Another thing was starting to happen around the same time.  As Oracle and SAP consolidated its hold in the broader Business Applications space, innovation, primarily delivered via software-as-a-service, was starting to become mainstream in HCM.  Demand for talent management applications (I say applications because at that point few vendors had suites) delivered via SaaS was starting to grow rapidly on the edges of core HRMS implementations now dominated by Oracle and SAP (at least for the large enterprise market).  Though Oracle and SAP saw customer interest rise in talent management solutions, they struggled to keep up.  They delivered new functionality, but it was difficult for their installed base to absorb because they needed to upgrade to take advantage of it.  Most customers were conditioned to upgrade infrequently because, in many cases, the projects were large and expensive.  This created a window of opportunity for SaaS vendors like SuccessFactors to grow and prosper.  So, in one sense, this acquisition has the feel of if you cannot beat them, join them.  On the other hand, it is much more.

It is a cliche to say that the pace of change is accelerating.  However, I think it is fair to say that the forces driving change in technology are at the strongest I have seen in my career.  If you think about Cloud Computing, Social, Mobile, and Analytics (including “Big Data”),they are all conspiring to drive a generational shift in computing.  Viewed from this perspective, this acquisition takes on a different light.  SAP is arming itself not only to defend its hard-earned turf, but also to stake its claim to what comes next.  Acquiring SuccessFactors does not solves all of SAP’s cloud challenges nor does it provide it all the arms it will need to win.  However, it is a first step.

So, everything feels different this time too.  We are at the beginning of another era.  The battle is just being joined. Some of the players, like Oracle and SAP, are the same.  New combatants like Salesforce.com, NetSuite, and Workday have emerged to take up the challenge for enterprise application suite supremacy.  However, others will continue to innovate around the edges, especially in HCM.  Some of those will have high growth and the cycle of consolidation will repeat.  Again.  It is the nature of enterprise application software markets.

The focus of the day was on Workday technology.  There was a spirited discussion of the end-user benefits of SaaS (for more information, see here, here, here, and here).  I actually have a little sympathy for Josh Greenbaum’s point of view (see the first link above) as I had posted a thought experiment of how a single tenant provider could offer similar benefits to customers.  My conclusion though is that it is very hard for an existing vendor to move to a single tenant version of SaaS without great upset to its business model.  Only three vendors that I am aware of, Ariba, Concur, and Ultimate Software, have made the transition from an exclusively on-premise, perpetual license model to a primarily externally hosted/subscription license model successfully.  The reality is that every new vendor I have seen for the past 3-4 years has utilized a multi-tenant SaaS model.  So, the argument is really can, and should, the providers of on-premise, perpetual license solutions move to a SaaS model?  At the end of the day, I think you will see most offer both and some will try to transition as best they can to the newer model once it is well-established.

Workday shared a lot about its development model (its development lifecycle to deliver 3 releases per year), its technology (in memory database – with a DBMS for persistence only, model-driven, object-based, with embedded analytics), its scalability (horizontal and vertical as well as performance tuning), and its vision (administrative ERP, device-agnostic, faceted employee search, social capabilities).  We covered a number of these things off in Workday 10 for Human Capital Management Emerging as a Global Alternative (subscription required).

Workday is growing at a rapid pace (bookings growth up 200% and average deal size greater than $1 million – for typically a three year or longer term).  They are looking to double their headcount by the end of 2011.  If our inquiries are any indication (and they often are), interest in Workday has dramatically increased thus far in 2010.  It is hard for Workday not to be on the radar screen of various HCM competitors given its pedigree, but a totally different competitive posture is required when customer adoption starts to accelerate.

Have you had a chance to do a deep dive?  What do you think?  Is Workday ready to take on the ERP and Talent Management Suite providers?

Once upon a time there was a vendor who was a dominant player in business applications.  It had a large installed base.  It had deep functionality.  It helped automate business functions and processes and through that provided significant value to customers.  Then, all of the sudden the market changed and the vendor eventually faded into obscurity.

