Workday

  • September 18, 2013
  • I started getting rumors last week when a reporter called me to ask about Oracle buying Salesforce.  She was riffing on the announcement over the summer by Larry Ellison, CEO of Oracle, and Marc Benioff, CEO of Salesforce, that the two companies would use some of each other’s technologies and make it easier for customers to use heterogeneous combinations of their products.

    I said, and still believe, that the Securities and Exchange Commission (SEC) in the U.S. or an equivalent body in the Euro-zone would not bless the marriage for the simple reason that Salesforce is both the market leader in CRM and the most significant independent vendor.  Buying Salesforce would leave Oracle, SAP, and Microsoft as the dominant players and because each is more of an ERP vendor than a CRM vendor, I fear — and I think the regulators would too — a slowdown in CRM innovation right when we need it the most.  So I don’t give that rumor much credence.

    Instead, what we got was an announcement today that Workday and Salesforce will develop closer ties to enable their joint customers to more easily use their integrated products.  This will be accomplished by the two companies making their platforms work better together.

    This makes a great deal of sense to me for many reasons.

    Enterprise business software today is less about individual applications than it is about processes and where application boundaries meet, a business process sometimes has to get off the highway and take a dirt road.  It can’t remain like this.  Dirt roads happen when there’s an inelegant handoff of both data and process metadata and too often, the solution of integrating the applications doesn’t do enough to pave the process path.

    At the same time though, vendors routinely put up roadblocks to their systems to preserve their differentiation and to a degree hold customers captive.  The term walled garden has its origins here, I think.  So in agreeing to merge platforms to a greater or lesser degree, these two vendors have, or will, greatly reduce those barriers and effectively provide a kind or pre-integration for their wares.  And since one is all about the front office and the other is back office oriented it looks like an ideal marriage.

    This has been a grail quest for decades going back to COBOL compilers.  COBOL may have been one of only four ANSI certified standard programming languages but that never stopped vendors from offering extensions that locked in customers and more to the point, each vendor had its own proprietary compiler that enforced the differences in the standards.  Get it?

    So making platforms semi-permeable, to borrow a phrase from biology, makes things better for the customer but it also does an interesting thing for the vendors.  In a way it greatly reduces the need to buy companies in an effort to merge software and extend the reach of the underlying merged business processes.  You don’t buy the dirt road, you just pave it.

    Salesforce seems to be taking the lead in using this tactic, which you’d expect from a company in their position — wanting to remain independent while offering the most flexibility to customers living with the reality of heterogeneous systems.  It is another example of the Blue Ocean strategy I keep hammering on because it elevates the discussion to process from application.

    At some point most vendors will need a similar approach, just as most now pay homage to cloud computing after bad mouthing it for years.  But I wonder what will happen in a few years when the software industry comes to resemble the European Union with no tariffs or boarder crossings.  Enterprise software could become one massive plasma of process and data.  What will the differentiators be?  Ideally it will be a further evolution of business services and probably information gleaned from analyzing a very large Big Data pool.  Or not.  I am not the best prognosticator, that’s why I keep watching and writing.

     

    Published: 5 years ago


    Subscription billing and payments pioneer, Zuora, today announced its series E funding.  The tranche of $50 million brings the company’s total capital investments to $132.5 million, much of it spent on sales and marketing.  This convinces me that the hardest thing about being a disruptive technology is the cost of getting the idea into people’s heads.  Salesforce spent a similar amount on sales and marketing while getting going and it’s reasonable to say that this is now the formula.

    The really good news is that all of the company’s original investors have ponied up repeatedly to buttress the company and that includes individuals like Dave Duffield founder and co-CEO of Workday and Marc Benioff, co-founder and CEO of Salesforce.com as well as conventional venture companies like Benchmark Capital, Greylock Partners, Redpoint Ventures, Shasta Ventures, Tenaya Capital.  You could say the smart money is on Zuora in anticipation of an IPO at some undisclosed point in the future.

