Cornerstone incubates to make its own platform play

Profile picture for user gonzodaddy By Den Howlett November 18, 2013
Summary:
Cornerstone OnDemand is making a platform play via the medium of an incubation fund. This has the potential to be a very interesting development and one to watch.

Jason Corsello
Jason Corsello - VP Cornerstone OnDemand

Late last week, Cornerstone OnDemand (COD) announced it is establishing what is really a seed fund for startups wanting to build out applications in the talent and learning spaces that leverage COD's technology. This is a very interesting development, in part because no-one else is doing this in a serious way and partly because it is further validation that platform plays hold the potential to act as force multipliers in cloud markets.

From the blurbs:

Cornerstone’s vision is to foster the development of a comprehensive ecosystem of cutting-edge solutions for organizations seeking to differentiate and continuously evolve their talent management strategies. In addition, the fund gives Cornerstone an opportunity to support the burgeoning Los Angeles technology community, as well as other technology communities throughout the world.

Through the fund, Cornerstone anticipates making a few strategic investments each year, with each individual investment ranging from $250 thousand to $1 million in size. All investments will be approved by Cornerstone’s board of directors and will be made alongside select leading venture capital firms.

Cornerstone will also allow young companies to apply for use of a dedicated creative work space within its Santa Monica, Calif. headquarters, giving them direct access to the experience and expertise of the Cornerstone OnDemand team. In addition to supporting external ventures, Cornerstone also plans to use this space to rotate small, cross-functional teams of its own employees to create new applications or feature sets built on the Cornerstone platform, as well as cultivate new company initiatives as it did with its Cornerstone for Salesforce application.

Earlier this week, I caught up with Jason Corsello, VP corporate development and strategy. We've known each other from the days when he was an analyst in this space. When I think about 'good guys' in this industry, Corsello is among that group.

I was curious to discover what's behind the thinking. Since COD went public, the company has amassed $290 million in cash and long term investment funds. That's a lot of money for a company that generated $48.3 million in top line revenue according to its latest quarterly report. However, it is playing in a highly competitive space where competitors like SuccessFactors can lean on the pockets of SAP to crank its marketing message, while Workday enjoys the halo from its founders that carry it into large accounts. Adopting an ecosystem approach to expansion is a smart way to overcome the relative marketing disadvantages and differentiate against vendors that don't have well defined or obvious ecosystem plays of their own.

Four reasons

COD is doing something we rarely see: it is straddling each of the large market segments by size inside the spaces its solutions occupy. It offers solutions for SME businesses all the way up to the likes of Walgreen with strengths in US public sector and healthcare markets. I would like to see the company go aggressively after other verticals because in HR, it is surprising how little attention has been paid to process and practices by the vendor community. A startup play could help to rapidly expand that category in select verticals.

This also positions COD as a platform play, something I believe holds tremendous potential across multiple dimensions. Right now, COD doesn't see the pure developer ecosystem version of this playbook as its top priority. It is focused on expanding capability by tapping into a local market which is turning out more engineers than anywhere else on the US and which are often lost to the LA area because there is a lack of real opportunity. Smart again because COD can act as the amplification megaphone for startups that do well.

COD is putting enough money on the table to make investments meaningful. Corsello told e that the investments the company makes will not be of the VC type many of which don't work out so well for the founders. Again, smart if somewhat risky thinking.

Finally, if the program works out, then COD gets a pipeline of businesses that not only help it grow much faster than is possible as a stand alone play, but also potential opportunities to acquire technology that is already a part of its own codeline. It's the kind of thing that Salesforce has done in the past.

Verdict

COD is allocating enough money to make this ecosystem play economically worthwhile to everyone while getting the benefit of a growth engine that allows it to punch above its already significant weight. It is in a good position to do so for reasons of geography and attractiveness to ISVs catering for all ends of the market. How well this works out remains to be seen but Corsello appeared confident - something one doesn't usually associate with a former analyst who is very publicly putting both his and his company's reputation on the line as a 'good actor' in a space that could benefit from innovation.

This is a story I will be following to assess how customers respond to the offerings that come out over time.

Disclosure: Workday is a premier partner.

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