With all of the chatter on blogs and twitter about the leadership change at SAP, I can forgive you if you thought I was describing SAP (or its future).  I was actually describing Dun and Bradstreet Software (DBS).  If you have been around the business applications world for a long time (I guess I qualify at this point), you will remember this vendor formed through the merger of McCormack and Dodge and MSA in the early 1990s.

What made the wheels fall off for DBS was the emergence of client/server computing.  It had two suites of Mainframe-based Financial and HR solutions (ERP was really just emerging around 1990) and were a large, dominant vendor in the U.S.  There were new players on the scene.  SAP was a European vendor that had had some success selling the ERP notion to global companies with a Mainframe-based product called R/2.  By 1992, it had developed a client/server solution called R/3.  Originally, R/3 had been meant to be a complementary product to R/2 (part of a two-tier ERP strategy), but customers, especially in the U.S., started to embrace it instead of R/2.  In addition, there was a U.S.-based vendor called PeopleSoft that developed a client/server HCM solution that by the mid 90s had started to gain significant traction at the high end of the U.S. market.

Why the history lesson?  History often repeats itself.  Upstart vendors upset the current market order.  It is not a new phenomenon (“The Innovator’s Dilemma” chronicles this well) – new technology and architectures emerge and new vendors emerge to solve the customer challenges with the previous generation of solutions.  SAP solved the quality (single database), velocity (real-time integration), and access to information problem better than previous modular solutions had done (and over a greater scope of functionality).  PeopleSoft solved the user experience and information access issues customers had with mainframe/mini-computer-based solutions.

DBS was not blind to what was going on.  It built its own client server solution – called SmartStream.  However, it took them a long time to respond (and there were other issues with the response).  They had what I call installed base inertia.  When you have a large installed base, it is hard to keep them happy because they value incremental change from their current vendor more than radical change.  It is easier for a newer, specialist vendor to drive the early adoption and help a market to “cross the chasm” in Geoffrey Moore parlance into mainstream growth.  However, when a leading vendor in a previous generation of solutions waits for this to happen, they have to time the market exquisitely with their own competitive offerings.  If done well, a leading vendor can lead the next wave of growth.  If timed poorly (or with the wrong solution), they can be left behind.

That brings us to present day.  In my opinion, the business applications market is coming to another crossroads.  There is new computing paradigm and delivery model that is gaining prominence – Cloud Computing and SaaS.  However, there are some who believe customers have invested so much in their current solutions that they would not consider replacing them.  In addition, the vendors have invested 20 years or more in building out the level of functionality required to support large, global enterprises and that experience cannot easily be replicated.  Both are true. 

However, I have been talking to many customers that already use SaaS add-on solutions and they are questioning why they should continue to pay high maintenance fees, to incur large upgrade costs, and to maintain large support staffs with their current ERP solution (total cost of ownership if you will).  They are questioning the ongoing value (if they are not taking on much of the new functionality and upgrading only every 4 to 6 years) and considering alternatives, specifically SaaS.  Today, it is not the right answer for all clients I speak with, but the market momentum, at least in HCM, is certainly in that direction.

So, where does that leave today’s market leaders?  Are they a victim of their own success?  Will installed base inertia cause them to miss the market window?  The jury is still out.  The good news for SAP and Oracle is that they have next generation solutions in the pipeline, Business ByDesign and Fusion Applications, respectively.  If delivered as promised, few vendors will have the breadth and depth of next generation solutions that they can bring to the table. 

However, what we do not know is whether or not they have the wherewithal to move a new business model required with these new solutions.  In addition, we do not know if they are willing to cannibalize their own installed bases – moving from higher margin (maintenance) customers to somewhat lower margin (SaaS) customers.  The reality is if that is what the market wants, it is better to cannibalize your own installed base than to have a competitor take that installed base away.