    All the cash gives the company a cushion that translates as an IPO someday but on its terms, there’s no rush.  And the financial news and prognostications are nice but the underlying fundamentals say even more.  They say that Zuora got it right in 2007 when the company identified the back office of subscription companies as the place most in need of help to make the model work.  Co-founder and CEO Tien Tzuo had an intuitive understanding of the back office having seen first hand what a fast growing subscription company had to deal with each month getting its billing done right.

    At Salesforce, Tzuo was chief strategy officer and, when he recognized the need, he built a sort of version one of what would become Zuora but he didn’t stop with billing at Zuora.  The company now offers solutions for payments, or commerce, and finance but even more than this, it is innovating around the idea that the subscription business model is fundamentally different from the conventional product or service models we’ve lived with since the Medici invented double entry bookkeeping.  Keeping an eye on the business model means the company will be able to innovate around the core idea for a long time and that’s a good thing.

    Zuora makes its mark taking the broad view, which is in part why I like them.  The response from the market and the venture community tells me they’ve struck a nerve and the fact that there are many other companies plying the same waters tells me this is important.

    So, good on you Zuora.  I am looking forward to speaking at their user conference in a couple weeks in San Francisco.  It should be quite a party.

    Published: 5 years ago


    I was hoping to save this idea for either a year-end story or something focusing on the new year but events seem to have a mind of their own.  The story, whenever it would be issued, would go something like this: Enterprises are picking up more cloud computing solutions and as they do there is a willing audience of customers happy to jettison the legacy systems that have increasingly hamstrung them.

    In the last few weeks we’ve seen an increasing number of articles and reports, and I have written about them, that indicate building or built up frustration with enterprise software, especially the legacy on-premise variety.  We all know the drill, legacy software is expensive to buy and costly to maintain.  It cramps your style and it requires legions of people to manage.  And try as we might to remember that business today leverages information to make a buck, information management is for most companies an external thing.  It’s not core to doing the business of making widgets.

    But all those observations by pundits don’t add up to much.  What we need is proof before decision-makers plunk down scarce cash.  We got a bit of that this morning in an article in the Wall Street Journal about venture capital investments.

    According to the piece by Ben Worthen, VC’s are investing heavily in the enterprise cloud application sector and it cites recent investment news from companies like Workday, Zuora and Marketo.  The latest investments in Workday give that company a $2 billion market capitalization according to the article.  Perhaps it’s time to think of an IPO?

    But Workday is far from alone.  Zuora just raised $36 million in its series D round placing its valuation at $300 million up 100% from a year ago.  Marketo recently raised $50 million but I don’t know what that does to the company’s valuation though I could guess.

    Want more proof?  The article goes on to say “In the third quarter, venture capitalists put a total of about $1.2 billion into start-ups that sell business software online, sometimes known as ‘cloud’ companies, nearly double the $758 million they invested in the year-earlier period and 50% more than in any other recent quarter, according to VentureSource.”

    While all this capital is certainly nice for the startups mentioned it also bolsters the trend I alluded to above.  These enterprise cloud companies are the tip of a spear aimed at the heart of legacy enterprise software.  These guys are lean and focused and they have solutions that are better fits and have greater relevancy to today’s world than some of the legacy products that may have been designed during the Reagan administration.

    I think that’s the story.  The preponderance of evidence strongly suggests that after many years of dissatisfaction about the state of legacy software, many companies are about to discover, if they have not already, that they have a new array of options.

    Interestingly, this sea change in the making is not happening in CRM to the same degree and that’s all thanks to cloud computing.  The front office had its change over the last decade when it changed out legacy CRM for the cloud variety.  Given the flexibility of cloud computing and the more iterative way improvements and updates are distributed it will be interesting to see if the front office will ever have a similar change again.  The front office may be entering the same condition.  So let’s speculate in a later piece about what that might mean to the software industry, OK?

