Workstream prefers virtualization to multi-tenancy
Among the product announcements at last week's HR Technology conference in Chicago was a major relaunch from Nasdaq-listed SaaS vendor Workstream. The unveiling of its flagship TalentCenter 7.0 marks the company's emergence from a period of much behind-the-scenes work. "We really went invisible for the past sixteen months while we reinvented ourselves," senior VP of marketing Gary Damiano told me in a briefing last month. That reinvention includes the hiring at the beginning of this year of Deepak Gupta as CEO (whom grizzled SaaS industry veterans may recall as the former general manager of Peoplesoft's On Demand business unit back in the heyday of the ASP boom). There was also a $20 million infusion of capital led by Workstream's VC backers in July this year, which helped pay off debts incurred making a number of key acquisitions in 2005 and 2006, prior to the reforming of the application suite this year.
The makeover of Workstream's flagship suite (see screenshot below) is not unlike those undertaken by several other SaaS vendors in the human capital management (HCM) arena. There's been an upsurge in confidence among such vendors that the time is right to invest in their products; recruitment, performance management and compensation management are all booming areas in HCM and especially when delivered on-demand.
The vendor's approach to SaaS is somewhat more controversial, although probably more aligned with the worldview of enterprise IT types than a purist SaaS philosophy. Workstream relies heavily on virtualization as a platform for sharing resources in its data center, rather than going all the way to multitenancy. Here's what the company told me when I sought clarification:
"Our solutions are multi-tenancy capable, but with the use of VMWare we have found that in general this is not the preferred option since VMWare has allowed us to (a) obtain a number of the efficiencies of multi tenancy while (b) avoiding the downsides of, and delivering major advantages over, a multi-tenancy environment. Let me elaborate.
- Efficiency gains — VMWare allows us to deliver efficiencies much closer to multi tenancy by allowing for rapid and even automated creation of complete and identical new VM environments, full backups/snapshots of environments, easy upgrades across multiple environments, automated load balancing, etc.
- Avoiding downsides, achieving delivery advantages — Our applications tend to be more complex than a Salesforce.com and often touch/are used by all employees within a company. Moreover, clients have a need for system changes to match key cycles — like their pay for performance cycles. As a result, there is a demand for more tightly controlled, client-unique system changes. We also find that (especially larger) clients often do not like the idea of a shared environment due primarily to concerns over: (a) security and inappropriate data access, (b) impact of other clients on their system performance, (c) inability to establish and pay for their own, higher service levels (common among large companies), (d) being forced into an upgrade, (e) inability to support the level of client specific configurations and even customizations as necessary, (f) inability to obtain client level user acceptance testing, (g) inability to determine the precise production/go live dates for the system. VMWare allows us to address all of these downsides while not imposing the level of costs and problems of a traditional single tenancy/non-VM environment.
"In short, for the largest markets we are focused at — Global 2000 and Education and Government — we are finding that VMWare is providing a nice balance and market advantage by giving us much of the efficiency traditionally found in multi-tenancy, while avoiding major downsides. VMWare also allows us to deliver on-demand solutions to regulated industries like energy and pharmaceuticals and highly secure government agencies with their requirement for operating their talent management solutions behind their sophisticated firewalls.
"Having said all of the above, we have, and will continue to likely use multi-tenancy (with VMs), for the smaller size employers where the advantages, and desires for, single instance deployments are far less strong."
I've quoted this explanation in full because I think it highlights an important quandary for SaaS vendors in the enterprise market. Workstream's software is multi-tenant and delivered as such for smaller organizations, but in order to accommodate the specific needs of larger enterprises, the vendor finds it a lot easier to deliver a single-tenant instance on a virtualized infrastructure. Note that the ability to customize the application is a small part of just one of seven separate reasons for adopting virtualization. The others are to do with security and management of the application in a complex enterprise requirement. Then to add an eighth reason, there's the ability to deploy to VMWare behind the firewall when customer sensitivities prohibit from-the-cloud delivery of the application. At this stage in Workstream's evolution, there really is no strong case that you could make for adopting a purist multi-tenant architecture when virtualization delivers so many advantages. There are still arguments for putting that architecture on its future roadmap, but I'll elaborate on those in a future post rather than pursuing the discussion further today.
Workstream is not exactly the biggest vendor out there — a look at the company's financials reveals that half its revenues come from software-driven services such as recruitment and delivering rewards for incentive programs. Take out professional services revenues too and you're left with only a third coming from licensing — some of which is perpetual (although the vast majority of new sales are on-demand). So Workstream is only a $10m a year SaaS vendor — or $25m if you count the software-driven services, which arguably you should (on the grounds that they round out the completeness of the solution for customers) even though doing so makes the figures less comparable to peers. Still, the company has put a lot into TalentCenter 7.0, which becomes available next month, and should be a launchpad for higher revenues.