
Salesforce Buys Heroku (YC W08)  For $212 Million In Cash - gspyrou
http://techcrunch.com/2010/12/08/breaking-salesforce-buys-heroku-for-212-million-in-cash/
======
hopeless
This sounds like stellar news for Heroku employees and investors.

I'm not sure how it's going to be good for Heroku customers (like me) in the
long-term. There will be the inevitable brain drain over the course of
1-2years when key staff move away as their contract clauses run out and then
we'll be left with Heroku being run by SalesForce :(

~~~
notahacker
Gotta agree with this assessment.

I've found deployment to Heroku whilst tinkering with side projects fantastic,
whilst Salesforce is the bane of my life in the day job. And whilst they have
the in-house infrastructure to actually reduce Heroku prices, the Salesforce
focus on the enterprise market hints that they're more likely to raise them.

Congratulations to the Heroku team though. Is it DropBox's turn next?

~~~
samratjp
Yeah, I wouldn't be surprised if Dropbox became the first YC company to hit
IPO.

~~~
mikeryan
I actually would be surprised if Dropbox exited via IPO. I think their
offering fits in with a lot of large companies profiles. Dropbox could easily
fit into a portfolio of Google, Microsoft, even Cisco _.

_ explaining Cisco - Cisco seems to be trying to break into the "Digital Home"
market with things like FlipVideo and some other video services. Dropbox would
make a great cloud storage play for media services.

~~~
samratjp
They are obviously swinging for the fences, especially with Sequoia involved.
It's fair to expect that they would aim for a 9 figure exit. IPO or not.

Interesting case about Cisco. I would've also thrown in Apple because of their
huge war chest and select big acquisitions. Dropbox could easily outdo
MobileMe. Then again, I'm sure Google wouldn't mind getting a GDrive finally.

But then, there's facebook!(Sure, they got Drop.io, but facebook loves
grabbing startups away before Google get to them)

------
plinkplonk
This is great news for Heroku and YC (congratulations folks!). That said, does
anyone have any insights on why exactly SalesForce would buy Heroku? What is
the business rationale?

"This is Salesforce’s fifth acquisition this year. Earlier purchases include
Activa Live, Sitemasher and Jigsaw. Salesforce.com also spent $170 million to
fully acquire its Japanese subsidiary, Salesforce Japan."

Anyone see a pattern? I don't, but then I am not that business savvy.

~~~
swombat
My guess as to why is here:

<http://swombat.com/2010/12/8/salesforce-buys-heroku>

(in short, Salesforce is looking to make a credible entry into the "public IT
cloud provider" sector - much like they signalled with database.com yesterday)

~~~
jaxn
I thought it was interesting that Heroku was specifically mentioned in the
Database.com announcement yesterday. Made me think there was some sort of
deeper integration. I meant to go to Heroku yesterday and see if there was a
database.com plugin. When I saw the announcement today it all made sense.

------
pwim
I'm happy for Heroku that they got such a great deal, but I have to say I'm
disappointed by this. Heroku seemed like they were in a great position to do
amazing things. I thought they had a solid revenue model. I had hoped Heroku
would be the one doing the acquiring.

~~~
dabeeeenster
Say "solid revenue model" to yourself whilst someone is waving $200M in our
face.

------
jacquesm
I can see EngineYard opening a bottle to celebrate as well, $212M in 'mostly
stock' would be landing a big one, to be landing it in _cash_ is very good
indeed.

Congratulations to everybody, especially to the people that brokered the deal
on Herokus side, very impressive.

In other news, registrars the world over report a large uptick in domain
registrations around the twin themes of rails hosting and sushi...

~~~
Raphael
You're saying this establishes the high value of EngineYard, since it is
similar to Heroku?

~~~
chrisaycock
Similarity should establish the P/E ratio.

~~~
arihelgason
Not necessarily. The businesses have been on very different trajectories.

------
wouterinho
Biggest YC exit so far?

~~~
revorad
By an order of magnitude I think because 280 North was the last biggest one
for $20M.

------
webwright
Wow- congrats. Great bunch of founders who totally deserve this. I think this
is the biggest YC exit, no?

~~~
jedc
Yes, based on the spreadsheet I keep:

[https://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l...](https://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l1Vnl5NmZjaTBNQWlJYVozMEE&hl=en#gid=0)

~~~
Lewisham
The funny (as in strange, not haha) thing is when I read that 200ish number,
the first thing that popped into my head was "that seems cheap." I've either
been completely miscalibrated by the supposed GroupOn valuation, or I really
liked Heroku.

Probably both.

