Salesforce faces the prospect of customers leaving the platform after Veeva

Marc Benioff of the United States, Chairman and CEO of Salesforce.com, delivers a speech at the World Economic Forum in Davos, Switzerland, on January 22, 2020.

Fabrice Coverini Agence France-Presse | Getty Images

Salesforce insiders, right down to co-founder and CEO Marc Benioff, can breathe a little easier this week after the business software company reported much stronger earnings and guidance than analysts expected, drawing applause from Wall Street.

But challenges remain.

Like other cloud software developers who’ve seen their stock plummet due to rising interest rates, Salesforce is focused more than ever on profit. That could make it difficult for a company to build technology to address emerging threats, such as the evolution of a long-standing partner into a competitor.

This is the dynamic at play by Veeva Systems, which sells software to life sciences organizations. Veeva is also on the upswing, with shares up 4% Thursday after the company was stronger than expected Quarterly earnings.

Veeva has built its core software on top of Salesforce’s app development platform, but that will end in 2025. The risk is that other companies built on Salesforce may be inspired to follow Veeva.

“If I were Salesforce, I would be concerned about the long-term implications of that,” said Rishi Galloria, an analyst at RBC Capital Markets with equivalent Buy ratings on both Salesforce and Veeva. Salesforce did not immediately respond to a request for comment.

Galloria pointed to banking software maker Ncino, whose CEO, Pierre Noddy, said in 2021 it was the largest Salesforce-built company after Veeva.

Salesforce and Veeva are closely related. Peter Gassner, Founder and CEO of Veeva, ran the Salesforce platform before starting Veeva in 2007. Benioff was “Peter was a superstar CEO.” quoted as saying In 2017, as the two companies deepened their partnership. Veeva President, Gordon Ritter of Emergence Capital, I invested in Salesforce by Veeva Support.

The agreement between the two companies states that Veeva is payment-linked to Salesforce where Veeva’s customers use the Salesforce platform – and Costs have gone up As more people become dependent on Veeva. In contrast, Salesforce will not enter Veeva’s niche and regulated marketplace.

This kind of arrangement might have worked well when Veeva was a startup. But it has grown into a profitable publicly traded software company with annual revenues of $2 billion and a market capitalization of $28 billion. FIFA accumulated about $7 million in fees payable to Salesforce in the October quarter, according to a Regulatory filing.

After Veeva announced the news along with financial results in December, Gassner and other executives spent time answering a variety of questions from analysts about the change during a conference call. “I think this is generally a positive thing for customers,” Gassner said. “It simplifies their landscape.”

Veeva, which pays Amazon Web Services for hosting capabilities, will move its customer relationship management software to its Vault platform. The plan aims to provide tools to help customers transition, though they have until September 2030 thanks to the five-year liquidation period specified in the agreement.

Veeva will be showcasing its software using Vault at the Business Summit in Boston in May, Paul Chua, executive vice president of strategy at Veeva, said on a call Wednesday with analysts.

Galloria said he doesn’t think Salesforce will be able to compete effectively against Veeva after the agreement expires in 2025. Salesforce’s dividend push, which came as activist investors asked questions about the balance of Salesforce’s growth and margins, may not help. He said. “But even before that, Salesforce hadn’t shown us its ability to grow the industrial cloud organically.”

Under Benioff’s leadership, Salesforce fueled much of its growth through acquisitions, and there was a time when Gassner could have returned to Salesforce. Salesforce demo Leaked in 2016 Veeva has been included in its list of “potential acquisition targets”.

Today that seems unlikely. Gassner is directing Veeva to transition from Salesforce, and on Wednesday Benioff said the Salesforce board of directors had dissolved its mergers and acquisitions committee.

He watches: No one expected Salesforce’s 27% margin guide, says Mizuho’s Greg Moskovitz