    Finally, this kind of activity is a net good for the economy.  As companies reduce their overhead for IT and spend money on new systems they become more competitive and in many cases require less credit for purchases because cloud computing is a pay as you go affair.  Legacy software isn’t going away soon but its advance may have stopped especially if the VC’s intuition is right.

    Published: 7 years ago


    There was a guest post on the Forbes Magazine blog last month that I can’t get out of my head: “For Enterprise IT, Time to Move Beyond SAP.”

    For the record, I am an ERP dilatant — I know about it but don’t follow it with the same passion that I follow CRM. And as far as SAP (NYSE: SAP) is concerned, I have rarely met a bunch of smarter business people who are also rather nice. I have no issues with either, but as an observer of macro trends, this was a surprising article for several reasons.

    First, someone else wrote it. The headline sums up my observations about ERP, but until I read the post by Dave Yarnold, CEO of ServiceMax, I thought I was unique in that line of thought. Glad I am not.

    Second, and more interesting, is Yarnold’s assertion that legacy ERP has been an impediment to business, at least in recent years. That really got me, because I thought that was my mantra.

    Third, it points to the cloud and modern technologies as the emerging solution.

    It all goes quickly to the business model of the 21st century: services on demand. Vendors — at least the smart ones — are looking for ways to convert their product-centric businesses to services for some very good reasons. When you sell a service, like software for example, we all know the customer is liberated from the need to purchase hardware, operating systems, middleware, database and applications. Customers are also liberated from the need to hire high-priced talent to administer and maintain all that technology.

    I hate to sound happy about reducing demand for all those talented people in the middle of a recession (I know it ended a while ago, I’m just waiting to feel it). But that’s what businesses and economies do. If something can be shown to be extraneous to the business’ core mission, you must reduce or eliminate it or you will become uncompetitive as a result.

    It’s not just software that comes as a service either. Some of my favorite examples are the companies that were profiled in The New Yorker about a year ago that provide wardrobe as a service. If you like Gucci bags or designer clothes but can’t afford to own, these companies will provide articles of clothing as a subscription.

    But let’s get back to the impediment for a moment. According to Yarnold, who was speaking about a colleague, “He’s an IT veteran who has been running SAP software since the ’90s, who came to the realization that the efficiencies it afforded them have completely eliminated the creativity, growth and innovative thinking the company once prided itself on.”

    That’s bad enough, but Yarnold goes on, “Companies had to conform their business processes to the way SAP’s rigid software ran. Much of the uniqueness that enabled companies to differentiate themselves was squeezed out in the name of SAP. I can’t even guess at the number of meetings I’ve had with senior company leaders over the years where creative new business ideas were shelved because ‘it didn’t fit into SAP.’ Is it possible that this long-term adherence to the SAP way has in some way been at the root of the lack of creativity, competitiveness or the loss of manufacturing jobs we now bemoan in our economy?”

    I wouldn’t go that far — you can’t lay everything at the feet of SAP, and this analysis does not take into account life before SAP. Companies bought it because it solved a business problem (let’s call it “legacy ERP” because there are other vendors in the space, like Oracle).

    Legacy ERP, like all products you can mention, was designed and built for a particular place in time, specific business needs and processes tied to manufacturing. If legacy ERP no longer meets the need, it’s because business changed. We’re a services economy today, and about 70 percent of GDP is tied to services, not manufacturing. Companies like Zuora go even further and have called the present model “the subscription economy.”

    Subscriptions enable businesses to change more rapidly, and the above-mentioned “creative new business ideas were shelved because ‘it didn’t fit into SAP'” are a reality.

    The subscription economy is real. In this world companies like Workday and Zuora have taken prominent positions, and the marketplace is taking note. This morning, Zuora announced its Series D financing as well as increasing its footprint in Europe. The company raised US$36 million in new funding, including money from Dave Duffield, founder and coCEO of Workday, and Marc Benioff, chairman and CEO of Salesforce.com (NYSE: CRM). Also, in the first three quarters of this year in which Zuora had a presence in Europe, the company announced that it has $2.5 billion in contracted revenue from its early customers.

