Amazon and Workday Part Ways on HCM

I missed the news earlier this week that Amazon and Workday called off the implementation of Workday HCM. Apparently this is only coming to light now, even though the project was abandoned more than 18 months ago. How something this big was not leaked earlier is a mystery. 

Phil Wainewright has a thoughtful post on the subject. He writes: 

Questions remain concerning e-commerce giant Amazon's discontinuing of its wholesale deployment of Workday HCM and Payroll, which came to light this week after a report in Business Insider. Workday subsequently published a blog post confirming that the two companies had "mutually agreed to discontinue" the deployment more than a year and a half ago, which was over three years after Amazon first signed up to the deal in October 2016. The deal was announced in February 2017, shortly after Workday announced retail giant Walmart as a customer, a deployment that has since successfully gone live.

On a positive note, the project is ending without litigation. And, according to Workday's blog post, it will continue its partnership with Amazon's AWS for its cloud infrastructure, as well as its implementations with other Amazon subsidiaries, such as Audible, Twitch, and Whole Foods. 

What Happened?  

The Business Insider report, based on an anonymous source, says "the database behind Workday's software didn't scale as planned to fully support Amazon's rapidly growing workforce."

Workday disputes this.  It writes: 

This was not related to the scalability of the Workday system, as we currently support some of the world’s largest organizations, including more than 45% of the Fortune 500 and more than 70% of the top 50 Fortune 500 companies. In addition, more than 70% of our customers are live, including one of our largest customers — a retailer — across its more than 1.5 million global workers.

Workday, rather, writes that the project failure has to do with Amazon having a "unique set of needs that are different from what we're delivering for our broader customer base." It also writes, "At times...customers have a unique set of needs that are different from what we’re delivering for our broader customer base, as was the case with Amazon — one of the most unique and dynamic companies in the world."  

How Do I See It? 

All I can do here is read between the lines. 

First, I don't think the Business Insider's claim of a Workday scalability problem is credible. Workday doesn't name its large retail customer, but no doubt it is Walmart. In 2020, Amazon had about 1.3 million employees, while Walmart had about 2.3 million. So, as my late business partner used to say, there is "an existence proof" for Workday being able to scale to support enterprises with multi-million employee counts. 

Then, what about Workday's claim that Amazon had some unique requirements that are different from what Workday provides for the rest of its customers? 

This has a ring of truth to it.  Amazon is unique in many ways, and it would not be surprising if this extends to how it hires, retains, and manages its workforce. As a SaaS provider, Workday cannot afford to customize its core architecture and process to accommodate a single customer, even one as large as Amazon. It is commendable that Workday was willing to walk away from a large opportunity like this rather than compromise its core architecture. 

On a much smaller scale, Plex (a cloud manufacturing ERP provider), in its early years, used to make customer-specific customizations to its core multi-tenant code base. Later, it paid the price to move those customers off those customizations and back to its common core. To my knowledge, it is still trying to do so. Workday is not about to make that mistake. (Interestingly, Plex itself is a Workday client and partner.)

What Happens Next? 

Workday writes that it and Amazon may revisit the HCM deployment in the future. But for now the project has been discontinued. This leaves Amazon on its legacy Oracle PeopleSoft HCM system.  

This is where the plot thickens. There is no love lost between Amazon and Oracle. With its Redshift offering, Amazon looks to shift Oracle customers away to Amazon's data warehouse. Oracle, in turn, looks to compete with Amazon with its own cloud infrastructure offering. Naturally, Amazon has been working to disentangle itself from any use of Oracle products in its internal operations. Having to remain on PeopleSoft has to stick in the craw of Jeff Bezos. This might explain why the project may be revisited in the future. 

There are not many HCM options for enterprises the size of Amazon.  PeopleSoft is a legacy platform, with Oracle's HCM Cloud as its successor. But Amazon is not likely to increase its dependence on Oracle. Workday is the obvious alternative, which is why, despite the project failure, it still might be "revisited. 

So, is SAP an option?

Enterprise Buyers Not Looking for a One-Stop Shop

There's been an interesting discussion on Twitter over the past few days, which I started with this deliberately ambiguous tweet. 

IMO, very few enterprise buyers are really looking for a "one-stop shop." 

As intended, that brought out replies from several friends and associates, such as Vijay Vijayasankar, Oliver Marks, Holger Mueller, Jody Lemoine, Shane Bryan, John Appleby, and others. 

So, what did I learn from the dialog? 

First, I was thinking back to client meetings I've sat through over the decades, where business leaders positioned "one-stop shop" as a key element of their desired strategy. 

In other words, in the market we serve, customers are typically looking for 10 things.  But today, we only offer seven. If we can offer all 10 things, we can become a one-stop shop! Customers will not have to go anywhere else but will have the convenience of having us satisfy all their needs. 

In enterprise software, this might translate to an ERP system vendor attempting to offer a CRM system or supply chain management suite, or product data management, or a host of other complementary products. Invariable, because these systems take years to develop from scratch, in practice this means acquiring those complementary products. It may also mean offering other elements of a complete solution, such as a development platform, tooling, system integration services, even databases or hardware. 

I don't know if Oracle ever used the term "one-stop shop," but it certainly behaved as if it had. It has been on a multi-decade acquisition spree, not only in business applications, but also in databases (its roots), infrastructure software (BEA), even hardware (Sun). To be fair, it also plowed profits from those products into new development, such as for its Fusion cloud applications. And it is now competing with Amazon for cloud infrastructure services. It is a poster child for the one-stop shop. 

SAP has had its own version of the one-stop shop, acquiring a variety of systems (Holger calls some of them the seven sisters). It also built its own proprietary database, and it also has its own development tooling. 

What About One Throat to Choke? 

One can imagine why such a strategy might be attractive to technology sellers.  But is it attractive to technology buyers? 

I say, no.  In decades of consulting, I don't think I've ever heard a client say, I just wish I could buy everything I need from a single vendor. What I need is a one-stop shop. 

But isn't a one-stop shop the same as "one throat to choke?" I say no. One throat to choke means that in a system implementation, for example, there is a prime contractor or service provider ultimately responsible for delivery. If another partner in the deal is not meeting its commitments, the prime contractor or service provider serving as overall program manager is responsible.  It doesn't mean that there is only one service provider or vendor in the deal. 

What About Integrated Suites? 

Holger asked, "Are you saying that [integrated] suites are done?" Not at all. But I have two responses to this. First, many integrated suites are anything but.  Especially if, as noted above, the vendor built its suite from piece parts that it acquired over time. It takes years to integrate software acquired from various sources. So, buying from a vendor attempting to be a one-stop shop does not ensure you are really getting an integrated suite. 

Second, I have seen very few large deals where there was only a single software provider in the deal. There are almost always complementary products whether they be for sales tax reporting, factory data collection, data analytics, or countless other niche requirements. 

Third, no IT organization's application portfolio only has software from a single vendor, not even a handful of vendors. Even small companies buy software from dozens of vendors. There is no one-stop shop in enterprise software. 

What About Application Rationalization? 

But what about vendor consolidation? Maybe one vendor isn't reasonable, but isn't it a good idea to limit the number of software providers and rationalize the applications portfolio?  Certainly, many companies need to consolidate applications, especially if they grew through mergers and acquisitions and now have two, three, or more ERP systems, for example. 

But that does not mean they need to only buy from one vendor. 

Vendors love to talk about vendor consolidation, as long as the surviving vendor is them. They call this gaining in their "share of wallet," as in the buyer's wallet. 

In my view, when it comes to vendor consolidation you can have too many vendors and you can also have too few. You don't want to have so many vendors that you have redundant types of systems. On the other hand, you don't want to have too few vendors to the point that they gain leverage over you.  

To this point, I've heard of customers engaging in multi-year programs specifically to reduce dependence on certain Tier I vendors, as they become too powerful and attempt to engage in wallet fracking, as my friend Brian Sommer calls it. 

