Despite being unsexy in many people’s eyes, enterprise software has been getting a lot of VC loving of late — or at least, a certain type of enterprise software. Last month there was Workday’s mammoth $85 million round and the equally eye-popping $81 million raised by Box.net to pursue its enterprise market ambitions. Yesterday come another two large funding announcements and one smaller one. Subscription billing provider Zuora revealed a $36 million funding round, bringing its total funding to $82.5 million; marketing automation vendor Marketo has raised $50 million in new equity financing, bringing its total raised to $107 million; and cloud IT governance vendor Servicemesh announced a first round of $15 million. Just these five companies have amassed a total of more than $600 million growth funding. Sexy or what?
These are all new categories of enterprise software, and perhaps that’s the crux of why they’re getting funded. VCs are always on the look-out for game-changing companies, because that’s where they achieve the biggest returns. This week, big bets have been made on Zuora and Marketo each establishing leadership positions in serving markets that barely existed a decade ago. If you’re looking for tomorrow’s leaders, that’s exactly where you should be looking, rather than companies that are simply rehashing old ideas like ERP and CRM by porting them to the cloud.
The old MRP and ERP packages are built around a traditional, product-centric model. But in today’s connected world, more and more business propositions are being delivered in a subscription model. It’s a model that wasn’t often offered in the old world of slow and unwieldy paper-based processes because, except for certain publishers, it simply wasn’t viable. So the conventional business software packages that made the breakthrough of automating those old paper-based processes don’t have the flexibility to support subscription billing. It requires a newly designed software stack with the real-time automation and on-demand connectivity needed to operate a subscription business model. As businesses increasingly pivot towards such models, it seems likely that Zuora’s star will continue to rise while others wane.
Similarly, old-school CRM was focused on automating internal enterprise processes such as how the sales team managed accounts and how service desks dealt with support. But today, customer relationships happen online and there are frequent touch points with prospects through websites, email, social media and other forms of digital interaction. The center of gravity in the customer relationship has moved outside the walls of the enterprise. As businesses reorient their prospect and customer management towards those online interactions, it is companies like Marketo that will prosper from those investments.
It’s a common error to forecast the future by extrapolating past trends. People looking for tomorrow’s software leaders have sought to identify the next SAP, Oracle or Microsoft by evaluating newcomers who do exactly the same in different ways. Far more likely, though, that tomorrow’s leaders will come from an unexpected direction, enabling enterprises that best capitalize on the new opportunities and business models emerging in today’s cloud-connected, digitally enabled world. In this world of the frictionless enterprise, look to companies that open up interactions across the boundaries between enterprises and their customers and other stakeholders to be the winners over inward-looking, enterprise-centric software stacks.