A new player has entered the enterprise productivity race. For decades, Microsoft reigned as the market leader in enterprise productivity — until Google pushed into the space with Google Apps. Now, with the acquisition of Quip, Salesforce is joining Microsoft and Google in the race.
The implications, however, extend far beyond productivity and CRM. Recent developments in enterprise software — including Oracle’s acquisition of NetSuite, Microsoft’s purchase of LinkedIn and Salesforce’s acquisition of Demandware and Quip — point to a shift in the market.
Enterprise software (not just productivity apps) can no longer be siloed applications bolted together with varying degrees of integration. Today’s tools are expected to be cross-functional, with native integration, real-time collaboration and smart communication at their very core.
Enterprise software giants across different verticals are moving in the direction of end-to-end solutions in an attempt to own more of the workflow — Salesforce’s acquisition of Quip will only intensify the competition. For enterprise software startups, it’s indicative of more mergers and acquisitions to come.
The state of enterprise startups
Enterprise software spending is on an upward trend, and is expected to reach $326 billion this year; meanwhile, startups and investors have taken notice. There are currently 1,425 active startups in the space — as listed by CrunchBase — and there’s been an influx of venture funding. According to PitchBook, venture funding of enterprise productivity startups has more than doubled, from $4.75 billion in 2012 to $11.46 billion last year. This year, these software startups have already raised $6.26 billion to date, and the median deal size is up 25 percent compared to 2015, reflecting current market demand and investor appetite.
With investors hot on enterprise startups, the market will become more fragmented and saturated than ever before. End users are already inundated with dozens, if not hundreds, of similar software solutions, each which focus on filling one specific business need as effectively and efficiently as possible.
In an environment where the biggest technology leaders are looking to startups for new innovation and transformation, there will likely be a coming spike in M&A activity. A historical analysis of CrunchBase data reveals an ongoing trend: enterprise software startups are seven times more likely to get acquired than they are to shut down, while only 4 percent make it to an IPO.
Productivity is a loosely defined category, but it starts with word processors, spreadsheet applications, presentation software and others (think Microsoft Office or Google Apps for Work). Aside from Quip, there are still quite a few notable startups disrupting this space.
Today’s tools are expected to be cross-functional, with native integration, real-time collaboration and smart communication at their very core.
Standalone solutions like Prezi, the interactive presentation startup that’s raised $73 million and attracted 75 million customers, and Paper, Dropbox’s answer to Google Docs, are pushing the boundaries of how productivity apps should function.
Others like Blockspring aren’t reinventing the wheel, but instead are innovating on existing products. The young startup, which raised $3.4 million in seed funding, connects spreadsheets like Excel and Google Sheets to make it easier to import data from third-party services like MailChimp, Slack and LinkedIn.
Any of these types of startups could make for a strategic acquisition by larger software companies that are either looking to strengthen existing products or expand their offering into other verticals.
Email, communication and collaboration
Email clients and collaborative communication platforms are at the epicenter of modern workflows. For a software giant like Salesforce, whose core product (CRM) relies so heavily on email communications, startups in this segment are particularly attractive targets for an acquisition.
Front offers a collaborative email platform that reinvents (or at least improves) email by adding a social layer with the “shared inbox.” Founded in 2013, Front has raised more than $13 million from investors, one of whom is Slack’s co-founder, Stewart Butterfield.
Speaking of Slack, many messaging-based platforms are attempting to displace email as the main form of communication. Redbooth, a startup that’s raised $19 million, and seed-stage startups Azendoo and Fleep are also following in Slack’s footsteps with team messaging platforms that aim to enhance productivity and collaboration.
There are many other verticals within enterprise software — from project management and marketing automation to business analytics — but CRM is especially interesting, given two factors: (1) Salesforce’s involvement in the enterprise race and (2) CRM’s role in driving revenue and business growth, making it one of the most valuable software categories in enterprise software.
That said, CRM startups are plentiful and only a few are interesting enough to stand out. Heymarket, a startup founded this year, offers a CRM to help businesses manage text message communications, which could make for an interesting addition to an existing CRM suite’s arsenal.
The caveat and the opportunity
So which startups are gunning to take Quip’s place? The answer is surprising: none. There are hundreds of task/project management apps and dozens of communication platforms, yet full productivity suites are few and far between.
Sure, there are solutions like OnlyOffice, Zoho Docs and Polaris Office, but these can hardly be considered startups. That last part is important because startups, with their fresh outlook and high risk tolerance, are the true drivers of innovation.
Whether the lack of startups in this segment is because entrepreneurs and/or investors perceive the barrier to entry to be too high, or they see limited opportunity, Quip’s acquisition is sure to spark new interest. Meanwhile, enterprise giants will continue snapping up these enterprise software upstarts to bolster and innovate higher-performance offerings in an attempt to provide customers with a seamless, uninterrupted workflow.
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