This VC says that a shakeout is coming to enterprise software because titans like Oracle and Salesforce have ‘account control’ that no startup can match (CRM, ORCL)

Jai Das, president and managing director of Sapphire Ventures, in a photo from 2018.

The enterprise software industry is likely to be hit with more consolidation in coming years, said Jai Das, the managing director of Sapphire Ventures.
Sapphire specializes in investing in enterprise software startups, and Das knows the industry well.
Something he calls "account control" is going to spur the shakeout, he said, because the bigger, established companies have it, and the nascent ones don't.
Account control is the sway that big firms over their customers, as Das explains it, and it's going to be a major factor.

A shakeout is coming.

That's Jai Das's take on the enterprise software industry.

As the president and a managing director of Sapphire Ventures, an independent spinoff from SAP that focuses on investing in enterprise software startups, he probably has as good a vantage point on the business as anyone else. The firm was an early investor in MuleSoft, and has also backed such companies as Box, Alteryx, and Nutanix, which have all gone public.

Das is still bullish on the industry, and his firm continues to back enterprise software startups. But he thinks there's going to be a winnowing, as the big, established enterprise firms are going to snatch up many of the smaller players, much like Salesforce bought MuleSoft last year and SAP acquired Qualtrics earlier this year.

"A lot of them, I think, they'll go out, they'll be public for while, and then they'll probably end up in one of these big companies," Das told Business Insider on Thursday.

Read this: Oracle CEO Mark Hurd throws shade at SAP's $8 billion Qualtrics acquisition: We don't buy companies 'to just buy them'

The big players have 'account control'

What's likely to spur the shakeout is something Das calls "account control," by which he means the ties between enterprise software companies and their corporate clients. The big players in the industry such as Salesforce and Oracle already have a lot of account control, while the upstarts don't have very much.

Bill McDermott That account control works in favor of those big players, he says. In many cases, their customers are already spending millions of dollars with them. Those corporate customers generally find it easier to just up their spending with the Oracles and Salesforces of the world than to have to create new relationships and pay for subscriptions with lots of new, smaller firms, he said.

"If you're a big account, you kind of go back to the same person. You trust them," Das said. "That's the account control these large companies have, these sales teams. They're very good at that."

And those sales teams are more than happy to sell more services to their corporate clients. In fact, the salesforces at the bigger companies are likely to push them to offer a broader line of products to sell, Das said. That's going to spur many of those big companies to acquire their smaller rivals — so they can add those companies' products and services to their own, he said.

On the flip side, for the upstart enterprise companies, it can take an investment of years and lots of money to establish and build those relationships. Even if they grow large enough to go public and invest in building out their sales teams, very few of them are going to end up as the next large enterprise software firms, he said.

"It's not like all of these companies are going to become the next Workday or ServiceNow," Das said.

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