Salesforce.com's Platforming Ventures
Salesforce.com is making a major push with its newly minted Force.com on-demand platform. The company, along with Silicon Valley venture firm Bay Partners, announced the official launch of a new three-year, $25 million program to fund companies building business applications on the platform. A second venture-capital firm, Bessemer Venture Partners, will collaborate with Bay Partners, and will independently evaluate investments, according to Salesforce.com.
The program will target investments of at least $500,000 each, totaling approximately $25 million over the next three years, to assist startups and young companies embracing what Salesforce.com has recently been calling platform-as-a-service.
In the new program, Salesforce.com will advise Bay and Bessemer, providing background and assistance in due diligence as the two venture-cap firms select promising applications and businesses. Prospective partners will undergo testing to measure their performance a security capabilities based on industry-standard criteria. Salesforce.com will provide design review, packaging and distribution best practices, and certification consultation for companies building applications on the Force.com platform and delivering them through Salesforce.com's AppExchange.
"We share a common vision with Bay Partners and Bessemer Venture Partners that Platform-as-a-Service has fundamentally changed the landscape for business applications," said Marc Benioff, Salesforce.com's founder, chairman, and chief executive officer, in a statement. "Under the traditional software model, entrepreneurs and startups have had to deal with the burden of infrastructure before they can begin developing their ideas. Force.com and the AppExchange provide an application development and global distribution model to quickly bring any idea to market."
The program has no formal name as yet, says Gordon Evans, Salesforce.com's director of public relations, adding that "while Bay and Bessemer have already been looking at several companies they have not yet announced any initial investments."
The program may only just now be getting on its feet, but a move like this has been a long time coming, according to one analyst. "The thing you have to keep in mind is that Salesforce.com is a disruptive innovation and, like changing one cell in a complex spreadsheet, the innovation started a cascade of effects; this is just the latest," says Denis Pombriant, founder and managing principal of Beagle Research Group. "The disruptive innovation did a lot more than initiate change in the software industry -- it is changing the way [systems integrators] do business, and how companies are formed. I have often referred to this as 'the new garage' because it so thoroughly changed the economics of the software industry, it has the effect of making it possible to start a company in a garage with very little funding."
Pombriant says the rise of platform-as-a-service blurs the line between the entrepreneur and the technology companies. "Back when an entrepreneur needed to buy a computer and other gear as well as a compiler, none of the suppliers had sufficient economic interest in the entrepreneur to do much more than offer a quantity discount," he says. "Today that's all changed." The platform vendor makes money -- much more than a runtime license -- when the innovator's application sells, which Pombriant says is a powerful incentive to help provide innovators the funding they need to succeed.
Pombriant says that the Saleforce.com program is fundamentally like assembling a portfolio: "The more you put into a portfolio, the lower your risk of failure," he says. "Since the cost of adding to the portfolio is small -- and borne primarily by the innovator and the funding source -- this approach is very, very low risk."
In short, he adds, "this approach applies a strategy of letting a thousand flowers bloom."
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