Posts Tagged ‘Workday’


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.


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.

ERP’s Disruptive Moment

Posted: October 26, 2011 in CRM
Tags: , , , ,

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.


Uber analyst Dennis Howlett over at ZDNet wrote a piece ruminating on the Gartner Symposium and colleague Larry Dignan’s summary of the meeting, “Enterprise IT: Here comes that deer in the headlights look again” that is well worth reading.  Together the articles wonder aloud how much time there is between now and the paradigm shift that will make so much of enterprise computing obsolete and even risky for enterprises to invest in.  Mixing metaphors, another way to put it — how long before the cloud vendors inherit the earth?

Speaking of Dignan’s effort, Howlett writes:

He opens the analysis with:

While Gartner is urging creative destruction, I can’t help but be skeptical. If everyone could re-imagine IT and blow up old systems to delight customers, there would be no losers in the corporate world. As we know, there are plenty of losers and there will be thousands of companies that flop at people-centric system design.

I can imagine similar thoughts coming from many colleagues. How many times have I crapped on the idea of Enterprise 2.0 aka social enterprise?

But in the real world, IBM can’t find enough bodies. Accenture can’t keep up, Deloitte and Capgemini are both very busy. And that’s just in their SAP practices. SAP is about to confound the market with a great Q3. I’m betting Q4 will be a blowout. Oracle got Fusion out the door this month. Who says the incumbents are in trouble?”

Add to this the Workday-Zuora announcement this week from Workday Rising, a user conference, that the two companies would deliver an integrated and cloud based billing, payments and financials solution that will run circles around Oracle and SAP financials in the subscription business and you don’t need Tom Hanks to tell you, “We have a problem.”  Tien Tzuo, CEO of Zuora, did the honors when he said that conventional ERP was dead.

So why the upbeat financial results from the likes of SAP?  To answer this we need to take a small detour to the clouds.  Let’s look at airplanes, specifically the Lockheed Constellation.

The Constellation was/is a gorgeous aircraft with beautifully sculpted lines.  It’s design dates to the post-war period and its heyday was the 1950s.  The Constellation was something of an apex of aeronautical engineering offering speed, range, and the ability to carry lots of passengers.  It also had the most advanced engines in the business at the time — piston engines and those power plants made it the end of the line.  It was the last iteration of piston-propelled aircraft soon to be over taken by jets — the new paradigm.

It is no surprise that SAP posted good numbers in Q3 and, as Howlett says, it will probably do so again.  But SAP and Oracle are building Constellations and the strain in the implementation system he alludes to in referencing IBM, Accenture, Deloitte and the rest, exposes one of the Achilles heels of on premise computing.  It is as damaging as the workload and expense of keeping a piston aircraft flying.  Add to all this the other major deficit exposed by Workday and Zuora and you realize that the dominant positions SAP and Oracle have held are disintegrating.

The on-premise paradigm is effectively over.  It will stick around for a long time but we will only see it shrink.  The businesses with the smart money are getting out of on premise and trying to figure out the models they need to survive as cloud companies.

The paradigm has been under attack for the last ten years but the incumbents have always been able to fend off the competition, mostly because the attacks were one-dimensional.  Incumbents could deal with arguments that cloud solutions were less costly, easier to maintain or better to customize or integrate, but when all that comes together with the complaint that the on-premise solutions were made for a manufacturing rather than a services and subscription market, all bets are off.

Tien Tzuo was right, the on-premise paradigm is effectively dead.  Yes, it will take time to convert and yes, the technology conversion comes with a business model conversion or at the very least a big modification.  It’s also mandatory.  We’re moving into the jet age.