Sequoia bets on enterprise apps in the cloud

Silicon Valley venture capital firm Sequoia Capital is well known for making smart bets on big opportunities (its track record of mega-exits includes Google, Yahoo!, PayPal and YouTube). So what are we to make of today's news that it has led a $5.6 million series B investment round in SaaS pureplay integrator Appirio? Especially when, as The Industry Standard notes, it's only a few months since Appirio raised a $1.1 million series A round from Salesforce.com and angels.

Sequoia's bet is that Appirio will prove to have been an early mover in bringing the cloud to the enterprise, in the process carving a substantial slice of the $300 billion currently spent each year on traditional on-premise computing solutions. Appirio is a leader in cloud integration in three core ways:

• A strong focus on Google Apps projects alongside Salesforce.com
• Specialization in 'serverless' (ie cloud-to-cloud) projects (more on that below, plus a controversial prediction on Exchange)
• Its combination of 'trusted advisor' professional services with productized on-demand services

The combination of professional services with productized offerings was a key part of the proposition that Sequoia has backed, co-founder Narinder Singh told me on Friday, as opposed to other potential funders that wanted to focus on either one or the other. "The Sequoia investment doesn't change our business model, it just accelerates it," said Singh.

The combination means that in addition to Appirio's current 60+ enterprise customers for its professional services, there are another 1100 using the products. It's effectively a trickle-down of concepts forged in the best-practice foundry of large enterprise and then made available to the masses. Of course this notion of productizing intellectual property has always been the Holy Grail of professional services, but finally it seems the Web is making it possible.

"I do believe that a company like Appirio wasn't possible five years ago," Singh told me. "A company that lives in the cloud and sees a synergy between products and services." Perhaps one of the factors here is that the products are provided as automated services, while the professional services are provided (at least in part) via the Web. So there are more similarities between the two categories than conventional wisdom suggests.

But Appirio has also carved out a fairly unique profile for itself in focusing on Google Apps projects as well as Salesforce.com. It already has over 30 enterprise projects built around Google Apps. More than most of its competitors, the company is truly a cloud integrator in that its core expertise (and indeed its product set) is around making cloud applications work together better. This makes it a leading enabler of the serverless enterprise, ie running businesses entirely on the cloud without any servers installed on-premise at all (I described last year how Appirio runs its own business that way).

"The serverless enterprise is a blueprint for the future," said Singh. "The only thing that's stopping customers from doing this is legacy." Appirio offers expertise in helping those companies break free from their legacy and going serverless. "We've seen enormous interest in the serverless enterprise in companies up to 1000 employees," he said.

Microsoft's email platform Exchange is set to be a victim of that interest, added Singh, even in larger enterprises. Even though most companies start out using Google Apps for collaboration — which at $50 a year per seat is very keenly priced, noted Singh — they often then go on to evaluate whether they really need to continue carrying the cost of Exchange for those users. Worsening economic conditions will only accelerate that trend, he predicted:

"Almost every company has someone looking at what it would take to take out Exchange," said Singh. "Every time someone mentions the R-word, ten more people look at Google Apps."