Is there a way to have the benefits of integration and applications rationalization without becoming overly reliant on a single vendor?  I think there is.  Modern cloud systems have become API-oriented. And to be fair, the major vendors, even those aspiring to a greater share of wallet, are building with this model. They have to, if they want market acceptance. Cloud leaders, such as Salesforce, do it by providing a platform that partners can write to, even leveraging Salesforce objects, to provide that integration. Oracle's NetSuite offers a similar capability. Cloud ERP vendors, like Acumatica, Plex, and Sage Intacct are very integration-friendly. Oracle's cloud applications and SAP's offer open APIs, as does Workday. Microsoft has similar capabilities. 

If this is the future, then maybe vendors will give up the strategy of the one-stop shop. 

Workday’s Goal: Tier I Cloud ERP

Aneel Bushri, Co-Founder, Workday

Mention Workday to anyone involved with enterprise applications, and the first response will probably be something about cloud-based HR systems. A few might also mention accounting systems.

It is becoming increasingly apparent, however, that Workday’s ambitions go beyond human capital management (HCM) and financial management systems. From briefings at a recent Workday analyst summit, I conclude that Workday intends to become the first Tier I cloud ERP provider.

What is Tier I ERP?

The term “Tier I ERP” has been bandied about for many years. It is generally understood to refer to the largest ERP vendors that are able to serve the largest and most complex global businesses. Fifteen years ago, there were several players that could arguably be members of that club. But because of industry consolidation only two vendors remain that fit that definition: SAP and Oracle.

I am convinced that Workday wants to join that club, and it wants to join it as a cloud-only provider. SAP and Oracle may be moving as fast as they can to cloud ERP, but they will forever be, at the most, hybrid providers—offering both on-premises and cloud versions of their systems. Workday, in contrast, intends to be the first Tier I cloud-only provider.

Evidence of Workday’s Ambition

There are several things that point to Workday's objective.

• Tier I customers. Unlike NetSuite, which leads the cloud ERP market in terms of number of customers, Workday from its very beginning has been targeting large companies. I noted this way back in 2008 with Workday's wins at Flextronics and Chiquita. Since then, it hasn't stopped, signing one Fortune 500 customer after another. For example, in 2013, it won HP, with 300,000 employees in 111 countries. This year it closed Bank of America, which is now Workday's largest customer. Moreover, its big company wins are not limited the US. For example, Workday recently sold Nissan and Sony in Japan and Philips in the Netherlands. Our most recent research at Computer Economics shows that Workday's typical customer is so large that it stands head and shoulders above all other cloud ERP providers.
   
• Tier I functionality. The functionality of Workday's HCM is now approaching that of Oracle and SAP, as it builds out its global footprint. It currently claims customers live in 177 countries, with 27 offices worldwide. Translations are provided for 25 languages. Outside of the US, it still relies on payroll partners, but it is building out its own payroll for the UK and France. Its Financial Management product has now reached 100 customers. It just announced a new embedded financial reporting capability (Composite Reporting) that promises to do away with a whole host of spreadsheets and data warehouse reports that large companies typically rely upon. 
   
• Tier I cloud platform. Workday has also been building out its cloud platform into one that can handle the demands of the world's largest enterprises. It is moving its infrastructure to OpenStack, a set of open source components and architecture for software-defined data centers. This makes Workday's platform less proprietary than it has been in the past. Moreover, large companies need assurances of system availability and reliability. Therefore, like leading consumer Internet services, Workday is building its platform to quickly detect and recover from failure in any infrastructure component. Taking a page from Netflix, it will soon be randomly turning off components in the production environment as a way of ensuring its ability to recover. Phil Wainewright has more on the latest developments with Workday's infrastructure. 

Some observers view Workday as less than an ERP provider, as it only provides HCM and financial management systems. But they ignore the fact that Workday has already moved beyond these functions. It already provides purchasing, expense management, and project management functionality. It also includes embedded business intelligence capabilities that embrace data inside and outside of Workday. In one sector in particular--Higher Education--it has already pushed into operational systems, with its launch of Workday Student.

Can other functional areas be far behind? Workday's CEO Aneel Bushri made a telling comment at the end of the analyst summit, "Financials are the door to everything else," he said. "After you see us land large financial deals, you will see us moving into other areas: maybe healthcare, which is mostly workflow, plus patient accounting and billing. Layer on top of that strong analytics. It might be a year or two from now, but not five years out. But right now, we can't spread ourselves too thin."

This mimics the evolution of most other ERP providers over the past two to three decades. SAP, Oracle, and many others started as accounting systems. Once they were in the door, they then became the natural choice for expanding into operational systems in other functional areas.

Avoiding Side Streets

At this point, Workday has no lack of opportunities. In fact, one of the problems it faces is that there are simply too many good ideas that it could pursue. But if I am right that Workday's goal is to be the first Tier I cloud ERP provider, it cannot afford to take its eye off the ball.

Here are some of the ideas where Workday is saying no:

• Platform as a service (PaaS). Most of the leading enterprise SaaS vendors also offer a platform for their customers to extend the vendor's system or to build their own complete standalone systems. Salesforce.com with its Salesforce1 platform is the prime example. In its recent user conference, Oracle CTO Larry Ellison criticized Workday for its lack of a PaaS.
  
  But Workday is taking another path. First, most user development is for reporting, and Workday excels in its embedded business intelligence capabilities. Second, its applications are highly configurable, which diminish the need for customizations. Finally, where customers truly need to do new development, Workday offers an "integration cloud" to allow customers to build applications on other platforms, such as Salesforce1, and have them interoperate with Workday.  With a number of other good platforms offered by other providers, it is difficult to see the drawbacks to Workday's approach here.
   
• Commercializing Workday's cloud platform. As noted earlier, the capabilities of Workday's cloud platform are approaching those of large consumer cloud platforms, such as Google's or Amazon's. It is robust, scalable, and fault-tolerant. It is difficult to think of another enterprise software provider that can accommodate the number of simultaneous users in a multi-tenant environment and a single application code line. After Workday's briefing update on its technical architecture, I asked, "At what point do you commercialize this platform?" By this I mean, either to allow other SaaS providers to build on a separate instance of Workday's platform, or to license the platform for them to build upon and operate themselves. The short answer was, never say never, but Workday would rather focus on building applications.
   
• Manufacturing industry functionality. Manufacturing companies represent the largest industry sector worldwide. Nevertheless, Workday executives are adamant that--at least at this time--they do not plan to develop manufacturing business systems. In part, this may reflect the founders' experience at PeopleSoft, where their attempt to gain market share in manufacturing never gained traction. Way back in 2003, I wrote a post, PeopleSoft Is Tired of Being the Best Kept Secret in Supply Chain Management, which highlighted just how good PeopleSoft was in manufacturing and supply chain. But PeopleSoft never broke through in a big way.
  
  The other reason, I believe, is that manufacturing is simply a bridge too far from where Workday is today. Most of Workday's target markets today have one thing in common: they are sectors where people are the dominant costs--Financial Services; Professional and Business Services; Higher Education, Software and Internet Services; Government and Non-Profit; Healthcare; and Hospitality. These industries are best for leveraging Workday's roots as an HCM system provider. Workday could change course at any time, but right now, the leadership team feels that chasing product-based businesses would be a distraction.

Strategy is all about choices: deciding what not to do is as important as choosing a goal. Workday has no lack of those offering free advice--worth every penny!--and I've given my share in the past. Its leadership team is to be commended for keeping its focus.

What's Next?

If Workday's goal is to become the first Tier I cloud ERP provider, expect to see Workday begin to build out functionality to more fully serve its target industries, like it is doing with Workday Student in the higher education vertical. I'm speculating here, but it might mean merchandising systems for retail or revenue cycle management for healthcare.

Will Workday make major acquisitions to fill out its industry solutions? I don't think so. Its  acquisitions to date have mostly been for technology (e.g. Cape Clear) or what I would call capabilities (e.g. Identified). Any acquisition of business applications would need to be rewritten for Workday's platform, and I sense that Workday would rather start with a clean slate in developing new functionality. Workday's approach also allows it to build upon a single object model for each key entity, such as "person," rather than interfacing entities between acquired software. Workday's approach is another point of contrast with SAP and Oracle, which have built up their cloud portfolios largely through acquisition of disparate vendors and are now facing the challenge of integration.

There is another contrast with SAP and Oracle. Workday has a tremendous advantage in that all its customers are on the latest version. Its architecture with a single code base ensures it will never have legacy customers to support--another demand on a vendor's resources.

