Emergence Capital: Industry-specific SaaS apps are the future

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It might sound counterintuitive, but a top venture capital investor who specializes in enterprise businesses believes that industry-specific cloud services are a great bet. If he's right and more successful, targeted cloud apps emerge, it will be good news for businesses that can benefit from the services.

Jason Green of Emergence Capital said he's interested in industry-specific SaaS apps that go very deep into the domain a particular industry, solving the most important problems for that industry. While conventional wisdom says that niche businesses have limited growth potential, he sees great potential because of the benefits of the cloud.

Emergence Capital's successful bets include Salesforce, Yammer and Successfactor.

In general, targeting a niche market means "you can penetrate a much larger share of the market than you can if you're a horizontal player," Green said. That means a vendor can sell to more than half the market, maybe even as much as 80 percent, he suggests.

"That creates incredible stickiness because you become strategic," he said.

Which leads to new potential for growth. The vendor can start expanding into related offerings in order to sell more to existing customers. At any stage, sales and marketing operations are kept efficient since they focus on just one industry vertical.

The cloud enables this vision. Historically, software vendors couldn’t specialize in this way because it cost them too much. "You couldn't justify that deep of an investment given the enterprise software model. With cloud, you can build the cloud once and leverage it across all these different customers," he said.

It also means that vendors can target customers of all sizes. "Historical enterprise software vendors had to target companies with large IT budgets," he said. With the cloud, it's just as easy for a vendor to offer services to small and medium size businesses.

An example of this kind of targeted cloud business is Veeva Systems, a company Emergence has invested in. Veeva offers CRM and content management systems tailored for the life sciences industry.

His firm continues to believe there's lots of value in enterprise businesses. "The encouraging thing for us is things like the Twitter IPO and WhatsApp acquisition make people very enthusiastic and greedy about the consumer sector," he said. That leaves firms like his less competition when identifying opportunities among companies targeting the enterprise sector.

Read more of Nancy Gohring's "To the Cloud" blog and follow the latest IT news at ITworld. Follow Nancy on Twitter at @ngohring and on Google+. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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