For the last several years, conventional wisdom has been that enterprise software is the exciting area in which venture capitalists should invest.
A large number of celebrated exits have occurred with firms such as Workday, Tableau, and Splunk, all of which appear to have long runways ahead.
But what is driving this switch to the popularity of new enterprise software? Is it simply due to cloud infrastructure enabling less expensive solutions than older on-premise deployments? Is it because a company can get traction with very little capital to figure out product/market fit?
In reality, a confluence of strategic inflection points are feeding the virtuous circle leading to this revolution in enterprise software capability:
Breakthrough tech delivers solutions
When I joined XSeed Capital over six years ago, the best research and innovation in IT was being done in places like Google, Yahoo, and Microsoft. However, as the next-generation of engineering and computer science faculty are coming to prominence, technologies such as natural language processing, machine learning and data visualization are being systematically applied to specific commercial opportunities.
An example of the first two disciplines driving commercial solutions can be seen in the research of Chris Manning and Andrew Ng. Their work around legal analytics spawned Lex Machina, which is turning the $16 billion per year in legal IT spending on its head. Lex Machina takes many decisions that lawyers and companies previously made via intuition and now enables better insights with data.
Additionally, researchers such as Joe Hellerstein and Jeff Heer at Trifacta have applied machine learning and data visualization techniques to enable rapid data transformations and decision making. The research done by Matei Zaharia and Andy Konwinski has led to the creation of Spark/Databricks, a super-fast engine for large-scale data processing.
Computers expedite processes
Computing automation has delivered huge efficiencies in white-collar businesses over the last forty years. Yet the recent development of new computing architectures and the increased digitization of customer interactions is making these efficiencies even more important than before.
Companies such as Marketo and Eloqua have pushed the boundaries of marketing automation. When it comes to customer experience management, DropThought, a company that spun out of the Stanford Graduate School of Business, gives service environments not only the ability to get real-time feedback from customers through the use of smartphones and tablets, but also aggregate large quantities of data to measure improvements in customer satisfaction (e.g. Net Promoter Scores).
Tech enables new business opportunities
With a breadth of new technology, companies can offer services that were previously impossible or impractical to deliver, such as new transportation services such as Uber and Lyft.
In the context of enterprise services, Stanford spinout SIPX enables any large institution to efficiently track distribution of copyrighted material, while ensuring compliance with existing content agreements and enabling content owners to price based on usage, volume, etc.
This automated digital system thus ensures conflicts do not arise in business arrangements between different customers.
In another example of new technological innovation enabling new business opportunities, Bromium is using micro-virtual machines to address the risks that arise from the increased usage of mobile platforms in companies. As security has become an increasingly complex issue with multiple ways for unauthorized access to confidential data, the company has figured out how to use new hardware capabilities found in microprocessors to ensure a safer architecture against new forms of attacks and threats from unwanted parties.
Tech quietly shapes behaviors
As we begin to understand more about how humans interact with technology, firms have been able to learn from science the ways in which people use computers and communication platforms, and how individuals respond to given stimuli.
A great example of this is Neon Labs, which highlights specific video thumbnails that are most appealing to humans and most likely to compel the audience to engage. This is based on neuroscience research conducted at Carnegie Mellon and Brown Universities.
The Neon team has proven the algorithmic approach to be faster, less expensive, and more accurate than manual selection, significantly lifting click-through rates of videos. This helps Neon’s customers increase engagement with their end users.
An Israeli startup, Commerce Sciences, seeks to boost sales by using behavioral science to better understand shoppers concerns and motives. The firm targets shopper’s behaviors based on their online actions and then works to deliver the best possible experience for each individual user.
The examples above are but a few of the key trends that are enabling increasing effectiveness of enterprises to serve customers better, faster, and more intelligently. These developments are allowing companies to more accurately cater to people’s desires in ways that help increase satisfaction and value from commercial interactions.
And it appears we are just at the beginning of harvesting these benefits.
Disclosure: Lex Machina, SIPX, Neon Labs, Trifacta, and DropThought are XSeed portfolio companies.
Robert Siegel (@robsiegel) is a General Partner at XSeed Capital, with leadership in strategy definition, operational execution, and international sales and marketing for companies of all sizes. He is currently on the faculty at the Stanford Graduate School of Business where he has led primary research and written cases on Google, Box, AngelList, SurveyMonkey, Zuora, Minted, StubHub, Axel Springer, General Electric and Starbucks (La Boulange), amongst others. Prior to XSeed, Robert served in upper management at GE Security, Pixim (acquired by Sony), Weave Innovations (acquired by Kodak), and Intel. Robert has co-authored several articles for California Management Review, and served as lead researcher for Andy Grove’s book Only the Paranoid Survive.