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Founded just eight years ago, Veeva Systems is one of the most profitable SaaS companies and a poster child for the vertically-focused industry cloud sector. Cofounder and CEO Peter Gassner explains why the industry cloud has a silver lining.
Industry cloud companies deliver a combination of cloud-based applications, professional services and data that are specifically tailored for businesses operating in vertical markets such as healthcare, education, real estate, legal, financial technology, transportation, energy manufacturing and government.
Veeva Systems, founded in 2007 by Peter Gassner and Matt Wallach, is a leading light of the industry cloud 'movement', delivering CRM and other products to the life sciences industry, with customers ranging from leading pharmaceutical companies to biotech startups. After kicking off with $4 million of funding from SaaS specialist Emergence Capital Partners (ECP), Veeva progressed smoothly — and, unusually for a SaaS startup, profitably — to an IPO in October 2013 that more than doubled the opening share price on day one, valuing the company at $4.4 billion (and delivering ECP a stake worth, on paper, a handsome $1.2 billion). At the time of writing, Veeva's share price has settled to just over half of its heady IPO-week high, giving the company a market cap of $3.3 billion:
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Commenting prior to Veeva's IPO, ECP founder (and Veeva board member) Gordon Ritter said: "Marc Benioff and other general-purpose cloud leaders won the first round, but industry-specific companies will win the next." When it comes to sustained profitability, that certainly seems to be on the mark, as this top-level comparison between Veeva and Benioff's Salesforce makes clear:
A key statistic that highlights the difference between the two companies' business models is their respective sales efficiencies: thanks to its concentrated life sciences focus, Veeva spent just 17.9 percent of its revenue on sales and marketing in fiscal 2015, compared to 51.3 percent for the broad-based Salesforce.
With the two-year anniversary of Veeva's public offering approaching, ZDNet caught up with cofounder and CEO Peter Gassner to discuss his background, Veeva's progress to date and its future direction.
"I was a computer science major and started out working at IBM's Almaden research center in the mainframe era — that's where I learned my software engineering," said Gassner. "Then I went to PeopleSoft, to get into the application area when client-server was just starting, in the early nineties, because I knew it would be a better, more flexible, way of doing things. PeopleSoft was a small company when I joined, and a big ten-thousand-plus-employee company when I left. I moved to Salesforce.com in early 2002 because I could see that software-as-a-service was going to be a fundamentally better way of doing things, and built up the technology platform there."
So how did the 'industry cloud' idea come about?
"It's a pattern I saw in general in the industry, even back to PeopleSoft, that first the general things that weren't industry-specific got done, and after that the industry-specific things would follow," said Gassner. "The idea that it could be transformative when you did it in the cloud...I guess I really started to learn that when I was at Salesforce.com. You could really make it work for the customer in the cloud, because you would have the ability to do the critical integrations that you needed, you could sell to large companies and small companies, and you could afford to make the software really good — and you could also put industry-specific data in there. I knew that industry-specific software was a large segment of the enterprise market, but it was always hard to do before the cloud: the fundamental concept was, you could do it much, much better in the cloud — and nobody else was doing it yet."
Veeva's solution comprises CRM software (Veeva CRM, which is built on Salesforce's Force.com platform), content management (Veeva Vault), master data (Veeva Network) and customer data (Veeva OpenData) — all ready-customised for life sciences companies. A cheaper alternative might be to adapt a horizontal platform like Salesforce, but as Gassner put it: "The thing is, when you heavily customise and modify a system, do you have a good architect in there doing it or not? If you don't, your project might take four years and it might fail."
According to Gassner, Veeva pioneered the industry cloud concept: "There was no model to follow for how you have an industry-specific cloud company, so we made that model. You need great technology and you need great domain people — my cofounder Matt Wallach has been in this industry for twenty-plus years. Among the things we've learned is, you become more of a partner to the industry and not just a software vendor — in the same way that McKinsey or Accenture, for example, have deep domain expertise and become a partner. I don't think that approach was ever taken before: if you're providing payroll software, it can be good payroll software, but you don't partner with an industry with that."
"If you think of industry cloud as a cake, it has three fundamental ingredients: software, services and data," explained Gassner. "And you can't really separate that: the industry doesn't want just software, they want high-value people who can pollinate their knowledge; and they absolutely want industry-specific data, because otherwise they have to make their own data."
Given that a typical user of Veeva's software is a sales rep for a pharmaceutical company, making visits to physicians, mobility is a vital piece of the solution. "It's very mobile — it has been from the start, that's the nature of it," said Gassner. "The big transformation that happened after we got going was, the iPad came out. That became the mobile device of choice for the pharmaceutical sales rep, and we jumped on that full-steam. Now we have a great product on the iPad — and Windows too," he added.
As far as mobile platform support is concerned, "it's important to be flexible and keep up," said Gassner, adding that: "The key thing is, you have to have a great server side and a set of APIs and business rules — then you can be flexible with the different mobile devices that come up. You're lost if you don't have a core set of business rules on the server."
Veeva currently has "a bit over 300" customers, ranging from large pharmaceutical companies such as Pfizer, Novartis, AmGen and GSK to small biotech startups. "Our strongest geographies are the US, Europe, China and Japan," said Gassner, "but we're a real global company: even though we're only eight years old, already 45 percent of our revenue is from outside of the US."
"In general, what we're doing with the established companies, across all of our software offerings, is replacing legacy client-server — and in some cases even legacy mainframe — systems that really didn't fit the industry," said Gassner. "But when a brand-new company starts up, they get to skip that whole client-server generation and go straight to Veeva, adopting many of our products — always starting with the R&D side — very quickly."
Veeva customers can maintain lean IT departments because they don't have to build and maintain integrations across applications. "Veeva gets to be relevant to CEOs in a couple of ways," explained Gassner. "Small companies 'just get stuff' from Veeva: IT will not be a problem...just install Veeva you're good to go. For large companies, Veeva is the industry standard and can help when they do acquisitions. Say you have one pharmaceutical product, and your systems work for that one product. Now you're going to do an acquisition, and you're bringing a whole different product: your old system wouldn't support that, but with Veeva, we've already thought of all those things. If you're acquiring a company in China, for example, and your CRM system needs to handle the 35 specific requirements of China — if you have Veeva, you're covered. When you acquire a company you want synergies, and you want the companies to operate as one as quickly as you can, and you don't want IT to be a barrier to that."
Talking of acquisitions, Veeva made the news recently when it bought Zinc Ahead to complement its Vault product. What did Zinc Ahead bring to the table? "Vault is our content-management offering — it's the second product line we made, and it's doing very well, growing at 100 percent and really transforming some things in life sciences," said Gassner. "Zinc Ahead was a competitor of ours in a specific application area — promotional materials management — and was a long-time player in the industry, loved for its domain expertise. It's a European-focused company, based in Oxford, so bringing it into Veeva brought us more domain expertise and more geographic focus. The really nice thing is, we share the same dedication to life sciences and we have a very similar corporate culture of customer success."
Veeva's success to date has been built on targeting a specific market and delivering a software/services/data platform that has rapidly become both highly successful in its field and a model for industry cloud companies in general. In the financial year ending 31 January 2015, Veeva generated $313.2 million of revenue from some 276 customers — an impressive average, for a moderate-sized SaaS company, of $1.13 million per customer per year.
So what's next on the agenda?
"We're targeting to be a one billion dollar revenue run-rate company in the calendar year 2020," said Gassner. "We have the products we need to achieve that, but we will also make new products to feed the innovation cycle that will continue on past 2020."