The challenge in a nutshell is: do you cling to the past or do you lead the market into the future?  DBS clung to its past too long and delivered too late (and with a solution that did not meet all of the market challenges).  Will Oracle and SAP cling too closely to the past and become the next legacy vendors (at least in business applications) or will they be able to adapt to the changing market and lead into the future?  It is one of the myriad of questions facing the new SAP leadership team  (see Thomas Otter’s take here).  What do you think? 

Plateau has seen an increasing number of customers buy multiple modules (our research has shown the same thing) and an increasing number of existing customers implementing additional modules (including WL Gore, Bio-Rad, Rolls-Royce, and T-Mobile).  There were the usual new product announcements (Talent Gateway – combination of a portal with social networking capabilities and Talent Management Suite – TMS – 6.1 which included a revamped and unified UI as well as enhancements to performance management and reporting/dashboards) and customer awards (finalists included Technip, Port of Seattle, GE Healthcare, Defense Intelligence Agency, Department of Energy, Diebold, and Siemens Global Shared Services).  The Defense Intelligence Agency (DIA) implementation was notable because it is running Plateau as a SaaS solution for all of the defense agencies. 

One of Plateau’s customers, Bio-Rad, gave a keynote presentation about their strategy and vision for integrated talent management.  It was a compelling vision.  It is still on the journey, but they have implemented learning in the US (with plans to take that global).  It is also piloting performance management (mid-year reviews) and compensation management.  They are also doing a global instance consolidation of its core HRMS (Oracle PeopleSoft).

I did not get to spend a lot of time there, but it was valuable to see the interest and commitment of customers to improve talent management.

“An industry has to have more than just one poster child to overhaul the system. One day Salesforce.com will not deliver its growth projections, and its stock price will tumble in a big hurry. Then, the rest of the [SaaS] industry will collapse.”

There are arguably other successful SaaS vendors (especially in HCM as Jason notes).  However, Salesforce.com has been the poster child.  Joshua Greenbaum, who has previously predicted that demise of Salesforce.com, had an interesting post where he discussed Harry’s comments.  He made an important point.  There are other factors at play in the success or demise of Salesforce.com beyond just the SaaS model.  However, he is not a big long-term believer in pure-play SaaS.  Joshua believes the future is a hybrid model (vendors offering the customer a choice of delivery models).

As I have said previously, I believe there is no such thing as a SaaS industry or market.  SaaS is a delivery model that is used in many different software markets.  So, I disagree with Harry on that point.  There is no industry to collapse.  Joshua (as well as Harry) is right though that SaaS is not necessarily the best answer for all software markets.  However, I believe Joshua comes to the wrong conclusion.  I do not think the industry will move to the hybrid model.  I think the industry will continue to have multiple models.  Different markets have different requirements.  Pure SaaS solutions may be appropriate for some and not for others.

There is nothing particularly wrong with multiple models from a customer perspective.  In the HCM software market, I find that that most customers choose the best-fit application first, then they evaluate the delivery model choices.  If SaaS is the only option from the best-fit vendor, then that is usually not an issue for customers.  If the best-fit vendor offers multiple options, then customers choose the best one based on their needs.  Harry’s own experience with Salesforce.com is typical.

“We use Salesforce.com, and I like it. But I would’ve bought the product even if it wasn’t SaaS. The success of Salesforce.com, in my opinion, has to do with their product being good, not because it’s SaaS.”

So, are you with Harry?  Is SaaS over-hyped?  Are you with Joshua?  Is the pure-play SaaS model untenable in the long-term?  I am on the record here and here (Gartner subscription required) as believing that SaaS usage will continue to grow.  What do you think?