~~~
Swannie
I thought "wow, 200M!!". That's a huge value per customer! (Considering how
small most of them are).

And yes, the GroupOn valuation is bubble.

------
Nrsolis
I interviewed with Salesforce and I have to tell you that I found their
culture a bit ....weird. It's something I couldn't put my finger on but I just
had the feeling that they were all in some sort of cult or something.

I didn't get the job. Probably a good thing.

~~~
synnik
We got the same impression when evaluating them for our enterprise. 98% of
their sales pitch made them sound very sharp, and their technology is
impressive.

But that last 2% made us scratch our heads and say, "Really?"

Stuff like telling us that they cannot possibly break our apps when they push
new code to the underlying platforms, that we have no need for backups because
version control will suffice, etc.

These things are probably true for operational needs, but they seemed to not
think deeply about DR or edge cases.

~~~
pmorelli
as part of engineering at sfdc, I promise you we think very deeply about
backups, DR and edge cases, as well as backwards compatibility, and not
breaking your code/apis.

I'd like to think we have a good track record. not perfect, of course, but
don't believe everything the sales dudes say. ;o)

~~~
kingsley_20
Have to second Peter here (hi Peter:). I used to work there, and the only
weird thing for me was that they were slow to get the social web for a bunch
really smart technologists. It's the enterprise DNA I suppose, but that was
the only thing that didn't sit well with me. Otherwise, solid company, great
people.

------
cuchoperl
heroku 94%

pg 6% (early 2008)

\---

$3M Series A (mid 2008) _Assuming_ a $2M pre-money:

heroku 37.6%

pg 2.4%

series A 60%

\---

$10M Series B (2010) _Assuming_ a $5M pre-money:

heroku 12.5%

pg 0.8%

series A 20%

series B 66.6%

\---

$212M Exit:

heroku $26.5M

pg $1.7M

series A $42.4

series B $141.3

\---

result:

series A $3M -> $42.4M // 14X in 2.5 years

series B $10M -> $141M // 14X in 1 year

pg $17K -> $1.7M // 100X in 3 years

All the pre-money valuations are guesstimates/fiction.

~~~
swombat
60% dilution at Series A? I don't think so. Typical is 20-30%, afaik.

~~~
cuchoperl
its a guess. they received Series A in a very early stage, just out of the
oven of YC's (may '08)

~~~
swombat
Even so, giving up percentage is like giving blood. I don't know of any
founder who would ever willingly part with 60% of the company - particularly
if it's doing well! The only people who give up 60% of a company are the poor
guys on dragon's den...

~~~
mlinsey
This, and also competent VC's (and Heroku's VCs are top-notch) don't _want_
much more than a third of the company in a single round, as it makes it far
too difficult for the company to raise capital that it may need in later
rounds.

------
pavs
How did they come up with 212 million valuation? Genuinely interested to know.

~~~
jacquesm
You and lots of other people.

I doubt it was based on Heroku profits so there must be some other major
factor, especially given that this is a cash deal.

It will be very interesting to see how they are going to make all that money
back, it's not exactly pocket change.

------
wccrawford
I really hate it when people to give arbitrary numbers to things like 'Cloud
2'.

It's still just cloud computing. 'Cloud 2' doesn't actually -mean- anything.
It's not a standard. It's not like you can say something is or isn't Cloud 2
by any objective means.

It's marketing speak, and who exactly is he marketing it to? All developers
see right through it and know it doesn't mean anything. All clients only care
that their products work. What tech they're built on doesn't mean a thing.

~~~
jedschmidt
I bet the Heroku guys now know what NASA scientists must feel like; Cloud 2 is
their Dasani.

[http://www.theonion.com/articles/cokesponsored-rover-
finds-e...](http://www.theonion.com/articles/cokesponsored-rover-finds-
evidence-of-dasani-on-ma,1146/)

------
cubicle67
Anyone know what this means for Heroku? I love their service and I'd really
hate to see it depart from what it is.

I'm really happy for the Heroku guys, but I'm also kind of nervous because I
can think of so many ways Salesforce can screw this up.

~~~
dawson
“The next era of cloud computing is social, mobile and real-time. I call it
_Cloud 2_ ,” said Marc Benioff, chairman and CEO, salesforce.com

I don't think we have anything to worry about...

~~~
pavs
I do think we have something to worry about when management type milks terms
like "web 2.0" and now "Cloud 2.0" and "social".

~~~
dawson
I was being sarcastic :)

------
vidar
This should put a hop in the step of all those Heroku-for-Django startups.

~~~
Jgrubb
I thought that was Google App Engine?