The Tier I ERP club today only has two members. But a third member may be joining sooner than we think.

Related Posts

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A Guide for Cloud ERP Buyers

In working with clients over the last decade, I've watched as cloud ERP vendors have been steadily encroaching on the territory of traditional ERP providers. As a result, ERP selection projects today are more and more becoming evaluations of cloud ERP providers.

However, buyers need to realize not all ERP systems that are labeled “cloud” are the same. To help buyers better understand these differences, I've just completed a new report for my research firm, Computer Economics, entitled Understanding Cloud ERP Buyers and Providers, based on my experience in selection deals as well as extensive analysis of vendor offerings over the years.

Figure 2 from that report sums up the differences:

In brief:

• Cloud-Only Providers: These are the “born-in-the-cloud” ERP vendors that do not have an on-premises offering and include such companies as NetSuite, Plex, Workday, Rootstock, Kenandy, FinancialForce, Intacct, and several others. These tend to be newer, smaller vendors (although Workday and NetSuite are each in the range of $500 million in annual revenue). Because cloud-only vendors have a single deployment option, they each can focus their entire business—from product development to sales to implementation and ongoing support—on the cloud. As a result, they make fewer compromises and tend to deliver the maximum benefits of cloud solutions in speed, agility, and scalability.
   
• Traditional ERP Vendors: These are larger, more established providers such as SAP, Oracle, Infor, Microsoft, and a number of others. They are growing more slowly than cloud-only providers. They have more complex businesses as they have to support their on-premises customers as well as their hosted or cloud customers. Because they have developed their solutions over many years or even decades, their functional footprint tends to be more complete than those of cloud-only providers.

There is much more in our analysis of the cloud ERP market, which describes these two major categories of cloud ERP providers in more detail. In addition, the report also segments cloud ERP buyers into two categories: first-time buyers looking for their first ERP systems and established companies replacing their legacy systems. As it turns out, generally speaking, these two categories of buyers have different pain points and different criteria driving their decision-making. 

At this stage of cloud ERP market maturity, each of these provider categories has its advantages and disadvantages, and there is no one right answer for a given buyer. Organizations considering cloud ERP need to carefully consider their requirements, their choices, and what tradeoffs they are willing to make. We, therefore, conclude with recommendations for buyers looking at cloud ERP. We also have some advice for providers that seek to serve these two types of buyers.

As a practical aid to buyers, the full report includes two lengthy appendices, which provide profiles of the key ERP vendors of hosted and cloud solutions today, along with an assessment of their market presence. Cloud-only ERP providers profiled include Acumatica, AscentERP, FinancialForce, Intacct, Kenandy, NetSuite, Plex Systems, Rootstock, and Workday. Traditional ERP providers with cloud/hosted solutions include Epicor, IFS, Infor, Microsoft Dynamics, Oracle, QAD, Sage, SAP, Syspro, and UNIT4.

Related posts

The Cloud ERP Land Rush
Computer Economics: Choosing Between Cloud and Hosted ERP, and Why It Matters

The Cloud ERP Land Rush

Oklahoma Land Rush

For those unfamiliar with US history, in 1889 the US government opened unoccupied lands in Oklahoma to settlement. Settlers could claim up to 160 acres, live on and improve the land, and then legally obtain title to it. Such an opportunity led to a land rush, in which thousands of settlers raced into Oklahoma to make their claims.

Today, cloud ERP is like Oklahoma in 1889, mostly unoccupied land, and there is a race as cloud vendors rush in. NetSuite and Plex were two early settlers. Today NetSuite has more acreage (number of customers), while Plex has fewer acres but more development of those acres (functionality)--at least in manufacturing. Cloud-only providers such as Rootstock, Kenandy, AscentERP, Acumatica, Intacct, and SAP (ByDesign) are also in the race. Traditional providers such as Microsoft Dynamics, Infor, Epicor, Oracle, UNIT4, and QAD have also entered the land rush, although they are moving more slowly, as they need to pull wagons full of their traditional on-premises software along with them.

In the larger suite of enterprise applications, such as CRM and HCM, the land rush is further along.  Salesforce for CRM and Workday for HCM have already staked out large claims and are rapidly developing them. But Microsoft with Dynamics CRM, SAP with SuccessFactors, and Oracle with its Fusion HCM are also adding to their acreage. Core ERP functionality, on the other hand, is earlier in the land rush. There is still a lot of open territory with a lot of unclaimed land.

FinancialForce Staking Its Claim

One provider that is clearly in the land rush is FinancialForce, which today announced new branding to signal its claim in cloud ERP.

The company is now referring to its suite of enterprise applications as FinancialForce ERP. The new branding is necessary because FinancialForce long ago ceased to be a provider only of financial management systems.

FinancialForce previously added professional services automation to its portfolio and late last year acquired Less Software, which provides inventory management and order. Vana Workforce is another acquisition from last year, which adds human capital management (HCM) functionality.  FinancialForce also added its own functionality in areas outside of financials, such as advanced quoting and revenue recognition. With this broader footprint, FinancialForce now qualifies as a cloud ERP provider.

Building on the Salesforce.com platform, FinancialForce has direct integration to the Salesforce cloud applications as well as to all of the other providers in Salesforce's AppExchange marketplace. The recent evolution of this platform to Salesforce1 gives FinancialForce additional capabilities for building out its mobile deployment options.

How many acres will FinancialForce claim? The signs are hopeful. The company is reporting strong results: 80% growth in its revenue run rate, and 62% growth in headcount year-over-year, bringing it to over 260 employees globally.  FinancialForce now has customers in 27 countries with users in 45 nations worldwide. By all accounts, the company is on a strong growth trajectory.

Plenty of Land for Everyone

The economic and strategic benefits of cloud computing accrue to end-user organization that completely or at least largely eliminate their on-premises IT infrastructure.  Our research at Computer Economics shows that cloud user companies save more than 15% in terms of their total IT spending, and the money that they do spend goes more toward innovation and less towards on-going support. But it is difficult to move away from on-premises infrastructure if an organization's core ERP system is still on-premises. Therefore, the move to cloud ERP is essential if organizations are to fully realize the benefits of cloud computing. You can move your CRM and HCM systems to the cloud--but if you are still running on-premises ERP, you still have one large foot stuck in the old paradigm.

In my view, there does not need to be one clear winner in cloud ERP. Just as there were dozens of on-premises ERP vendors in the 1990s, especially when sliced by industry sector, there is plenty of room for many more cloud ERP providers. There is plenty of land for everyone.

Related Posts

Computer Economics: Cloud Users Spend Less, Spend Smarter on IT
Four Cloud ERP Providers on the Salesforce Platform
NetSuite Manufacturing Moves on Down the Highway
Kenandy: A New Cloud ERP Provider Emerges from Stealth Mode
The Simplicity and Agility of Zero-Upgrades in Cloud ERP (Plex)
Plex Online: Pure SaaS for Manufacturing
Computer Economics: Cloud Players Storm the Gates of ERP
Key success factor for SaaS suites: functional parity

Plex's Growth Strategy: Glass Half Full

Those interested in cloud ERP know that Plex was the first provider to offer a cloud-only manufacturing system. Yet Plex has had nowhere near the growth of other cloud enterprise system providers, such as NetSuite. SAP receives a lot of criticism for only having sold 1,000 or so customers its Business ByDesign system--but ByD has only been in general distribution for three or four years. Yet Plex, which launched its cloud offering over 10 years ago, has fewer than 500 customers.What's wrong with this picture?

Last year, encouraged by Plex's new private equity owners, CEO Jason Blessing and his management team formulated a growth strategy, which they presented at the Plex user conference. Afterwards, I outlined what I thought Plex needed to do to execute on it.

Following up now half a year later, Jason circled back to give me another briefing, and it was a good opportunity also to see what progress Plex was making. Here is my take: 

1. Management changes are part of the growth plan. Plex this week announced the appointment of Don Clarke as its new CFO. He appears to be a great candidate for the job. He comes most recently from Eloqua, a leading marketing cloud vendor, where he oversaw Eloqua's growth to nearly $100M in annual revenue, its initial public offering, and its eventual sale to Oracle last year, which put Clarke out of a job.
   
