Marc Benioff of the United States, Chairman and CEO of Salesforce.com, delivers a speech at the World Economic Forum in Davos, Switzerland, on January 22, 2020.
Fabrice Cofrini | AFP | Getty Images
Employees at Salesforce, all the way up to co-founder and CEO Marc Benioff, could breathe easier this week after the enterprise software company posted significantly more robust earnings and outlook than analysts had estimated, drawing praise from Wall Street.
But challenges remain.
Like other cloud software developers who have seen their stocks crash because of rising interest rates, Salesforce is more focused than ever on profit. That could make it more difficult for the company to build technology to address emerging threats, such as the evolution of an old partner into a competitor.
That’s the dynamic at Veeva Systems, which sells software to life sciences organizations. Veeva is also on the rise, with shares rising 4% Thursday following the company’s better-than-expected quarterly results.
Veeva built its core software on top of Salesforce’s app development platform, but that will come to an end in 2025. There’s a risk that other companies built on Salesforce could be inspired to follow Veeva.
“If I were Salesforce, I’d be really concerned about the long-term implications of that,” said Rishi Jaluria, an analyst at RBC Capital Markets with the equivalent of buy ratings on both Salesforce and Veeva. Salesforce did not immediately respond to a request for comment.
Jaluria pointed to banking software maker Ncino, whose CEO, Pierre Naudé, said in 2021 that it was the largest company after Veeva to build on Salesforce.
Salesforce and Veeva are closely intertwined. Peter Gassner, the founder and CEO of Veeva, ran the Salesforce platform before founding Veeva in 2007. “Peter has been an outstanding CEO,” Benioff said in 2017, as the two companies deepened their partnership. Veeva’s chairman, Gordon Ritter of Emergence Capital, invested in Salesforce before endorsing Veeva.
The agreement between the companies means that Veeva must pay Salesforce when Veeva customers use the Salesforce platform – and the costs have increased as more people come to rely on Veeva. In return, Salesforce will not enter Veeva’s specialized, regulated market.
That kind of arrangement might have been fine when Veeva was a startup. But it has grown into a profitable publicly traded software company with annual revenues of $2 billion and a market cap of $28 billion. Veeva accrued approximately $7 million in fees to Salesforce in the October quarter, according to a filing.
After Veeva announced the news alongside its financial results in December, Gassner and other executives spent time answering several analyst questions about the change on a conference call. “I think that’s generally positive for customers,” Gassner said. “It simplifies their landscape.”
Veeva, which pays Amazon Web Services for hosting capabilities, will port its customer relationship management software to its proprietary Vault platform. The plan is to provide tools to help customers transition, though they have until September 2030 thanks to a five-year phase-out period specified in the agreement.
Veeva will demonstrate its software using Vault at its Commercial Summit conference in Boston in May, Paul Shawah, Veeva’s executive vice president of strategy, said during a Wednesday call with analysts.
Jaluria said he doesn’t think Salesforce will be able to compete effectively with Veeva after the agreement expires in 2025. said. “But even before that, Salesforce hasn’t shown us their ability to organically evolve the cloud for the industry.”
Under Benioff, Salesforce fueled much of its growth through acquisitions, and there was a time when Gassner could have ended up back at Salesforce. A Salesforce presentation leaked in 2016 put Veeva on a list of “potential acquisition targets.”
Today that seems unlikely. Gassner directs Veeva to leave Salesforce, and on Wednesday, Benioff said the Salesforce board has dissolved its mergers and acquisitions committee.
WATCH: No one expected a 27% margin from Salesforce, says Mizuho’s Greg Moskowitz
Leave a Reply