Salesforce faces the prospect of platform clients migrating to Veeva

workers at Foreclosureto co-founder and CEO Marc Benioff, breathed a sigh of relief this week after the enterprise software company released significantly more robust earnings and guidance than analysts had been estimating, prompting praise from Wall Street.

But challenges remain.

Like other cloud software developers whose stock has taken a hit due to rising interest rates, Salesforce is more focused than ever on earnings. This could make it more difficult for the company to develop technologies to counter new threats such as B. the development of a long-standing partner into a competitor.

That’s the dynamic that’s happening Veeva systems, which sells software to life science organizations. Veeva is also on an upswing, with shares up 4% on Thursday after the company’s stronger-than-expected quarterly earnings.

Veeva built its core software on Salesforce’s app development platform, but that will come to an end in 2025. The risk is that other companies building on Salesforce could be inspired to follow Veeva.

“If I were Salesforce, I would actually be concerned about the long-term impact,” said Rishi Jaluria, an analyst at RBC Capital Markets with the equivalent of buying Salesforce and Veeva. Salesforce did not immediately respond to a request for comment.

Jaluria referred to the manufacturer of banking software Danceits CEO, Pierre Naudé, said in 2021 it was the largest company built on Salesforce, after Veeva.

Salesforce and Veeva are closely intertwined. Veeva Founder and CEO Peter Gassner led the Salesforce platform before launching Veeva in 2007. “Peter was an outstanding CEO,” Benioff was quoted as saying in 2017 when the two companies deepened their partnership. Veeva Chairman Gordon Ritter of Emergence Capital invested in Salesforce before backing Veeva.

The agreement between the companies states that Veeva will have to pay Salesforce as Veeva customers use the Salesforce platform — and costs have increased as more people rely on Veeva. In return, Salesforce will not enter Veeva’s specialized, regulated market.

When Veeva was still a startup, that kind of arrangement might have been fine. But it has grown into a profitable public software company with $2 billion in annual revenue and a $28 billion market cap. According to a regulatory filing, Veeva owes approximately $7 million in Salesforce fees in the October quarter.

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 that’s a positive overall for customers,” Gassner said. “It simplifies their landscape.”

Veeva paying Amazon Web Services for hosting functions, will migrate its customer relationship management software to its own Vault platform. It plans to provide tools to help customers move, although they have until September 2030 thanks to a five-year settlement period set out in the agreement.

Veeva will demonstrate its software with Vault at its Commercial Summit conference in Boston in May, Paul Shawah, Veeva’s executive vice president of strategy, said Wednesday when speaking with analysts.

Jaluria said he doesn’t think Salesforce can effectively compete against Veeva after the agreement ends in 2025. Salesforce’s quest for growing profits, which came about as activist investors questioned Salesforce’s balance of growth and margins, couldn’t help it said. “But even before that, Salesforce hasn’t shown us that it’s capable of organically evolving line-of-business clouds.”

Under Benioff, Salesforce fueled much of its growth through acquisitions, and there was a time when Gassner could have ended up back at Salesforce. A Salesforce presentation leaked in 2016 included Veeva on a list of “potential acquisition targets.”

Today that looks unlikely. Gassner instructs Veeva to step down from Salesforce, and on Wednesday Benioff said the Salesforce board has dissolved its mergers and acquisitions committee.

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