   I joked with Jason that Oracle's acquisition strategy has been serving Plex well in terms of recruiting, as several of Plex's top management team have come from companies that Oracle acquired: Heidi Melin, Plex's CMO, also came from Eloqua, Karl Ederle, VP of Product Management spent time at Taleo, which Oracle acquired in April 2012, and Jason himself came from Taleo.
   
   If Plex's growth strategy is successful, there is likely to be an IPO in Plex's future. Clarke's experience in taking Eloqua public will serve Plex well.
    
2. Plex added 59 new customers in 2013, bringing its customer count to "nearly 400." As mentioned earlier, in my view, the total customer count is well below where it should for a decade-old cloud provider. Jason compares it favorably with the 500 or so customer count for Workday, overlooking the fact that Workday launched in late 2006 and that its typical customer is several times larger than Plex's.
   
   Still, Plex's growth in 2013 represents a 15% increase in its customer base and signals that its growth strategy is beginning to take hold.
   
   The new customer count includes some accounts that are larger than Plex has sold to in the past, such as Caterpillar, which is running Plex in a two-tier model for some smaller plants. In my previous post, I outlined some of the functionality improvements that Plex would need to make to better serve these large customers, and there are signs that these enhancements are underway.
    
3. Plex doubled its sales force last year. This, no doubt, is behind the uptick in new customer sales. The new sales headcount is serving primarily to expand the geographic coverage outside of Plex's traditional Great Lakes concentration to the South and also to the West Coast. (As part of the expansion, Plex opened a Southern California sales office, which happens to be a short walk from my office near the John Wayne Airport.) There are also increased sales to organizations outside North America, another hopeful sign.
    
4. Plex's industry focus remains in three industry sectors: motor vehicles, food and beverage, and aerospace and defense. In my view, this is probably the greatest constraint to Plex's growth strategy. Short-term, having more feet on the street and expanding geographically are low-hanging fruit. But at some point, there will be diminishing returns. Manufacturing contains dozens of sub-sectors, many of which are adjacent to Plex's existing markets. It is not a big jump to build out support and sell into these sub-sectors. We discussed a couple of these, and hopefully, Plex's product management team will have the bandwidth to address them.
    
5. Plex's platform remains a weak spot. Most cloud systems today provide a platform for customer enhancements and development of complementary functionality. For example, Salesforce.com offers Salesforce1, a mature platform-as-a-service (PaaS) capability that has spawned an entire ecosystem of partners. NetSuite, likewise, has its SuiteCloud platform.  Although Plex has the beginnings of such a platform, it is still limited to use by Plex's own development team and a few carefully-vetted partners. Jason knows this is a need, and hopefully we will see more progress in this area. 

There is a lot to admire about Plex. Of the few cloud-only ERP providers that are addressing the manufacturing sector, Plex has the most complete footprint of functionality, rivaling mature on-premise manufacturing systems. In addition, customer satisfaction is readily apparent when I speak to installed customers, both new and old. Hopefully, Plex will build on these strengths and see growth accelerate.

There is a Plex 2013 year-end recap available on the Plex website.

Update: And right on cue, Dennis Howlett has done an on-camera interview with Jason Blessing about Plex's 2014 strategy. He also comments on Plex's approach to SaaS pricing. 

Related Posts

Plex Software and Its Mandate for Growth
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Plex Online: Pure SaaS for Manufacturing

Workday Making Life Easier for Enterprise Users

Even if you don't follow developments in HR technology, you should pay attention to what Workday is doing, for two reasons. First, Workday is no longer just an HR systems provider, having expanded its footprint into financial systems, operational support for service delivery, and business intelligence. Second, as a SaaS-only provider, Workday has been, in my opinion, a leader in best practices in deploying cloud enterprise systems.

In December, the company released Workday 21. In addition to the 246 new features included in this version, it also features a major update to its user interface, which Workday starting rolling out earlier this month. 

Enterprise User Experience Overdue for Refresh

The look and feel of enterprise software has not changed much since the days of client server, when graphical user interfaces took over from the old green screen mainframe-like experience. Workers use desktop computers to access a main menu, which displays a series of icons or links that point to various subsystems. Data entry screens cram as much information as possible so that users do not have to click through to multiple panels to complete a transaction. Because of the density of information, enterprise software came with extensive user manuals, online help, and training classes.

When vendors abandoned the client-server architecture for browser-based thin clients, they did not generally change this paradigm. They just changed the back-end. They did not significantly alter the fundamental user experience.

Now vendors face a serious problem when users demand mobile access. These user interfaces do not translate at all to a smart phone or tablet display. Mobile access, if provided at all, is a completely different user interface than that on the desktop. In fact, some vendors sell mobile access as an additional product, separate from the vendor's traditional desktop access.

Raising the Bar

Workday has always paid a lot of attention to its user interface. In fact, Workday has gone through something like five major updates in its UI: from HTML/AJAX to Adobe Flex, then adding native IOS and Android, and now to HTML5.

But apart from the technology change, Workday's new interface illustrates several best practices, some of which it derived from consumer Internet services, such as Google and Facebook.These are my take-ways:

1. One interface for all platforms. The familiar "Workday Wheel" is now gone. Why? Because it did not translate well to smartphone or tablet access. The new homepage is a grid of icons that resize and scale according to the size of the screen.
    
2. Easy movement between platforms. Most of us get interrupted in the middle of our work. The new UI allows users to start a process, such as a performance review, on one platform (e.g. a desktop) and then continue or complete it on another platform (e.g. a smartphone). 
    
3. Less is more. Workday has removed less-than-essential information from panels, such as the employee profile, organizing and relegating it into tabs or linked lists, so that panels focus the user's attention on what is most important. I especially like the drop-down navigation on the left side of the header bar, which looks quite a bit like Facebook's left side navigation.
   
   
4. Inbox-driven workflow. No more jumping jumping back and forth to the Workday Wheel to complete tasks. A new unified in-box gives users a view of all notifications, with a preview pane and ability to take action right in the inbox.
    
5. Intuitive use. Viewing the user interface in action, it becomes obvious that most users will not need a lot of training on "what key do I press?" As in the past, they will need training on Workday's functionality and how it applies to their jobs. But the new interface should greatly speed the time to productivity for most users. 

These are just some of the points about the new UI. In addition, there are many functionality enhancements, which I'm not covering here.

To see quick overview of the new UI, check out this video by Workday's VP of User Experience, Joe Korngiebe (you can skip past Joe's opening remarks and start at the one minute mark, if you like). 

To be fair, other enterprise vendors, such as Infor, Oracle, and SAP, are making great strides in the user interfaces as well. Workday's most recent release provides another example of how life is getting easier for enterprise software users.

Update: Over at Diginomica, Dennis Howlett has his own take on Workday's new UI.

Related Posts 

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Best Practices for SaaS Upgrades as Seen in Workday's Approach

If you're involved with enterprise software, you need to pay attention to what Workday is doing--even if you're not interested in HR or financial systems. Because Workday is one of the best examples of how enterprise applications can and should be delivered in the cloud.

This was one point I took away from Workday's annual user conference in San Francisco and from a day-long series of briefings for industry analysts earlier this month. 

The differences between Workday's practices and the approach of traditional enterprise software vendors are striking. There are several points of contrast, but in this post I'd like to focus on how Workday delivers software upgrades and some new twists in how it does this.

Traditional Approach to Software Upgrades

In the traditional enterprise software model, vendors develop new versions and provide them to their customers that are under maintenance agreements. The customer takes delivery of the new version, installs it on a test copy of the system, migrates data from the existing production version, retrofits any customizations or interfaces with other systems, revises its user procedures, performs system testing,  and migrates all of its users to the new version. In the process, if there is any time left in the schedule, the customer also may investigate how it would like to use any new functionality offered in the new version.

The bottom line is that in the traditional model, software upgrades are both a technical exercise as well as a business exercise. The technical challenges of data migration, retrofitting of customizations, and reworking system interfaces can be significant and can encourage customers to stay on older versions of a vendor's system for many years. When such a customer finally wants to get current on the latest version, the upgrade process can rival the time and expense of the original implementation. The technical aspect can be so much work that companies often retain outside service providers to manage or assist in the effort. The business aspects--accommodating changes to business processes or embracing new functionality--are often jettisoned for the sake of simply getting the new version installed from a technical perspective. As a result, customers often do not realize the benefits of the new functionality that the vendor offers.

