The On-Demand Diaspora

It was a man-bites-dog story in the summer of 1999. An interesting headline at Red Herring on July 30 read: “Head Count: Salesforce.com gets Larry’s blessing.” Marc Benioff was leaving Oracle to start Salesforce.com, and Larry Ellison was not only giving his blessing, he was going to pony up some capital to get the company running. In exchange, Ellison got a board seat and a bit of controversy when Oracle launched a competing product. However, that’s not the focus of this story.

For a long time, companies like Oracle and HP have been great companies to list on your resume, especially if you intend to be the CEO of your own startup. With credentials like these it is much easier to raise money, and the work experience provides the knowledge you need to avoid some of the pitfalls of life in a new company.

Stories about Oracle alumni starting companies have been around for a long time, and for good reason. The alumni list includes founders or high-level executives at some of the most successful emerging companies in Silicon Valley, including Benioff, Tom Siebel, Zach Nelson, Craig Conway and many more.

The Next Generation

Now, the next generation of alumni is making its way onto the stage: alumni of the companies founded by Oracle expatriates. Numerous Salesforce.com and Siebel alumni are beginning to take their places as founders. Last year, for example, former Salesforce.com Senior Vice President Peter Gassner started Verticals onDemand along with Siebel alumnus Matt Wallach as his vice president of sales and marketing.

For an emerging firm, Salesforce.com has always seen a reasonable flow of executives into and out of the company. It’s necessary in the process of building a business, and a good executive manager will always look to trade up whenever an opening presents itself. Early on, Salesforce.com hired some talented people from larger companies like IBM, Oracle and Siebel. Some of them stayed, while others gave it a year or two and moved on to other challenges. However, things appear to be changing as Salesforce.com executives begin to leave for startups.

The Migration

Since the beginning of the year, Salesforce.com has lost at least two executives to emerging companies. Kendall Collins, former vice president of product marketing at Salesforce.com, became vice president of marketing and general manager at Rearden Commerce. Former Salesforce.com Chief Strategy Officer Tien Tzuo started Zuora, a firm dedicated to providing on-demand billing for SaaS (Software as a Service) companies, with some friends. The founders don’t expect the name to stick and they’re considering others, but it was a convenient place to start.

What’s interesting about Tzuo is that he was one of the pioneers at Salesforce.com — the 11th person to join the company. Tzuo came out of Oracle and Stanford Business School, and had other Silicon Valley experience. Even more than Collins, Tzuo represents the beginning of a diaspora of talented executives from Salesforce.com who, like their predecessors who left Oracle, are now beginning to spread out to start new ventures.

I asked Mike Braun, CEO of Intacct, if the idea of a diaspora is real. Braun has been around the valley and numerous startups, and for a long time he’s run companies, sat on boards and even taught at Stanford’s business school. He said experience in SaaS companies is very valuable right now, and both established companies and venture capital firms are hungry for that experience. “I think 2007 was the tipping point year for SaaS,” Braun told me. “Customers began asking different questions — instead of security and performance, they asked ‘How does it compare to other offerings?'” That’s a sure sign of acceptance, and now the race is on to hire talent.

The New Wrinkle

Actually, I think the on-demand model was proved a while ago, and middle adopters are well into it. The new wrinkle might be that so many new companies take on-demand in stride, and the kinds of applications they are building address business problems that we were barely aware of just a couple of years ago. That’s where Zuora comes in.

Tzuo started noodling on his idea for a company last year and sees great opportunity in providing on-demand billing services to emerging SaaS companies that may not have the infrastructure to do the job to the satisfaction of investors and, ultimately, Wall Street.

Braun supports the idea of billing as a new startup niche. It turns out billing is one of those hard-to-do things that many companies build themselves, though many would prefer to have a standard package. Braun admits that even Intacct built its own billing system.

“If you follow the SaaS model, we (software companies) all begin to look like utilities, and a utility’s most important system is billing because getting all the permutations of products, services and fees right is tough,” Braun pointed out.

Zuora has been functioning since the beginning of the year, and when I caught up with Tzuo, he was preparing for his first board meeting. The company already has a crew of 15 people, a development shop in Beijing, some beta sites and, yes, funding from Benchmark Capital.

Leaving Home

As with Benioff’s departure from Oracle, when the time came, Tzuo received the same blessing from his boss. When asked if he sees any parallels, Tzuo said, “[Benioff] still considers himself a disciple of [Ellison], I consider myself a disciple of [Benioff]. Oracle led the database revolution and Salesforce.com led the on-demand revolution. Maybe we can lead the next revolution.”

Is there a method behind this progression? Perhaps. When asked about it, Tzuo said, “[Benioff] believes that every 10 years or so there is a chance to change the market with brand new enterprise applications.” If you look at a calendar, the birth of on-demand computing can be traced back to that July 1999 headline. It’s now 2008, and change is again all around us.