~~~
rmc
Google App Engine is similar, but not identical to normal Django.

~~~
Jgrubb
They give you free-ness up to a rather large number of
pageviews/users/whatever, right? Could the process be smoothed to make the
workflow as smooth as Heroku makes it, or do the differences in Google's
infrastructure make that too much of a pain to automate?

~~~
patio11
Pretend Heroku let you use any Rails app with a simple "git push origin
master", as long as your app didn't use ActiveRecord. That proviso breaks
every Rails book and tutorial, most gems/plugins, and many developers. (Heroku
does have a bit of a learning curve: I had to hack the internals of four gems
to get a client project working right. Still, easier than mixing AR.)

------
papertiger
I've honestly never understood why startups want to be acquired (besides the
monetary gain for individual employees). Doesn't acquisition often destroy or
dilute the very successes they've worked so hard to build? (I worked for an
acquisitive company that worsened nearly every product/company it acquired.)
Why not just focus on making your business better?

Heroku will now be subject to all kinds of pressures and asinine ideas that
may not relate to their core offering. As a Heroku user I am concerned and
saddened.

Can anyone offer any perspective? I'm puzzled by the acquisition mindset.

~~~
petercooper
_I've honestly never understood why startups want to be acquired (besides the
monetary gain for individual employees)._

That's like saying one doesn't understand why people play the lottery (besides
the monetary gain from winning).

~~~
papertiger
No, it's not like saying that at all.

Playing or winning the lottery involves nothing but money. An acquisition
involves major changes to an organization's structure, its products or
services, and the lives of all its employees.

EDIT: Removed snarkiness.

------
balac
I'm glad the Heroku guys got a well deserved exit like this. It also makes me
more confident to develop on the platform.

~~~
dawson
Can you explain why, it makes you more confident? (genuinely interested)

~~~
duck
I know for my clients they would just like the name recognition that it
brings. Selling someone on something they are familiar with is a lot easier.

~~~
thibaut_barrere
I second that. Some people I know at companies really consider Ruby to be a
toy. Having the SalesForces name behind it somehow will really be a change
here in my case.

------
maxer
pg hit the home run on this one

~~~
jedc
My back of the envelope calculation over all YC acquisitions so far has them
at ~$12million returned. (Over half of that is from Heroku.) That could
arguably be anywhere from $5-$20million based on your dilution assumptions,
though.

And direct investment costs for 208 startups is <$500k. Even if you add in all
the other costs of running the program, YC is pretty f-ing successful.

 _Then_ you start thinking about the other startups yet to exit (ie, Loopt,
Dropbox) and you see the YC team is truly kicking ass.

~~~
jedc
Damn, I'm an idiot. Make that direct investment costs of 208 startups is
<$5million. (Order of magnitude error; shouldn't have been multitasking when I
wrote the comment!)

Still, YC has still returned (and potentially as much as quadrupled) direct
costs already, without a number of companies still to exit.

------
sdizdar
Very very good news for Heroku employees and investors. I also hope that
Amazon will start bidding war.

However, knowing Salesforce (and fact that they have many very very big
enemies in this business) I'm concern about future of Heroku offering in the
current form. As far as I know, Salesforce is not a hacker company - they
remind me a little of Yahoo! (product managers are running the show). And,
don't get me wrong, in this case, not being a "hacker company" is a good
thing. But, I assume that Heroku will be transformed to be much profitable and
target bigger margin businesses.

------
hristov
It comes out to about $2000 per ap hosted on Heroku. Pretty good considering
most of those aps are probably free. Of course they are hoping for growth, and
Heroku has been adding almost a hundred apps per day.

~~~
smoody
If my "app" on Heroku is counted in that hosted app number, then people must
assign a lot of value to a one page web app that simply states "welcomes to
rails." I suspect there are other apps on the service that compete direectly
with mine.

~~~
erikpukinskis
Your app probably isn't running, so it's not included in their 106,000 number.
They spin down apps every 24 hours, and only start them up when they get a
hit.

------
markbao
Wow, I did not see that coming from Heroku. Congratulations all around!

------
mcxx
If every Heroku employee would get an equal share from the restricted stock,
that means ~ $1M in Salesforce shares per employee. Congrats!

------
balakk
Doesn't Heroku use EC2? Would that change?

------
jacoblyles
Man, the death of the IPO market and the increasing oligopoly in the tech
marketplace is so _depressing_.

~~~
jdavid
The scary thing is that oracle, ms, apple, ibm, or google could still by a
compelling level of salesforce shares on yearly revenue alone.

------
Kilimanjaro
Now database.com makes more sense.