The Workday Approach

Workday's approach to upgrades, from the beginning, is simple: it takes responsibility for all technical aspects of the software upgrade, allowing the customer to focus solely on the business aspects. There are at least three reasons that Workday can do this:

• Workday's object model allows most customizations to be brought forward to new versions of the system with little or no retrofitting.
• Likewise, Workday's Integration Cloud, based on technology it obtained through its acquisition of Cape Clear,  allow most custom integrations to continue to work with new versions of its system.
• Since Workday operates the system on behalf of the customer, Workday takes all responsibility for migrating the customer's data to the new version. 

The impact of this last point should not be underestimated. Last year, Workday's CTO, Stan Swete, wrote about how important it is for the SaaS provider to take full responsibility for migrating customer data to new versions: 

[The] Software-as-a-Service (SaaS) model improves service delivery quality by letting the provider own the end-to-end process of development, conversion, and deployment. In the on-premise software world the vendor controls development (and associated QA), but there is a hand off for conversion and deployment. At Workday, the update process is not done until every customer is on the new version. The same team that project manages our development also project manages conversion and deployment.

When it comes to version upgrades, not all SaaS providers are created equal. Some are little more than single tenant hosting providers. Others are multi-tenant SaaS providers, but they deploy new versions as separate instances of the system and allow customers to stay on older versions for long periods of time. This makes version upgrades considerably more difficult if and when customers do decide to upgrade. Workday, as discussed, is at the other end of the spectrum, keeping all customers current on the latest version. Salesforce.com, NetSuite, and Plex, are similar to Workday in this regard, though they may differ in the details of how they do it.

Further Improvements in Workday's Approach

This year, Workday has further refined its approach to version upgrades in three ways:

1. Single production instance for all versions. Previously, Workday would deploy a new version of Workday as a system instance that was separate from the previous version, and Workday would migrate customers in waves from the old version to the new version over a three week period. Workday's new approach is for the current version and the new version to exist simultaneously on the same system instance. Workday will now move customers to the new version by means of a set of "switches" that dictate which features of the system the customer will see. This new approach is possible because of Workday's object orientation discussed earlier.
2. Continuous development and deployment of new functionality. Instead of holding all functionality enhancements for its periodic version upgrade, Workday is now introducing smaller changes on a weekly basis. This is especially important for small but high-priority changes or for tax and regulatory updates. Contrast this to the traditional vendors, who required many months or years between the time customers request changes and the time they actually see them in updated versions.
3. Continuous conversion of customer data. As Workday develops new features that require changes to its data model, the single production instance now allows Workday to convert customer data in the background in advance of actually migrating customers to the new version. This reduces the amount of downtime required during the when the customer is moved to the new version. 
4. Preview instance. Now that there is a single production instance and continuous conversion of customer data, Workday is now able to offer customers a preview instance of the new version, giving customers a longer time-frame in which to evaluate and plan for the new version. Under the traditional model, customers only get a hands-on look at the new version when they take delivery of the upgrade, install it, and convert their data to it in a prototype environment. Workday's approach gives customers much more time and encourages them to make use of the new functionality.

 Swete summarized these changes in a blog post during the user conference:

Probably the best example of embracing continuous change is happening on the service delivery side of our business. Workday has moved to continuous deployment of new features to a single code line. This move, along with the continuous background conversion of data for new features, enables us to complete updates for our production customers with less scheduled downtime. Application of changes to a single code line reduces the expense of maintaining multiple code lines around each update we do. Moving to continuous deployment also gives us the flexibility to continue to respond to our customers’ requirements when it comes to the number of updates we do each year.

As Swete indicates, the single production instance, continual development approach, and continuous conversion of customer data allow Workday to scale back from three new major versions a year to just two. The conference audience applauded when co-CEO Aneel Bhusri made this announcement, perhaps indicating that many companies have difficulty absorbing three major upgrades a year. At first blush, the reduction in the number of new versions a year would imply that Workday is slowing down the number of new features per year. But in an sidebar conversations with Workday executives the next day, it became clear that these most recent improvements actually mean that Workday will be introducing more new features each year. The difference is that the smaller changes will be trickled-in on a weekly basis, while major new features will be held for the twice-yearly updates.  As indicated earlier, this approach also allows Workday to accommodate regulatory or tax-law changes on short notice, which have become more common in recent years.

Workday's core strategy of reducing or even eliminating the technical burden of version upgrades is a best practice for SaaS providers, allowing customers to focus exclusively on business improvement and maximizing the value of their system investment. More SaaS providers should follow this example.

Postscript: Over at Diginomica, Phil Wainwright has two good posts covering some of these same points:

• Workday Bows to Enterprise, Reins in Release Cycle
• Straddling the Chasm at Workday Rising: Innovation vs. Continuity. 

Note: Workday covered my travel expenses for attending its user conference.

Update, March 19, 2014: This Workday post by David Clarke provides a detailed explanation of Workday's single codeline development process.   

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Oracle and Salesforce.com: The Great Detente

Salesforce.com and Oracle today announced a "new strategic partnership." For their mutual customers, the announcement represents a welcome thawing of relations between the two companies. But it remains to be seen whether it represents a strategic change of direction for Salesforce.com.

Not a Radical Departure for Salesforce.com

The press release is quite short, just five paragraphs, outlining five points of partnership:

• SFDC will standardize on Oracle Linux.
• SFDC will deploy Oracle's Exadata engineered systems in its data centers. 
• SFDC will deploy the Oracle Database and Java Middleware Platform as part of its cloud infrastructure.
• Oracle will integrate salesforce.com's cloud apps with Oracle’s Fusion HCM and Financial Cloud.
• Salesforce.com will also implement Oracle’s Fusion HCM and Financial cloud apps for its own internal use.

So, what exactly in this announcement represents a fundamental change in direction for Salesforce?

• SFDC's infrastructure is already based on Linux, so standardizing on Oracle Linux is a minor change.
• SFDC's applications already make use of Oracle's database as the lower-level physical data store.
• The press release provides no detail on how SFDC will make use of Oracle's Exadata boxes. If they are merely used to replace commodity storage devices, there would not be any change to the basic architectural design of SFDC's infrastructure.
• Oracle's integration of Fusion HCM and financial system with SFDC is merely an application integration initiative. 
• SFDC's implementation of Oracle Fusion HCM and financial applications is a routine "win" announcement. 

The second bullet could potentially be the most radical departure for SFDC. Oracle's new database release, 12c, could provide the capability for SFDC to run multiple pluggable databases (one for each customer) within a single container database. This would represent a fundamental shift for SFDC away from its single multi-tenant database architecture in favor of Oracle's pluggable database approach.

Nevertheless, the fact that there is no mention of 12c or pluggable databases in the press release makes me seriously doubt that SFDC intends to fundamentally change its platform architecture. I have a question pending with SFDC on this point and will update this post if and when more information becomes available. [Update: SFDC is not willing to provide details beyond what was in the original announcement and subsequent conference call with Ellison and Benioff.]

Thawing of Relations

What I do find significant in this announcement is that Oracle and Salesforce.com have apparently buried the hatchet, at least for now. For their mutual customers, now and in the future, this is good news.

Customers are not well-served by vendors sniping at each other, and the verbal tiffs between Benioff and Ellison over the past few years, frankly, have become annoying. Hundreds of customers have interfaced Oracle Applications with Salesforce.com's cloud apps. But until now they have done so without the explicit support of Oracle. Customers will be pleased if the two companies can cooperate in providing standard integration. Hopefully, both parties will start acting like adults and doing what is in their joint customers' best interest.

Workday Is Odd Man Out

If there is a competitive target in this announcement, it has to be Workday. SFDC will implement Oracle’s HCM and will integrate its Sales Cloud with Oracle’s HCM and also with its Fusion Financials product. This puts Workday in an awkward spot in that Workday leverages Force.com for its platform-as-a-service capabilities. It will be interesting to see how Workday reacts to this détente between Oracle and Salesforce.com.