    Legacy ERP might still control the market, and it may take a long time for the upstarts to gain significant share. A comparison with Salesforce is instructive. Salesforce was a key reason Siebel topped out as a $2 billion company, though it was many years before Salesforce gained the same revenue level. In the same way, the presence of Zuora, Workday and companies like them indicates the high water mark for legacy ERP.

    Legacy ERP is ill-suited to the demands of the subscription economy, and it is comparatively expensive. As the ERP replacement cycle gains steam, no vendor, incumbent or otherwise, should take its position in an account for granted.

    Mark Twain once quipped, “Everyone complains about the weather, but no one does anything about it.” We could say much the same about legacy ERP, but now it appears that there are credible alternatives coming on line.

    Published: 7 years ago


    At Dreamforce Zuora, like many other emerging companies allied with Salesforce.com, decided to hold a user group meeting.  As long as the customers jointly held by Salesforce and Zuora were in town the logic went, why not have them in for a day of education, listening and a pep talk form the boss.

    It was a fine idea.  Customers came to San Francisco a day early to hear Zuora CEO Tien Tzuo tell his audience that conventional ERP would be dead in a matter of a few years.  He used the word dead too.  Such an outrageous statement could have easily been taken as so much hyperbole from a leader who had raised tens of millions in venture funding and showed the world a new way to bill and collect for subscription services, which are increasingly coming to dominate the economy.

    Tzuo’s statement began to look significantly less flamboyant and even on track on Tuesday as he and Workday c0-CEO Dave Duffield announced an alliance between their companies to drive some nails into ERP’s coffin.  Workday financials and Zuora billing and payments is a solution that will help enterprises take the steps they need in order to compete in what Tzuo calls the “subscription economy.”

    Xxx The step requires a big change in business model for many companies as they pivot and begin to sell their output as services rather than products.  Unlike products services can be changed fluctuating according to need.  But until now, there was a limited number of ways that companies could bill and receive payment for their wares and the software — from companies like Oracle and SAP — that supports one time product transactions is not easily turned to billing for subscriptions.

    The drive for demand for subscriptions can be traced to two key events — the social revolution boiling around us and the economic funk we’re in.  Social media like Twitter and Facebook has given people a new understanding of the “power of now.”  We expect instant answers from the connected universe, rapid solutions to problems and just in time information and increasingly we’re expecting that kind of response from our vendors.  If we buy something online we expect to adjust the purchase and amend the conditions of use as often as we need to.  We’re also broke.  As individuals and companies we might be able to afford the monthly payment but not the bolus of cash required to buy things.  Together, these two phenomena are driving the need for subscriptions.

    What’s a company to do?

    The only thing a smart vendor should do is to say, “Sure let’s do business with you the way you want to interact with us.”  Simple right?  That’s where the billing system comes in.  Companies wanting to get into the subscription economy have to deal with balky back office billing, payments and financial systems that don’t make this style of commerce easy.

    Realistically, if you can’t bill and collect for your output you can’t realistically engage with your customer as your customer wants.  Many companies are trying to make their obsolescing billing systems play in this new world but it’s like death by a thousand paper cuts.

    The subscription business model runs on thin margins and relies on automation for everything from selling to service to billing and payments.  If you need to insert human labor into any of this such as to make all the changes and upgrades that people expect today work in your billing system, then you end up running an unprofitable subscription business, and who wants that?

    So that’s the disruptive moment.  Old billing systems and an increasingly restive customer base beginning to move to new and nimble competition all signal a need for a new business model.  The model exists but the software that enterprises now have doesn’t support the new model.

    ERP is ripe for disruption and ironically I’ve heard some of them talk this year about the need to deliver their systems in a SaaS model, but that misses the point.  In addition to using SaaS principles for their technology, ERP vendors need to build product to support SaaS and subscription services.  They aren’t doing a very good job of it and that is why the Workday and Zuora announcement is so important.

    Published: 7 years ago