Investments in start-ups have always been one of the key growth strategies of salesforce.com, Inc. CRM. In this regard, the company’s investment arm, Salesforce Ventures, recently announced its decision to invest $100 million specifically in European start-ups.
Over the past few years, Salesforce has invested in several start-ups, be it through acquisitions or partnerships. However, these were mainly focused on the U.S.
According to a report by Tech Crunch, since 2009, Salesforce Ventures has invested about $500 million in over 150 enterprise start-ups. However, only 17 of these were based in Europe, while the rest were from the U.S. Some notable European start-ups that made it to the list are CartoDB, CloudSense, Cloud9 IDE, NewVoiceMedia, Qubit, Universal Avenue and YOUR SL.
With its recent decision to invest in European start-ups, Salesforce Ventures plans to fuel cloud innovation and gain customers in the region. The company also stated that it has already made five investments out of the newly allocated fund, to be announced over the next couple of months.
Why Investing in Europe Makes Sense
For the past couple of years, cloud computing has evolved into a flourishing area in the tech space. The significant opportunity in this area has attracted many companies to build out cloud infrastructure and establish their presence as service providers.
In an interview, John Somorjai, Salesforce’s EVP of Corporate Development and Salesforce Ventures, said that over the past one year Europe has emerged as the fastest adopting cloud services region across its EMEA (Europe-Middle East- and Africa) segment and foresees immense growth opportunities, thereby making it a justified investment. Notably, in fiscal 2015, the company’s revenues from Europe increased 33% year over year and accounted for 18% of the total revenue.
Furthermore, International Data Corp.’s (“IDC”) report on European Public Cloud Services supports Salesforce’s decision as “Europe's public cloud software market will grow almost 12 times faster than other IT segments to reach €33.3 billion by 2019.”
Another reason behind Salesforce’s investment is lesser competition. Analysts believe that start-ups in Europe are relatively lesser overheated than those in the Silicon Valley. So Salesforce can acquire these companies at lesser valuation.
It should be noted that Salesforce is not the only company focusing on this emerging region. Alphabet Inc. GOOGL, previously Google Inc., and Cisco Systems Inc. CSCO are stepping up their venture activity in Europe.
Earlier this month, Cisco increased its investment in France to $226 million from $113 million to boost cloud capabilities. Moreover, last year, Alphabet had announced its plan to form a group of five general partners dedicated to look for investment opportunity in Europe.
Conclusion
Cloud computing has always been about scale, but earlier it was limited to companies expanding their infrastructure to reduce prices and expand capacity. Now, it appears as though cloud computing is entering a new phase where the focus has shifted to product offerings and those with the widest range will be the winner. Therefore, companies are acquiring assets across the world to achieve their long-term goals.
We believe that Salesforce’s sustained focus on expanding business through strategic acquisitions and investments will drive growth over the long run.
Salesforce currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the cloud computing industry is SAP SE SAP which sports a Zacks Rank #1 (Strong Buy).
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