While the use of Oracle Fusion within SFDC doesn’t mean much to SFDC customers, it does give bragging rights to Larry Ellison against Workday. Interestingly, NetSuite's CEO Zach Nelson was recently taking pot-shots on stage at Workday during NetSuite's Suiteworld conference. At the time, I took it as a sign of Workday's competition with NetSuite in financial applications. Now I see it as part of a wider competitive alignment. Both Zach Nelson and Marc Benioff are Oracle alumni and both have close ties to Larry Ellison. The three now seem to be joining in solidarity against Workday and validating that Workday is a threat to all three.

Regardless of the competitive posturing by these major enterprise technology providers, the Oracle/Salesforce detente is welcome news for customers.

Update, 11:30 a.m. PDT. Dennis Howlett spoke with Aneel Bhusri, co-CEO Workday, who says that he doesn't anticipate any impact from the Oracle/SFDC announcement. 

Update, 12:15 a.m. Salesforce.com replied to my inquiry indicating they are unable to provide additional details at this time on the announcement.  

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Microsoft Dynamics Move Up-Market: What’s Missing?

In December 2012, I wrote about four market forces that are pushing Microsoft Dynamics onto large enterprise turf. I also outlined several case studies in which Microsoft was having success with large multinational organizations. Now, more recently, I attended the Microsoft Dynamics annual user conference, Convergence, and had an opportunity to interview Microsoft executives and customers to see what further progress Microsoft was making in its move up-market.

Bottom line: Microsoft has many of the necessary elements in place to continue its move into large enterprises, but it still needs to fill several major functional gaps in its product offerings.

Continued Evidence of Success

In recent years, Microsoft has had several implementations of its Dynamics AX and Dynamics CRM systems in large enterprises. These include Carrefour S.A, the world's second largest retailer, Nissan Motor Company, Shell Retail, and others.

Now, at its Convergence conference, Microsoft highlighted two more large company success stories:

• Dell Computer is the world's third largest PC manufacturer as well as a leading provider of a variety of IT products and services, with revenues of $57 billion. Dell is in process of consolidating its manufacturing ERP systems onto Microsoft Dynamics AX, with Oracle E-Business Suite continuing to run in headquarters and for certain corporate shared services.
    
• Revlon is the well-known cosmetics company with worldwide revenues of nearly $1.5 billion. Revlon consolidated 21 ERP systems to a single instance of Microsoft Dynamics AX.

Another key success factor for the large enterprise market is the ability to provide direct support. In this regard, Microsoft's reliance on its partner channel is often not sufficient for large companies. To address this need, Microsoft has been building up its Microsoft Services unit, which provides consulting and premier support not only for its Dynamics business applications but also for Microsoft's entire portfolio of offerings. The Microsoft Consulting Services (MCS) Dynamics unit has reportedly doubled its headcount over the past year, and it can provide everything from high level program and partner management services to hardware support in conjunction with its large OEM partners, such as IBM and HP. For large customers, Microsoft can even take responsibility for service levels of the deployed applications.

Three Major Functional Gaps

These case studies, along with Microsoft's direct services capabilities, indicate that Microsoft has had some success in the large enterprise market. But are these exceptions, or are Microsoft's offerings mature enough to routinely take business away from the Tier I ERP and CRM players?

The answer is, not yet. Microsoft as an organization has the global presence and the resources to do so, but the Dynamics business applications at present lack functionality in three critical areas. Until these are filled, Microsoft will be limited in the number of deals where it can be short listed against Oracle and SAP.

1. Human Capital Management (HCM). Microsoft Dynamics AX today does have some HCM functionality for core HR, talent management, benefits administration, and employee/manager self-service. In addition, it does provide payroll for US and Russia. However, those who have studied this functionality do not view Microsoft's HCM offerings as competitive with SAP, Oracle, Workday, or other first tier HCM providers. In the SMB market, Microsoft could get away with these deficiencies, as many prospects either do not include HCM in their acquisition plans or are satisfied to work with a Dynamics partner for any gaps in functionality. In the large enterprise space, however, this is often not an acceptable strategy. This is especially true when the Microsoft partners for HCM are only regional players.
    
2. Customer Service. The Dynamics team prides itself on the success of its Dynamics CRM offering, built from scratch to be a serious competitor to Salesforce.com, SAP, and Oracle. However, Dynamics CRM is not a full CRM offering. Its functionality is limited largely to sales force automation and now marketing automation (thanks to the 2012 acquisition of Marketing Pilot). Dynamics CRM lacks a full set of functionality for customer service and field service. So, when prospects are looking for a solution that gives them a 360-degree view of the customer—both new customers and existing customers, for both sales and for after-sales services—they quickly scratch Microsoft from their short lists. If they really want to go with Microsoft, they look to Microsoft partners to provide the needed functionality. Again, this approach may work for Microsoft's traditional SMB market—although even there, the lack of a customer service module is still a limitation.  But in large global enterprise deals with thousands of users, most prospects take a quick look at Microsoft and move on to more robust providers.
    
3. Supply Chain Management (SCM). Microsoft Dynamics AX today only offers traditional material planning functionality, so-called MRP and MRP-II systems. There are no supply chain execution modules for warehouse management, transportation management, or logistics. Neither is there supply chain planning functionality for demand forecasting, sales and operations planning, constraint-based scheduling, supply chain optimization, or event management. Again, in the SMB market, many prospects are doing well if they can implement basic MRP, and those who need more are often happy to consider partner solutions. But in the large enterprise space, prospects often expect this functionality to be part of the core offering.

Partner solutions work best when they address narrow industry needs—for example, law firm practice management from Lexis Nexus, or complex manufacturing functionality from Cincom. But for broad horizontal systems, such as HCM, customer service, and supply chain management, prospects expect the ERP or CRM system to be able to provide that functionality directly. Partner solutions at this point are simply a band aid.

The good news is that Microsoft recognizes these deficiencies and intends to deal with them over the course of the next few years, although, for the most part, it is not giving out details publicly. The one area where Microsoft has indicated specific plans is in the supply chain area. Later this year, it intends to announce new capabilities for Dynamics AX for warehouse and transportation management, along with demand management. This is a good start. In the other two areas—HRMS and customer service—Microsoft executives only indicate that they realize these needs and intend to address them in future releases of Dynamics AX and Dynamics CRM.

Priorities, Priorities

The large company case studies illustrate that Microsoft Dynamics has an expanding presence in the large enterprise market. Nevertheless, it would be unusual to see Dynamics fully replace Oracle or SAP for customers in this space. That said, Microsoft still can be successful in the large enterprise space, if prospects see SAP and Oracle playing a restricted role: pushing them back into a corral to serve only their core financials and perhaps core HRMS needs. Outside of this corral, Microsoft Dynamics can then become the operational system platform for such organizations.

If this is the case, the lack of HR functionality does not need to be an immediate impediment for further Microsoft progress up-market. Baring some major acquisition by Microsoft, it is unlikely that Microsoft Dynamics will have the richness of HCM functionality needed to displace SAP or Oracle in the HCM space. Any future Microsoft development in HCM will be more appealing to midsize organizations than to the large enterprise market.

Likewise, Microsoft’s lack of supply chain functionality does not need to be a major impediment. Manufacturing, distribution, and retail prospects will still need to fill their SCM requirements with a third-party solution. Fortunately, there are good offerings from Microsoft partners for warehouse management and transportation management. Furthermore, even many SAP and Oracle customers look to best of breed solutions, such as E2Open and Kinaxis, for supply chain planning systems. So, the lack of Microsoft SCM offerings does not need to be a show stopper.

The weakness of Microsoft’s customer service and field service features in the CRM product, however, is more problematic. When looking at CRM, most large enterprises want more than salesforce automation. Microsoft’s acquisition of Marketing Pilot for marketing automation fills one gap. A similar acquisition or internal development of after-sales service functionality is probably the most urgent need if Microsoft is to further succeed in the large enterprise market.