Update

I received the following clarification today from Kathy Nottingham at Lawson providing additional color on its position on SaaS:

“While in APAC a couple weeks ago, Harry Debes was interviewed by ZDNet Asia.  He made some bold, broad statements predicting the demise of SaaS which created quite a stir in the analyst/blog world.  Harry stands by the general statement, but here are some points of clarification:

While Harry has strong opinions about the long term viability of SaaS, he and the rest of the Lawson organization are not trying to dictate application delivery options to the market, but rather respond to market demand.  Travis White posted an “opinionizer” article on lawson.com clarifying Lawson’s perspective on SaaS.

http://www.lawson.com/wcw.nsf/pub/Opinionizer

While we have not seen significant market demand for SaaS delivery/deployment options for our general ERP solutions, we have seen interest in SaaS solutions in the HCM space.  Lawson is delivering SaaS HCM solutions to our clients and providing other deployment options as well.  Larry Dunivan provides more Lawson perspective on SaaS in the HCM space in his latest blog posting:

http://perceptivehrtech.com/

Hopefully, these articles provide a more complete perspective on Lawson’s SaaS position.  If you have any questions about Lawson and pricing/delivery options that we offer to our clients, please contact me.

On The Intelligent Enterprise Blog, there is a post entitled “How mature is the SaaS market?”.  The question, in my mind, is missing the point.  There is no such thing as a SaaS market.  SaaS is a delivery model (and business model) that a vendor chooses to use to service customers.  It can be used across many different software markets.  There is a difference in the adoption of SaaS within software markets however.  Even within the HCM space, there is different levels of adoption of SaaS in different segments (e.g., high adoption in Recruitment, low adoption in Time and Attendance).

I do agree with the point about the success of SaaS has largely been around the edges of ERP solutions.  It will be interesting to see if SaaS-delivered can start to displace incumbent ERP solutions in large enterprises.

“It’s very different than SAP’s strategy which is to go after small companies; small companies with their new Business ByDesign, formerly known as A1S product. Now, we see the problem in that because we’ve looked at going down market. We’ve looked very closely at it, and we think it’s very hard to make money because there is no synergy. To go down market you need a new product and new product development teams. You spend a lot of money developing a whole new product for the low end. But you also need an all new sales force because we don’t call on those customers. We don’t call on small businesses, and it’s very expensive to call on small businesses. It’s very expensive to do ERP implementations in small businesses. The cost of sales is high. The cost of implementation is high. There are virtually no synergies in sales, marketing, and product development and support.

So while we think it’s an interesting market — the small market — because it’s large, we just haven’t figured out a way to make a substantial profit in that market. We think it’s hard to make money. Our strategy: add more value, go upstream, sell industry-specific software to our existing customers, and we’ll watch and see how SAP does going after small companies. Especially with in Software as a Service which we think is very interesting, but so far no one has figured out how to make any money at it.”

Does this sound like that he is “saying no to SaaS”?  What do you think? 

• Dan Farber and Larry Dignan describe the announcement from Workday (along with some graphics from the pitch)
• Nicholas Carr weighs in about Workday’s pitch calling it potentially “The End of ERP” much like Salesforce.com pitched “The End of Software”.
• Phil Wainewright does a nice job discussing the implications of Workday’s in-memory database architecture approach and the flexibility it affords over the traditional RDBMS approach employed in ERP solutions.
• David Dobrin does an excellent job of exploring in more detail Workday’s use of in-memory database and walks through an example (this goes in the I wish I had thought of doing that department) of how it can potentially enhance flexibility.  It is well worth the read.
• Dennis Howlett does a great job of explaining why Workday’s approach to Financials is both old and new at the same time.  In addition, he discusses specifically in the context of Financials how Workday’s approach provides additional flexibility.

Gartner published (now archived on Gartner.com) a First Take at this time Workday launched its HCM applications in November 2006 for those interested in our discussion of some of these points.

So which is it?  My experience with HCM applications is that only a small percentage of IT organizations are steadfastly against using SaaS.  They are concerned with security, customization, interfaces, service levels and more.  However, if it is the solution and delivery model that best meets the user needs, then they are supportive of it.  I find IT organizations more concerned with trying to leverage their existing applications and to minimize the number of interfaces they need to maintain.  The resistance is around using “best of breed” applications, not SaaS as a delivery model.

What do you think?  Is SaaS over-hyped?  Will SaaS vendors ultimately displace existing providers of enterprise applications?  Will SaaS vendors and traditional enterprise apps vendors continue to co-exist?