexibility, connecting workers from disparate locations to collaborate as if they worked in the next cubicle. The cloud is everywhere, and it is nowhere. So, why does SAP need to set up camp in Oracle’s neighborhood?
Because SAP has learned that this war can not be won from Germany. After promoting and then firing one German executive after another to build a viable SaaS business, they are empowering a Danish entrepreneur based in San Mateo to take on the other leading business application companies and to lead SAP into the cloud.
SAP has learned the hard way that in the cloud, location matters. The global leaders in SaaS are choosing San Mateo, because among all the places on the terrestrial Earth, it has the best workforce to develop, sell and support cloud applications. Software is effectively pure intellectual property, without any input other than human creativity and effort. On the cloud battleground, the victors must compete and thrive in the best labor market in the world if they hope to best their strongest competitors. The global cloud leaders have to win in San Mateo, the Mecca of SaaS.
Ironically, San Mateo’s rise to the nerve center of the cloud started in 1989, when Oracle built its new headquarters in nearby Redwood Shores. Oracle has recruited and educated more business software experts than any other company on Earth. The entrepreneurial forces of Silicon Valley have led these executives to found and build an ecosystem of business application companies and workers that is unparalleled anywhere else on Earth. Startups that are thriving in the area include SuccessFactors, NetSuite, Marketo Admob, Coupa, Doximity and many more. The “San Mateo Cloudopolis” draws developers from San Francisco to the north, Palo Alto and Stanford University to the south and the East Bay via the San Mateo Bridge.
Can Lars Dalgaard, CEO of SuccessFactors succeed, where others have failed? SAP is betting over $3 billion that he can, because he has already built a leading SaaS company right in Oracle’s backyard. He chose to build SuccessFactors in San Mateo, not a protected geographic market, because he knew that in order to win global leadership, he had to hire better, code better and sell better in the strongest, most competitive labor market in world. He is competing head-on and winning.
Emergence Capital is proud to have been investors in several of today’s leading cloud companies. We are watching the cloud war from our front row seats in San Mateo.
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By Kevin Spain
This article originally appeared in Forbes.
The rapid rise of the iPhone, iPad and other mobile devices has fueled a mad rush of venture funding into consumer-facing mobile companies. During the 2011 first half, according to Rutberg & Co., venture capitalists invested $3 billion into 358 mobile companies – with $960 million going to the “media and applications” sector, defined as social networks, mobile games, mobile advertising, app platforms, news aggregation, photo sharing and group messaging.
VC investment in enterprise mobile companies has been more tepid. According to Rutberg, VCs invested just $254 million into “enterprise IT” mobile companies over the same span.
As global organizations race to transition legacy systems to the cloud – and enable mobile workers to access applications and services wherever they are, from any device – the mobile enterprise sector clearly presents an untapped opportunity for venture investors. But it’s not enough to simply shut off the funding tap to consumer mobile companies and start funding enterprise mobile startups en masse. Not all mobile enterprise companies are created equal.
The startups with the greatest potential to generate outsized returns are those creating “mobile-first enterprise applications” – those that leverage the unique capabilities of mobile devices to enable the creation of new categories of enterprise applications. These applications are very different from mobile-enabled versions of traditional enterprise software such as Salesforce.com andWorkday. True “mobile-first enterprise applications” are built for mobile platforms initially or exclusively and enable a worker or business to do things that simply were not possible before the proliferation of advanced connected devices.
Some examples of mobile-first enterprise applications include Doximity, a mobile app that enables physicians to collaborate and communicate more effectively in which my firm is invested; Square, which allows many small businesses to accept credit cards for the first time; and Gigwalk, an app that enables businesses to turn smartphone users into an “instant mobile workforce”. These companies are among the first to truly leverage the power of mobile to create unique business-focused value propositions.
Much of the mad rush to sink millions into consumer mobile startups parallels the dot-com boom. The late ’90s funding craze was focused almost entirely on consumer Internet companies – and the painful bust that followed was a consequence of over-investment into consumer startups and under-investment into enterprise Internet companies. What rose from the ashes of the dot-com bust, however, was Web-enabled services and cloud computing – a wealth of innovative enterprise software companies applying Internet technologies to business processes.
Investment in the mobile sector is evolving in much the same way, but at a faster rate. Right now, mobile-first enterprise companies are vastly underfunded, while those consumer mobile start ups are vastly over-funded. Only a handful of these consumer-focused start ups will gain the critical mass needed to succeed; after all, there are only so many mobile games, social networks and apps consumers are willing to buy.
However, just like in the dot-com bust, the demise of many of today’s amply-funded consumer mobile upstarts will eventually benefit the mobile enterprise sector. Popular consumer mobile technologies will eventually become core components of business-driven apps – bringing the mobile craze into the office in much the same way the Internet fully arrived at work only after the dot-com bubble burst.
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By Brian Jacobs
Yesterday, the Cloudbeat audience got a real treat: a world-class panel of pioneers in Business Freemium talking candidly about how they conceived their businesses, how they evolved over time and how they scaled explosively. Of course, everyone at the conference opted for the premium version of the panel, paying a pretty penny for the privilege of seeing the panelists live and asking whatever questions came to mind. Here I hope to offer a very limited free version of the panel for those who can’t travel to Silicon Valley or can’t justify the expense of attending live.
YouSendIt, Yammer and Echosign are among the largest and fastest growing freemium services available to business users today. Having started well before the business model became popular, these companies were navigating in unknown territory. Today, they serve more endusers than any other company in their markets, and many of their business practices have been emulated by other Business Freemium providers.
I think the live audience would agree that the panelists were remarkably insightful and transparent on how they think about building Freemium companies that target business users. I’m afraid that I’ll only be able to scratch the surface for the free users, but then, you get what you pay for.
- Ivan Koon, CEO of YouSendIt, talked about how freemium companies must prioritize value delivery over value extraction. The product or service must be so compelling that users want to share with their colleagues. While free users don’t pay, they provide value by exposing a large number of other users.
- David Sacks, founder and CEO of Yammer, commented that freemium services tend to work when there are two types of users, free and paid, and when the population of free users enhances the value to those who pay. Of course, this works best when there is strong viral coefficient, which may be the most important lever for cost-efficient growth.
- Jason Lemkin, founder and CEO of Echosign, believes that true freemium must have a conversion rate (free to paid) of less than 2%, because a greater rate implies that users are really just using the free service as a free trial. Having recently been acquired and integrated into Adobe, Echosign is now seeing an explosion of traffic and the resulting paid conversion.
I’ll share one insight that was not discussed in the premium/live panel: these pioneering business leaders all share some common characteristics that probably align with the critical factors that lead to Business Freemium success.
- They are really smart. It was very clear that each of our panelists could think on their feet, mentally model business drivers and abstract specific learnings to apply them more broadly. Because Freemium companies have multi-stage conversion processes, it takes a sharp mind to understand how to manage and grow in a complex business model in a dynamic environment.
- They are metrics-oriented. Every panelist had key business metrics in their head. They commented on how they tweaked and testing to make small improvements that compounded over time. This orientation is critical to Business Freemium success. Freemium communities are dynamic systems, and these companies get extra leverage by measuring, testing, iterating and learning.
- They are product focused. These executives spend a lot time with their product teams. They understand that for Freemium companies, the product is the value proposition, it’s the sales person, it’s the lead gen process, it’s the customer support rep and much, much more.
This is just a tiny taste of our discussion on Business Freemium. If you liked the free version, then you should consider upgrading to the premium version next time.