A Fiercer Battle

What could go wrong with Microsoft's up-market ambitions? First, SAP and Oracle are not going to let themselves be passively corralled within corporate headquarters. Both vendors have major programs to further develop and serve line of business system requirements: SAP with its acquisitions of SuccessFactors, Ariba, and its line of business cloud applications; Oracle with its Fusion Applications.

Second, there are other providers that have the same up-market ambitions as Microsoft. For example, Infor, which is headed up by former Oracle co-President, Charles Phillips, fully intends to be a credible alternative to SAP and Oracle, and it already has a much broader footprint of applications than Microsoft has. Likewise, Workday from the very beginning took aim at the large enterprise market for HCM, financials, and operations management for services firms, and it is already a major thorn-in-the side for SAP and Oracle.

Microsoft’s success in the large enterprise space, therefore, is not guaranteed. But its success so far is encouraging, and if it continues to fill out its functional footprint, it will become a strong contender.

Postscript: Other analysts have good reporting on the Convergence conference. Esteban Kolsky's has a good post on Microsoft Dynamics CRM as well as a good video interview with Dennis Howlett.

Update, April 4: I edited the paragraph on HCM, under the heading for "Three Major Functional Gaps." The original paragraph stated that Microsoft has no offering for HCM, which was not accurate. 

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SAP's Emerging Cloud Platform Strategy

I participated last week in two days of SAP briefings with a group of about 15 bloggers. Part of the time was devoted to explaining SAP's evolving cloud strategy, which I will attempt to summarize in this post. 

Keep in mind that what I'm sharing here is not SAP's own messaging around its cloud strategy. Rather, it is my interpretation of where SAP is going and what it needs to do to be successful.

SAP Has a Proliferation of Cloud Assets

Over the past few years, SAP has been at work rolling out a number of cloud services. The most well-known is Business ByDesign (ByD), a full-suite ERP system, written from the ground up for software-as-a-service (SaaS). This was an enormous development effort, and it went through two development iterations until 2011, when it was ready to scale in production. SAP now has over 1,000 customers running ByD.  

Following initial delivery of ByD, SAP also began rolling out its line-of-business applications. These were built on the ByD cloud platform to meet the needs of specific business functions, such as sales force automation (Sales OnDemand) and expense reporting (Travel OnDemand). There are others, also.

Then in 2011, SAP acquired SuccessFactors, a well-respected cloud-only HRMS vendor. This greatly increased SAP's stature as a SaaS provider, but it also added another set of cloud assets and executive leadership to the mix. Further adding to the complexity: SAP is in process of acquiring Ariba, the venerable provider of supplier networking services.

From Cloud Applications to a Cloud Platform

In my view, the current situation has led to a number of problems. First, SAP's cloud portfolio is largely a collection of unrelated systems, and several different cloud platforms. There has been no common architecture, and no integrated product roadmap.

Second, the rest of SAP's product porfolio is not standing still. Specifically, SAP has been making large investments in its in-memory database technology (HANA), and it has acquired and developed an impressive array of mobility applications and mobility platforms. All of these products have cloud-delivery aspects. 

Third, SAP lacks a single extensible cloud development environment. (ByD does have a PaaS capability, for partners only, but it is limited to ByD.) Customers and partners don't just want cloud apps, they want the ability to extend those apps and build new applications that can interoperate with them. In other words, they want PaaS (platform-as-a-service) in addition to SaaS.

SAP's emerging cloud strategy addresses all of these issues: it embraces all of SAP's existing applications as well as its database and mobility platforms, and it gives customers and partners a development environment to build upon and extend these services.

Here are key aspects of SAP's cloud strategy, as I see them:

1. Everything as a Service. Behind the scenes, SAP has been rearchitecting its SaaS offerings to be delivered as web services. For example, it has broken up ByD functionality into 32 "honeycombs," so that no two of them share a common database. Rather they communicate via messaging. SAP has taken the same approach with its line-of-business applications.  In fact, all of SAP cloud applications will be deployed as web services, including its mobility and database offerings. I have to believe this also includes SuccessFactors. SAP will now be able to sell individual modules (e.g. Finance), or a complete suite, or combinations in between.
    
2. Platform-as-a-Service. SAP has built a PaaS capability, now referred to as the SAP Netweaver Cloud (earlier code-names included JPass, Neo, and Project River.) It is intended as a multi-language/multi-framework platform. It is primarily a Java-platform, but its open nature also allows development in a variety of other languages, such as Spring and Ruby. Furthermore, it allows developers to access all of the SAP cloud applications, database services, and mobility services that are now accessible via web services (see point #1).  It even allows applications to access SAP on-premises systems such as SAP ECC, CRM, and HCM. Conceivably, therefore, the Netweaver Cloud could be used for customizations/extensions of SAP on-premises systems that have been traditionally done with ABAP coding.
    
3. Ecosystem. The SAP Netweaver Cloud can be used internally by customers or their system integrators, and it also can be also used by third-party developers to build new applications for sale on the SAP Store. This facilitates the growth of SAP's developer ecosystem.

The Netweaver Cloud runs in SAP's own data centers (including those gained through the acquisition of SuccessFactors). There are a number of other features, such as identity services and document services, which I won't go into in this post.

The Pluses and the Minuses

There are several things I like about SAP's emerging cloud strategy.

1. Integration. SAP's is finally integrating all of its cloud assets into a single platform. If successful, nearly anything SAP delivers should be available and accessible through Netweaver Cloud.
    
2. Openness. Netweaver Cloud does not use a proprietary language, like Salesforce.com's APEX. Use of public development languages, such as Java and Ruby, facilitates adoption by developers and also works against lock-in to a single platform. Likewise, the PaaS makes use of open source projects from Apache and Eclipse, which should further facilitate adoption by developers. 
    
3. Availability. Netweaver Cloud has already been released to customers, and it is scheduled for general availability at the end of this month. A free 90 day trial is already being offered. This puts SAP out ahead of Oracle, whose Oracle Public Cloud is still in controlled availability (though hopefully there will be announcements at Oracle's Open World conference next month).  

On the other hand, there are some aspects that give me concern.

1. Will Customers Understand It? The cloud-only providers have one great advantage: simplicity. Everything Salesforce.com builds is on its Force.com platform. Likewise, enterprise cloud leaders such as NetSuite and Workday grew up with single platforms. Their platforms are relatively easy to explain and easy to understand. SAP, on the other hand, has a variety of on-premises and cloud systems. Furthermore, it has built or acquired a variety of database products and mobility applications and platforms. The SAP cloud platform must now deal with all of these products. It's not easy to explain, as witnessed by the difficulty SAP's own team had in communicating it with our group of tech bloggers. If the bloggers struggle with understanding it, what hope does SAP have to make the message clear to customers or prospects?
    
2. Will Developers Adopt It? Developers are a key to success in cloud systems, just as they are in mobility applications. Salesforce.com already has a large and enthusiastic ecosystem of developers for its Force.com platform. Microsoft has an enormous ecosystem of development partners, for whom Microsoft's cloud platform (Azure) is more-or-less an incremental step in using existing Microsoft development tools. Will SAP's current population of partners readily embrace Netweaver Cloud, or will they be content to continue development in the SAP tools they have been using for years? 
    
3. Is SAP Too Late? Salesforce.com's PaaS was first introduced in 2006 (I wrote about it at the time, here). NetSuite has had CloudSuite for years. Microsoft has already rolled out and continues to refine its Azure PaaS. SAP is only now rolling out Netweaver Cloud. Though SAP denies this, I do believe that its cloud development efforts in recent years have taken a back seat to its database and mobility development efforts. So now, SAP is playing catch-up. SAP has a lot of work to do to be perceived as a cloud leader.

Regarding that last point, on the other hand, my research at Computer Economics shows that PaaS is a technology that is still in the early adopter phase. Most organizations are still buying individual SaaS applications and have not yet made a strategic commitment to cloud computing as a platform. They have hybrid systems: some on-premises, and some in the cloud. Of course, there are exceptions: these are the early adopters that embrace cloud computing not only for SaaS applications but for PaaS as a development strategy. Nevertheless, the majority have not yet seen the vision. Therefore, if SAP can quickly make its cloud strategy clear and deliver working product, it may still have a shot at being a major player.

