Part 2 – The Permanent Leader Board Change in ERP
When Workday went public a couple of weeks ago, it was if Wall Street and other investors thumbed their collective noses to the old guard of ERP software. Workday’s stock was originally priced to go out between $21-24 per share and was re-adjusted up twice (to $24-26 per share and then to $28 per share). Yet, the stock opened up at $48 per share and has been going past that since.
Cloud is so in now. Even Larry Ellison came around on the issue of multi-tenancy at the latest Open World. He’s now in favor of it but only if companies can deliver multi-tenancy at the database or container level: a capability that (drum roll please) Oracle provides.
Vinnie Mirchandani opined recently in his Deal Architect blog that it’s now half-time in the ERP world.
I think he’s way too optimistic or nostalgic with that assessment. I’d argue that the game for client server ERP is over now. A new game has begun, for cloud ERP, and it has a number of other players in it. Since Vinnie introduced the football metaphor, I’ll carry it (past the goal line) some more.
Vinnie: The team buses for SAP, Oracle, Infor and others must have gotten stuck in traffic and they missed the kickoffs for the cloud ERP games. I’d posit that some vendors are at least 5-10 years behind in traffic. Salesforce.com was launched in 1999. Workday was spawned in 2005. Plex Online was another late 1990s entrant. And, there are NetSuite, Intacct, Xero, a zillion talent management solutions, etc. that all have cloud solutions – the vast majority of which are also multi-tenant. There are also multi-tenant cloud ERP solutions beyond Plex. Companies like Rootstock and Kenandy are coming into the limelight. There are also cloud warehouse management systems (e.g., Deposco, Logfire, and others) and transportation management systems. Bottom line Vinnie: it’s hard to win a game when you’re not even there to participate in the coin toss.
Oracle’s Hurd offered these stats for their Fusion applications. He said that they had over 400 licensed Fusion customers with over 100 live. Of these live customers, 28 were on Fusion HCM. Contrast this with the number of multi-tenant cloud HCM customers that Workday (321 as per their IPO prospectus), Cornerstone OnDemand, SilkRoad and dozens of other HCM companies count. Yes, Oracle’s purchase of Taleo helped their cloud marketing story just as SAP’s acquisition of Success Factors did. But, buying one’s way into innovation isn’t really very inspiring nor is it a talisman of future success in those markets.
Worse, some of these vendors are still trying to mollify existing customers and are diverting their time and R&D budget to products with decidedly short life spans. That’s right - the old client server ERP vendors are spending customer maintenance monies on developing bolt-ons for older client server products. In the auto industry, there are firms that make aftermarket parts for out-of-production automobiles but the automobile makers keep innovating and create all-new cars (not finding ways to make a 1955 DeSoto get better fuel economy).
Vendors need to be focused on the future not the past. Sadly, too many historians are remembering the past glories of their client server ERP firms and directing their firms to burnish the products of yore. It’s really sad to see this level of waste and shareholder value erosion underway. I think Wall Street sees this too, and that’s why Workday’s stock is up so much.
But enough of Vinnie’s football analogy.
Let’s look at who is partnering with whom today. I went to separate briefings by Kenexa and JobVite. Guess who one of their strategic partners is? Workday. ADP is partnering with Workday, too. In fact, there’s a line of firms who want to partner with Workday. Why? Workday and others like them are the future – it’s where the sales and money will be at.
At Oracle Open World, Zach Nelson, CEO of NetSuite (a company that Larry Ellison has a sizeable equity stake in), brought out a Deloitte partner on stage with him. Deloitte is a strategic partner of NetSuite’s. They discussed how NetSuite software is being used by subsidiaries of large enterprises. Cloud solutions like NetSuite are displacing older client server products in all sized firms and are now clawing their way into the largest firms via the subsidiaries. Remember, Salesforce.com was able to bag a lot of large enterprise software deals because they made their solution so easy for any salesperson to use. It was a Trojan horse strategy that other vendors, like NetSuite, are adopting and adapting. And, they’re succeeding with it, too.
Competition in high tech often behaves like termites or carpenter ants. They find little areas of vulnerability in the structure and begin taking out small bites. In high tech, the new entrants start in the peripheral applications (e.g., HR, CRM, office automation, etc.) and gain footholds into the install base of an older, entrenched vendor. Instead of matching the capabilities and technologies of the new entrants, the old guard vendors pour investments into their old products and spread FUD (fear, uncertainty & doubt) about the new entrants. Next, the new entrants broaden their footprint and wage attacks on multiple fronts. Before long, it’s too late for the old, established vendor to react as the competition is all around it and they’ve done too little, too late about it.
This is a common phenomena in high tech and it’s playing out now in the ERP space. NetSuite is going after subsidiaries of big enterprises that use products like SAP and Oracle. Plex is moving into ever larger enterprises with their full cloud ERP suite. Workday is chipping away at large enterprises (and many mid-market firms) often with their HR solutions first and following up with their financial applications. Salesforce is expanding beyond CRM. They’ve entered the HR space and are creating new Marketing applications, too. The client server ERP fortresses are staring down siege engines, trebuchets and more from a wide array of new armies all pitching cloud solutions.
One era is in serious decline and another is in ascendancy. Prepare for a new leader board….
(Continue to Part 3 – The Structural Changes in HR/HC/TM)
full disclosure - I do hold a few shares of Workday. Also, while I took a couple of pokes at Vinnie, he and I are actually long-time friends.