------
stephth
I'm not entirely surprised. Heroku's manual-scale model has shown a strong
focus to sell to the enterprises. The App Engine's auto-scale model (no
expenses if no traffic, but always ready to face peaks) is largely friendlier
to individuals on a budget.

I hope these news will help boost projects like appengine-jruby.

------
wensing
Please let the Heroku folks create an interface for Salesforce that doesn't
feel like enterprise Java.

------
kunley
I hope this will have them a kick to spread into Europe.

For now, as they use only US EC2 regions, it's only possible for many EU-
located users to have a prototype or a toy project on Heroku. Believe me,
those few routers more and pings > 100ms do make a difference.

------
kin
Not that there is any correlation (Heroku's awesome and those guys are simply
great talent) but, RoR start-ups seem to be doing amazing nowadays with Hulu
in high eval, Groupon rumored to reject a $5B deal, Twitter with its momentum,
and now Heroku.

------
smoody
Also, don't forget about potential future value re: their upcoming node.js
support. I suspect that'll be even more popular than their rails service at
some point in the not-to-distant future.

------
jcapote
I just hope some business guy doesn't go in there and "rethink" heroku

------
js4all
Congrats. This is huge.

I hope Heroku's Node.JS beta does not suffer from this.

------
selvan
Wow. What does it mean for Engine Yard & its investors...

------
othello
It's surprising that it comes out of the blue like this. Had there been any
rumor of a coming acquisition in the past few weeks?

------
PanMan
AFAIK Ycombinator invests about 15K for 6%. That 6% would now be 12 million.
That's a 800x ROI. Nice :)

~~~
wouterinho
I imagine YC's share will have been diluted quite a bit, but no doubt it's a
great ROI.

~~~
csomar
It would be intelligent if YC take a non-diluted portion. That is if the
startup raise VC money, the YC % don't get diluted and the founders % get
diluted a little more.

~~~
zx76
I doubt that would fit very well with PG's pro-founder ethos.

------
acconrad
Everyone is happy for Heroku (I'm pretty sure this beats Mint for the
canonical "ideal exit" case), and everyone is scared as a customer (I have no
idea where I would build and alternatively easy-to-use Rails app that was as
cheap).

ffffuuuuuuuu

~~~
steveklabnik
At least you can take heart in Rails being pretty easy to deploy these days.

Granted, getting Heroku level reliability, ease of scaling, etc, but since you
said 'cheap,' I'll assume you weren't using much of that anyway. ;)

------
kondro
Wow. Didn't expect that. Didn't they just do some more capital raising
themselves?

~~~
candre717
I had envisioned Heroku to be a standalone player. It's Paas model was looking
like it would be a game-changer. I didn't think they would sell - at least,
not this soon. I understand cash is king, but this was a company I had hoped
would stand its ground to be something great.

~~~
matwood
I'm also surprised they sold. $212M is nothing to sneeze at, but maybe Heroku
was looking 5 years down the road and not seeing the growth or revenue they
had expected?

It's also certainly possible the investors pressured the sale to get their
money back out of the deal.

------
sixwing
I'm glad that the Heroku team will continue running the company with some
degree of independence. They've done great things for the community, and have
amazing vision for the product's trajectory. Congrats, guys!

------
datsro
will this affect the pricing model for small ruby builds (Free)? I hope not.
As a designer/developer this service has been beneficial to sell Ruby to my
more technical clientele.

------
Jgrubb
Lots of wellwishers in the Heroku IRC channel this morning...

------
rdl
This is great news for everyone in the general cloud infrastructure space too
-- expanding the number of viable potential acquirers for startups.

------
spencerfry
Congrats, guys! We'll see what comes from this.

------
rkwz
What is the significance of this acquisition? Which companies/competitors
(Google, Amazon etc) does it affect?

------
gsivil
Just a question: how much money YC will earn from that?

------
SingAlong
Congrats to the Heroku guys!

P.S: Now what happens to the free app quota?

~~~
ig1
Given AWS just announced a free-tier, I imagine Salesforce will want to keep
the free app quota to remain competitive.

------
chopsueyar
Good work, Heroku!

------
epynonymous
27M USD, 30 employees, this is sweet.

------
kristofer
wow. this is surprising. they are RoR honchos.

------
ivankirigin
fuck yeah!

------
m0wfo
So each Heroku app is valued at about $2000?

------
zackattack
i always thought heroku was the best-designed site i've _ever_ seen

~~~
ph0rque
Sometimes when I'm feeling down I visit <https://api.heroku.com/login> and
enjoy the sunset :~)