Here are some reports from other bloggers who were at this event:

• Vijay Vijayasankar: SAP Needs A Better Cloud And Platform Story, And A Good Story Teller 
• Jarret Pazahanick: SAP Briefing - Cloud, Mobility and HCM 
• Fellow bloggers Vijay Vijayasankar, Jon Reed, John Appleby, and Harald Reiter: Video discussion on SAP Cloud, Mobility, and Database Strategy

Disclosure: SAP paid for part of my travel expenses to this event. 

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Oracle's Behavior Undercuts Its Own Cloud Accomplishments

Oracle held a much anticipated "Oracle Executive Strategy" update event for its Oracle Cloud services yesterday. With Larry Ellison leading the presentation, there was much thunder and lightening--but not much rain. This is unfortunate, because Oracle has put together an impressive set of cloud services. Ellison's inability to resist slamming the competition led him to overstate what Oracle has actually delivered, and to minimize the success of Oracle's competitors.

This post serves as a summary of the key points I gleaned from the webcast and from an analyst question and answer session afterwards with Thomas Kurian, Oracle's EVP of Product Development, who is always a pleasure to listen to.

Is There Anything New?

On Twitter and in back channel Skype conversations with other analysts, many of us were questioning: what exactly is being announced today? Nearly everything presented had been previously been presented at Oracle Open World in 2011.

Reading carefully through the pre-event summary document and scanning through my notes, I can only come up with two things that are new:

1. Oracle is announcing new Oracle Fusion cloud applications and services in addition to those  announced during Open World (which were CRM, HCM, Social Network, Java Service, and Cloud Service). Larry Ellison indicated that Oracle now has 100 cloud applications and services.
    
2. Oracle demonstrated some of the social marketing functionality from its Vitrue acquisition, which Oracle announced in March. 

Other than that, it's difficult to find anything that Oracle had not announced or presented earlier. So the event was largely a re-presentation of Oracle's cloud services, some demonstration, and a healthy dose of competitor-bashing.

Essentially, the 90 minute event fell into a pattern of presentation that is becoming all too familiar in the past several Oracle Open World conferences. There are too many issues to list individually, but I'll point out what I see as some of the things I found most troubling in Oracle's presentation.

Oracle Exaggerates Its Cloud Apps Availability

Oracle claims 100 Oracle Fusion cloud services but provides no list of the applications. Seeing that Oracle announced five during Open World, it's difficult to understand how it is now claiming 100, unless it is talking about very small pieces of functionality. During the post-event analyst briefing, I believe Tom Kurian did promise to deliver a list--so we'll have to wait for that. Update: Oracle has provided the list.

Furthermore, not all of the capabilities that Oracle showed or referred to during the event are in general release. Tom Kurian did review what products were generally available, but I was not able to capture that information. Again, we'll have to wait for some public clarity from Oracle on what customers can buy today and what is still waiting for general availability.

Oracle's Developer Cloud Still in Controlled Availability

Specifically, Oracle Java Service and Database Service are not yet available via customer self-service, as shown in the screen shot below. With a public cloud infrastructure service, you should be able to walk up to the website, submit a credit card and gain instant access to a development environment, run it for a few hours or days, then shut it down. Amazon Web Services has offered this for years.

A quick test on the Oracle website shows that if you try to sign up for cloud services, you are led to a screen as shown below, where you can leave your contact information. The message on that page reads,

When you submit this form, your information will be placed into a queue for access to controlled availability services. We will be provisioning Java and Database services in batches over the next several months. Our Fusion Application services will be made available shortly after that. You will be notified by email when your instance is ready.

I questioned Tom Kurian on this point and he indicated that this is a temporary measure during the ramp-up period. He said that Oracle is currently signing up about 150 development customers a week for its Java and database services and that by the end of August, the sign up process should be available entirely on a self-service basis. But today-there is still friction at the point of sale.

Ellison is Rewriting History

At the beginning of his presentation, Ellison claimed that Oracle began to rebuild all of Oracle's applications for the cloud, calling it Project Fusion. But some of us have a long memory, and we've written blog posts on Oracle's Fusion program over the years.

At the beginning, Oracle did not pitch Fusion as a cloud program but as an integration strategy for its disparate applications. Fusion would be the successor to Oracle's E-Business Suite, PeopleSoft, J.D. Edwards, and Siebel systems. As Oracle made many acquisitions, it needed a strategy, using middleware, to integrate these applications with one another and a successor set of applications based on the best features of each of its acquisitions.

See my many posts at the end of this post, and try to find one where Oracle ever used the word "cloud" in talking about Fusion. Oracle has not been working on cloud applications for seven years. It has only been in the past year or two, as Salesforce.com and Workday began eating Oracle's lunch that Oracle responded with its own cloud pronouncements.

I have heard off-the-record that the early leaders in the Fusion group made sure to architect the product to allow cloud deployment. But Ellison's early presentations indicated that Fusion would be a traditional sold-as-a-license product, deployed on-premises, not a cloud service. To now claim that Fusion was a 7-year cloud development effort is simply not true.

Ellison's Characterization of Competitors is Out-of-Bounds

For example, Ellison claims that SAP has done nothing in the cloud except for its acquisition of SuccessFactors, and that it will have nothing otherwise in the cloud until 2020. He conveniently overlooks SAP's five or seven year effort to develop Business ByDesign, a full-suite multi-tenant cloud ERP system, which SAP has has sold to over 1,000 customers.

Whether SAP has met its objectives for ByD is not the point: Oracle has by its own numbers claimed only 200 sales of Oracle Fusion. So, even by Oracle's own numbers, SAP has sold more cloud customers with its own developed products. (Ellison also conveniently ignores SAP's own cloud-based line-of-business applications.) SAP may have its own problems in transitioning its business to the cloud, but Ellison's mockery of SAP is simply unfair and inaccurate. 

Ellison's slamming of the competition continued with a mis-characterization of Workday's in-memory technology and a straw-man argument that other SaaS providers tell customers "not to worry about security." Can Ellison point to any cloud competitor that has told its customers "not to worry about security?"

Oracle Exaggerates Adoption of Fusion Apps

Oracle claims just 200 sales of Oracle Fusion Apps, and it refuses to break down that number into how many are CRM, HCM, and so on. Although Oracle will not release that information, I have reason to believe that most of those sales are for HCM and that there have been few new sales of Fusion CRM.

Tellingly, there were no customers on stage with Ellison or Hurd. Except for a couple of slides with logos of companies that Oracle claimed as wins over its competitors, there were no customer mentions, no customer testimonies.

Oracle Customers Choose Cloud Because of Fusion Complexity

Back-channel discussions indicate that nearly all Oracle Fusion application sales are for cloud deployment, not on-premises. It appears that this is the case not because Fusion can only run in the cloud  (like Salesforce.com or Workday) but because Fusion technical requirements are so complex that virtually no organization wants to deploy Fusion Apps on-premises. It is easier to simply turn over the infrastructure and application management activities to Oracle.

On a Positive Note

The dissatisfaction felt by many of the event attendees is unfortunate. Oracle does have an impressive array of cloud services, although some are still in the process of roll-out.

• Specifically, I like the fact that Oracle is offering a full and complete IaaS platform, similar to Amazon's (although Oracle's is limited to Oracle technologies).
   
• I also like that everything in Oracle's cloud is based on public standards, such as SQL, Java, and HTML5. 
   
• I like that customers can freely move applications (Oracle's apps, or custom apps) from Oracle's cloud to on-premise deployment, or to other public clouds such as Amazon's--without modification. I questioned Kurian on this point, and he confirmed that there is no intent to lock in customers to Oracle's cloud. This is, in fact, a differentiator against Salesforce.com as a development platform, which because it is based on proprietary languages, does not offer portability. 
   
• Finally, the user interface or Oracle Fusion Application is cutting edge. From what I saw in the Ellison's demonstration, along with other Fusion apps I've seen demonstrated, Oracle has set a high bar for ease-of-use, embedded BI, and integration.

Oracle has fallen into a pattern in its public events of overstating its successes, misrepresenting its competitors, and touting statements-of-direction as accomplishments. This is unfortunate because it causes observers to discount what is in fact some very impressive technology. I hope that, in the future, Oracle will take a more understated approach that will do justice to its people, products, and services. 

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