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Recurring Revenue: Article

Life after Oracle and Dave Duffield's Workday Start-Up!

PeopleSoft founder Dave Duffield's Workday start-up sure has been a quiet little thing. So unlike the mouthy Salesforce.com

For a company born out of a headline-grabbing clash of wills between two industry titans - one practically beloved by his users, the other, well, not so much - a company set up to pioneer the latest disruptive distribution scheme, a model likely to change the face of the software industry forever, and use chi-chi infrastructure like Linux, Java, MySQL and Tomcat, PeopleSoft founder Dave Duffield's Workday start-up sure has been a quiet little thing. So unlike the mouthy Salesforce.com. So when we found out that industry analyst Amy Wohl was going that way we asked her to report back. Here's what she says.

When I first heard (in 2006) that David Duffield, the founder of PeopleSoft, was going to start a SaaS company to build a full-blown ERP portfolio I was excited. I felt that software-as-a-service, a game changer if ever there was one, was finally coming of age now that it was embraced by mainstream, enterprise-oriented, mission-critical software.

Of course, there are contradictions in that statement. SalesForce.com certainly thinks of itself as mainstream, enterprise-oriented, mission-critical software, but perhaps less so in 2006 than now. And Workday, Duffield's new company was not quite so ambitious; the initial goal and current focus is to build ERP software for the mid-market, focusing on companies with 100-600 employees, but it's got enterprise customers already, a year after its first software shipped.

But let's not talk about contradictions, instead let's examine Workday's plans and see how well things are going. I got an update this week from Stan Swete, Workday's CTO, that puts Workday on schedule with its roadmap.

Workday's plan was to provide software services in four areas: Human Capital Management; Resource Management; Financial Management and Revenue Management.

Human Capital Management was scheduled to be available first and went into production last November. It includes modules for organization, lifecycle, compensation and payroll management, and workforce development. Workday is currently using ADP for payroll management, but expects to have its own offering by 2009.

Resource Management includes Supplier Accounts, Expenses, Resource Management, and Procurement. It's scheduled to ship in 2008.

Financial Management includes Financial Accounting and Reporting, Cash Management, Planning and Budgeting, and Management Accounting. The Financial Accounting and Reporting and Cash Management modules are shipping now; other modules are expected to ship next year.

Revenues Management includes Customers Accounts, Orders, Billing, and Revenue Recognition. It's scheduled to ship in 2008.

Workday is currently shipping to about 25 customers, a two-to-one mixture of technology companies and non-technology companies. It's Workday's strategy to target technology and services organizations, especially in food services and professional services. Swete seemed a little surprised that it's seeing a smaller number of bigger deals than it planned, meaning it's returning more money than it thought it would at this point. It already has two larger-than-intended customers, Lifetime Fitness (17,000 employees) and, in the last few days, Chiquita (25,000).

Generally speaking Workday expects to be selling to customers who are new to sophisticated ERP solutions, rather than replacing existing implementations, although it's already replaced Peoplesoft/Oracle at McKee. Of course, it expects to move into replacement mode later on - when customers start finding it pricier to upgrade their old systems than to switch to the SaaS model - just as it expects to garner more enterprise customers. (SaaS is becoming more appealing to larger firms.)

Why, one might ask, is it seeing such early success? Workday and I are in pretty violent agreement here.

· The ERP solutions built by traditional software vendors are expensive to buy, very expensive to implement, and expensive to upgrade (since customizations often have to be entirely rewritten). That makes them not only expensive but inflexible, a barrier to the more agile and dynamic world of the Internet.

· Rewriting a traditional ERP solution to a SaaS platform is tough. ISVs have to address both business model and architectural issues. Efforts often flounder on the unwillingness of ISVs to understand that they're writing an application that might be used by an enterprise (that they'd like to keep on their current, more expensive software) as well as an SMB. Applications are often written to be deliberately less appealing to enterprise customers, shooting them in the foot. Of course, it's a lot easier to write a great SaaS application if you have no existing business model or installed software to consider.

· David Duffield has a great reputation. Many customers are delighted to consider any product he's associated with.

We asked if Workday had to sell SaaS before it could sell Workday. It's clear Workday's experience mirrors what we're seeing elsewhere:

o Prospects are much less concerned about going to SaaS; concerns about security have stopped being the barrier they once were.

o On the other hand, customers are much more concerned about whether they can get enough integration with their data and applications. Workday is confident it can supply these needs.

o Customers are also looking for the ability to use the application's configuration to provide some customization. Modern SaaS applications are designed to provide this.

I think that Workday's presence - and apparent success - in the marketplace are evidence that SaaS is growing up in both maturity and in the size of customer that will find it compelling. One should expect to see more companies join it in the business software marketplace over the next few years.

More Stories By Amy Wohl

Amy is a computer industry analyst who specializes in the commercialization of new technology. She has been observing, writing about, and commenting on the information technology industry for more than 30 years.

Her current specialties her SaaS, Cloud Computing, SOA, and the commercialization of new technologies. Her clients are software companies whom she assists with projects in new technologies, new concepts, and new products. She writes for both her clients and her own blogs and books.

In 2008, Mrs. Wohl published a book on SaaS and Cloud Computing.

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