Cloud Mecca: Emergence Capital Welcomes Another Global SaaS Leader to San Mateo

With the completion of its purchase of SuccessFactors, SAP has planted its SaaS flag just 4 miles from Oracle’s world headquarters and less than 2 miles from Salesforce’s San Mateo cloud incubator.

Everyone thought it was cute, when Salesforce.com first hoisted its logo onto Tom Siebel’s original building in San Mateo.  But we have seen that it was no joke to Marc Benioff, CEO of Salesforce, who is publicly defying Larry Ellison to challenge him as the undisputed global leader of SaaS.  While Salesforce is building a new urban campus in San Francisco, it continues to fly its flag defiantly in Oracle’s hometown.

But, there is a new challenger in clouds above San Mateo.  SAP needs to become a global SaaS leader quickly or it will be irrelevant in the cloud. It is ready to fight and by buying SuccessFactors, the world’s second most valuable SaaS company, the Germans are signaling that they will bring the battle right to Oracle’s doorstep.

Across town, Larry Ellison is also preparing for combat.  He is assembling a vast arsenal, including Oracle On Demand, the former Siebel business, now a SaaS offering, and recent SaaS acquisitions, Taleo and RightNow.  Meanwhile, Oracle’s kid SaaS step-brother, NetSuite is guarding the mountain pass along Highway 92 to the West.

The leading business application vendors are lining up for the prizefight of the century – global leadership of the business cloud.  The showdown is coming, and the fight will occur on the streets of San Mateo.

But the cloud is equidistant from every company on Earth.  It touches every country, every city and every company.  It connects the largest companies on Earth with end-users across the world. It gives the ultimate geographic flexibility, connecting workers from disparate locations to collaborate as if they worked in the next cubicle.  The cloud is everywhere, and it is nowhere.  So, why does SAP need to set up camp in Oracle’s neighborhood?

Because SAP has learned that this war can not be won from Germany.  After promoting and then firing one German executive after another to build a viable SaaS business, they are empowering a Danish entrepreneur based in San Mateo to take on the other leading business application companies and to lead SAP into the cloud.

SAP has learned the hard way that in the cloud, location matters.  The global leaders in SaaS are choosing San Mateo, because among all the places on the terrestrial Earth, it has the best workforce to develop, sell and support cloud applications.  Software is effectively pure intellectual property, without any input other than human creativity and effort.  On the cloud battleground, the victors must compete and thrive in the best labor market in the world if they hope to best their strongest competitors. The global cloud leaders have to win in San Mateo, the Mecca of SaaS.

Ironically, San Mateo’s rise to the nerve center of the cloud started in 1989, when Oracle built its new headquarters in nearby Redwood Shores.  Oracle has recruited and educated more business software experts than any other company on Earth.  The entrepreneurial forces of Silicon Valley have led these executives to found and build an ecosystem of business application companies and workers that is unparalleled anywhere else on Earth.  Startups that are thriving in the area include SuccessFactors, NetSuite, Marketo Admob, Coupa, Doximity and many more. The “San Mateo Cloudopolis” draws developers from San Francisco to the north, Palo Alto and Stanford University to the south and the East Bay via the San Mateo Bridge.

Can Lars Dalgaard, CEO of SuccessFactors succeed, where others have failed?  SAP is betting over $3 billion that he can, because he has already built a leading SaaS company right in Oracle’s backyard.  He chose to build SuccessFactors in San Mateo, not a protected geographic market, because he knew that in order to win global leadership, he had to hire better, code better and sell better in the strongest, most competitive labor market in world.  He is competing head-on and winning.

Emergence Capital is proud to have been investors in several of today’s leading cloud companies.  We are watching the cloud war from our front row seats in San Mateo.