Payroll and employee services giant ADP announced an interesting new partnership today, teaming up with on-demand vendor Centive to offer its sales incentive management application to customers of ADP's national accounts division — those with 1000 employees or more.
It's interesting for three reasons: the move reinforces ADP's presence as an on-demand player, it gives a huge boost to Centive, and — most intriguingly — it suggests that ADP likes this kind of partnership with on-demand vendors (it already has a long-standing similar arrangement with Concur for expense management). More on what that means in a moment.
First of all, a bit more color about ADP's on-demand presence. In a sense, of course, ADP is the archetypal on-demand provider, having been founded in 1949 to provide automated business services, initially for payroll processing. Most of those services are provided on what I'll call a 'batch' basis — clients send ADP batches of data for processing — rather than as a true on-demand application in which all functionality is accessed via an Internet browser. But a surprising proportion of ADP's services are offered in that on-demand model, and their share of ADP's $7.8 billion annual revenues is growing.
ADP first started testing browser-based services as early as 1999, and now claims more than 30,000 users of its Internet-based payroll manager, Pay eXpert. But it was the acquisition last year of Employease, one of the on-demand industry's poster children, that really established the company's on-demand credentials, along with the Concur relationship (interestingly, Employease had had a co-branding arrangement with ADP for about a year prior to the acquisition, but there's no sign of Concur or even Centive following a similar trajectory into the ADP mothership). ADP subsequently bought into on-demand talent management with its acquisition of VirtualEdge.
There are no publicly available figures on the total size of ADP's on-demand revenues, but even if they amounted to no more than two percent of overall revenues (probably an under-estimate), that would put them above the $150 million mark. I would estimate them somewhat higher.
Earlier this year, I spoke to Rich Watson, divisional VP and marketing manager in ADP's major account services, the part of the company that deals with midmarket organizations of 50 to 1000 employees. He described adoption of SaaS technology as "a natural evolution" for ADP, and cited SaaS capabilities across a range of offerings for the midmarket, including payroll, human resources (HR) and benefits, self-service portals, time and labor management and expense management. "A good majority of the customer base has moved over to SaaS mode in some way, shape or form," he told me. "It's much easier for us to deliver and for our clients to digest."
For Centive, the ADP partnership is a landmark deal that helps put the vendor on the map in a way that its rivals must envy, as Denis Pombriant remarked earlier today: "There are many fine companies in the incentive compensation market but I would bet that almost any one of them would like to be in Centive's shoes this morning." Centive is one of the larger on-demand players in a market that's rapidly expanding as businesses start to realize how much more flexibility and responsiveness they can achieve when they automate compensation management. Recent marquee customer wins include Salary.com, Adobe and Sterling Commerce. the company's Compel product has more than 15,000 subscribers in total and about 85 customers. The ADP relationship should boost that number significantly — Concur added more than 200 customers as a result of its ADP partnership (albeit targeting a smaller customer size and consequently a numerically larger market).
I think the most interesting takeaway from this announcement is the implication that ADP has decided to run with the OEM partnership as a business model for expanding its SaaS portfolio. I'm intrigued to see where this will lead — does it mean ADP plans to become a 'hub' for employer-related SaaS services from a number of OEM partners, each of them available to appropriate segments of its customer base? The advantage of partnering is that the product development risk is borne by the partner, and of course by partnering under an OEM deal ADP is retaining ownership of its customers. If, in the case of Employease, the product offering turns out to be strategic, ADP can always acquire, having already had plenty of opportunity for due diligence while the partnership was ongoing. But if it's not strategic, then ADP can still cream off its revenue share without having incurred a big development cost. That sounds like a win-win to me.