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 really excited. It made me feel that SaaS was finally coming of age, moving to mainstream, enterprise-oriented, and mission critical software.
(Of course, there are lots of contradictions here. SalesForce.com certainly thinks of themselves as mainstream, enterprise-oriented, mission critical software, but perhaps less so in 2006 than today. And Workday, Duffield’s new company was not quite so ambitious; the initial goal and the current focus is to build ERP software for the mid-market (focusing on 100-600 employee companies) [update, I meant 1000-5000 employees], but there are enterprise customers already, a year after the first software shipped.
Let’s not talk about contradictions, but rather examine Workday’s plans and see how well things are going. I got an update this week from Stan Swete, Workday’s CTO, which placed Workday right on schedule for their roadmap.
Workday’s plan was to provide software services in four areas:
(1) Human Capital Management
(2) Resource Management
(3) Financial Management
(4) 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 is 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 is scheduled to ship in 22008.
Workday is currently shipping to about 25 customers, a mixture of technology companies (about two-thirds) and non-technology companies (one-third). It’s Workday’s strategy to target technology and services organizations, especially those in food services and professional services. Swete seemed a little surprised but very pleased to note that they are seeing a smaller number of bigger deals than they had planned. They already have two much larger customers, Lifetime Fitness (17,000 employees) and Chiquita (25,000).
Generally speaking they expect to be selling to customers who are new to sophisticated ERP solutions, rather than replacing existing implementations, but they have already replaced Peoplesoft/Oracle at McKee. Of course, they do expect to move into replacement mode later on, just as they expect to garner more enterprise customers. (SaaS is generally becoming more appealing to larger firms as we’ll talk about in an article on SalesForce.com soon.)
Why, one might ask, are they seeing such early success? Workday and I are in pretty violent agreement on these.
· The ERP solutions built by traditional software vendors are expensive to buy, very expensive to implement, and expensive to upgrade (since customizations must often 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 (whom 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 they could sell Workday. It’s clear Workday’s experience mirrors what we’re seeing elsewhere:
• Prospects are much less concerned about going to SaaS; concerns about security have stopped being the barrier they once were.
• On the other hand, customers are much more concerned about whether they can get enough integration with their data and applications. Workday is confident they can supply these needs.
• Customers are also looking for the ability to use configuration of the application as a way to provide some customization. Modern SaaS applications are designed to provide this.
We still think that Workday’s presence – and success – in the marketplace are evidence that SaaS is growing up in both maturity and in the size of customer who will find it compelling. We expect to see more companies join it in the business software marketplace over the next few years.