The Emergence of Industry Clouds

Earlier this week, I had the pleasure of meeting with Brian Jacobs, General Partner and Co-Founder of Emergence Capital Partners – one of the leading venture capital (VC) firms that focuses its investments on SaaS and technology-enabled services in the enterprise.  In an intimate gathering, Brian met with my Microsoft colleagues and some of our largest global partners in San Francisco to share his experience investing in online services tailored for the enterprise, and to share his views on industry-specific cloud solutions or “Industry Clouds.”

For his part, Brian is a respected VC in the San Francisco Bay Area and ranked #7 in influence by CB Insights. Since 2003, Emergence Capital boasts 5 unicorns – companies worth over a billion dollars– with more on the horizon as they have several pending IPOs in their portfolio. Despite the firm’s success investing in companies such as Salesforce, Yammer, SuccessFactors, Box and Veeva, Brian believes the emerging trend of Industry Clouds is still in the early days.

Why are Industry Clouds Imminent?

SaaS is No Longer a Differentiator: In the preceding decade, most of the online services that made inroads in the enterprise have been horizontal in nature – not industry specific. For example, customer relationship, talent, procurement and expense management applications have penetrated the enterprise driven largely by cost savings versus legacy on-premise systems (too expensive to maintain, upgrade and operate across disparate locations). While cost-savings offered by SaaS implementations continues to be a driving factor, as all providers offer SaaS solutions the architecture is no longer a differentiating factor. Enterprises recognize the value from horizontal solutions, but still need industry-specific solutions to address their most important challenges.

Customizing Horizontal Applications Is Not an Option: In the past, companies in all industries could customize on-premise solutions to meet their unique needs, but SaaS eliminates this option. Many industries with unique data or operational requirements are left with modern SaaS solutions for their horizontal requirements and highly customized, legacy on-premise solutions for key aspects of their corporate IT systems.

Meaningful Big Data Applications: Every business has data analysis questions that are specific to their industry. Retailers and manufacturers of consumer goods want to analyze price elasticity or promotion effectiveness. Hospitals and health plans want to analyze physician or procedure efficacy. But most companies don’t have a “Big Data Department” to create custom solutions to these problems. They want a purpose-built solution to their most important problems. Industry Cloud providers solve industry-specific data problems for the large and small participants in the ecosystem.

Industry Clouds Offer Best-of-Class Domain Expertise and Industry Best Practices: A core part of the value proposition of an Industry Cloud is domain-specific expertise which lowers long-term maintenance costs and increases the value of business intelligence that can be extracted from aggregated data. Industry Clouds provide best practices and will evolve as industry needs change. Out-of-the-box insights and domain-specific knowledge make the adoption of Industry Cloud solutions a compelling alternative to customized SaaS deployments. Industries with a dynamic regulatory framework, mobile workforce and high data value will be the strongest first movers in this trend – specifically, Healthcare, Education and Retail.

Industry Clouds Capitalize on Aggregated Data: Data analysis is more compelling when there is more data, collected from many sources. Many companies need data from partners to fully understand their business options. Custom IT solutions, including customized applications, increases the cost of sharing data with partners, and make it impossible to pool data from disparate industry sources. The cloud enables industry participants, including vendors, channel partners and customers, to aggregate data with a trusted 3rd party – affording all users the opportunity to benchmark, learn, identify and improve based on pooled data (without compromising the competitive value of individual accounts). In addition to the cloud’s lower cost of ownership, customers of an Industry Cloud benefit from better visibility into industry metrics and cooperation with other members of the ecosystem.

As the cloud matures and declines in cost, more and more companies are finding utility from the capabilities that it offers.