The Two Horsemen of the Enterprise Software Apocalypse
At 71, Dave Duffield ought to be retired. He’s spent a half-century starting technology companies and is worth billions. He has a $35 million Dassault Falcon 900EX jet, homes in the Bay Area and Palm Springs, and a seven-building vacation compound on Lake Tahoe with plenty of space for his wife of 28 years and their 10 children, the youngest of whom is an adopted daughter, age 2. On a sizzling June afternoon, Duffield stands in his hangar at an airfield east of San Francisco before a flight to Reno-Tahoe International Airport. “I just bought this Chevy Camaro,” Duffield says, gesturing to the black car parked next to his jet. “It’s probably the only one around with a baby seat in the back.”
Duffield did take a break from the tech game, briefly. After his most successful company, PeopleSoft, was acquired in 2004 for $10.3 billion, he unofficially retired. With his thin frame and rich head of silver hair, he’d sit in a rocking chair on his porch in Tahoe overlooking the lake. The relaxing, family-filled glide into his golden years lasted about three months. “I was rocking away and getting bored,” Duffield says. When he told his wife, Cheryl, that he was starting another business software company, later named Workday, she cried, but didn’t try to stop him. “She understood the higher calling,” Duffield says.
One of the first things Duffield and his Workday co-founder Aneel Bhusri will tell you is that their company is not a revenge plot against Larry Ellison, the founder and chief executive of Oracle. It was Ellison who bought PeopleSoft eight years ago—a hostile takeover by the most hostile guy in tech. Ellison lowballed PeopleSoft’s shareholders, threatened to fire thousands of the company’s employees, and insulted Craig Conway, then PeopleSoft’s CEO. “It’s normal for Larry to do that kind of thing,” Duffield says, sitting back in one of his plane’s beige leather seats. “He threatened to shoot Craig’s dog at one point.” Bhusri, 46, sitting next to Duffield, cuts him off. “We don’t think about Larry or have any animosity,” he says, which will be a refrain over the next few hours. Back on message, Duffield adds, “You have to bless Larry’s heart for giving us this opportunity. I would never have been part of this Workday thing without Larry.”
The “Workday thing” threatens to upend the business—or enterprise—software market. It sells software that corporations use to keep track of their employees and finances. Normally such applications are expensive, a pain to use, and, because they become so entwined in a company’s operations, rely on a kind of monopoly of inertia. Workday’s software for filing expenses or approving a hire, on the other hand, is about as easy to use as Facebook. It’s an example of cloud computing, selling software as a Web-based service rather than a product customers install in their own computing centers.
Workday now has 310 corporate customers, from Sallie Mae to Chiquita. The company won’t disclose its revenue, though people familiar with Workday’s financial performance say its bookings (a reflection of the value of multiyear deals) should reach $500 million this year. Investors, including Michael Dell, founder and CEO of Dell, and Jeff Bezos, founder and CEO of Amazon.com, have backed it with $250 million in funding, valuing the company at more than $2 billion. Their reward could come soon: Workday is expected to file for an initial public offering this month.
What does Ellison think of all this? He declined to comment for this story, but said, “I won’t mention Workday by name,” during a June 6 press conference at Oracle’s Redwood Shores (Calif.) headquarters. Oracle used the event to, at long last, unveil its competitor to Workday, called Oracle Cloud, and Ellison did in fact mention the company often by name in order to dismiss it.
Together, Duffield and Bhusri own a little more than 50 percent of Workday, and they see the company as their chance to fulfill a grand vision. Business software should not be arcane and ugly. It should have spit and polish and be tuned for the cloud-computing and mobile revolutions. Make the software good enough and mortals—rather than HR and accounting specialists—will be able to use it and learn more about their business and their co-workers. Duffield says Workday could be bigger than PeopleSoft. “You don’t know this when you’re young, but over time you see that great companies are usually built at a special point in time,” he says. That time, it goes without saying, is now.
Enterprise software makes the corporate world tick. Oracle and SAP sell applications that track everything from inventory to insurance policies to health-care plans. It’s a huge business. Bhusri figures the market for HR software alone is about $10 billion a year, while financial application sales run about $30 billion per year. As it happens, the purveyors of such software aren’t known for their warm relations with customers. “Just picking the right mix of stuff is complex and fraught with issues,” says David Smoley, chief information officer of Flextronics International, the giant electronics manufacturer and Workday customer. “Oh, and by the way, the motivation of an Oracle or SAP is to sell you a huge pile of software.”
It’s not uncommon for a buyer to spend years installing a new version of Oracle or SAP software. The process requires the purchase of an expensive, long-term license and a ton of computer hardware. Then you need a team of experts to make the components work together and another team of experts to configure and customize the system for every peculiarity of a company. Year after year, Oracle and SAP levy maintenance fees to keep these customized machines humming. Call it a “thanks for being our customer” tax. For years, software makers would offer discounts to customers if they bought long-term licenses for, say, 40,000 expected employees instead of the 20,000 current employees. “You spend $25 million instead of $20 million for what’s billed as this super, smoking deal that will give you room to grow,” Smoley says.
For customers, it’s a painful, costly process. And yet, for the most part, CIOs buy software from Oracle and SAP and keep their mouths shut. There’s little to be gained—other than a demotion—from trying a daring new technology from an upstart. Ellison has made a great living in that world. His company is an inescapable force; its salespeople are known as the most driven in the industry. That reflects their boss’s passion for conquest, which he broadcasts through showy displays of wealth and the relentless bashing of rivals.
Duffield is the anti-Ellison. He founded PeopleSoft in 1987 to transform business software designed for mainframes into desktop applications. Sales soared, and PeopleSoft built up a reputation as a company that took good care of its customers. By 1999, though, Duffield had grown tired of managing the company. “The growth had tapered off, and I’m a high-growth kind of guy,” Duffield says. “I felt obligated to bring in someone that could focus on making the company more operationally efficient.”
Bhusri, a rising star at PeopleSoft who’d been running its products and strategy division, had been waiting for that CEO gig, but the board chose Craig Conway. Duffield remained on the board, as did Bhusri, who became vice chairman of PeopleSoft while taking on the role of partner at Greylock Partners, one of the top Silicon Valley venture capital firms.
Even though Duffield and Bhusri still had ties to PeopleSoft, their focus drifted. Duffield spent time refining his estate in Lake Tahoe’s exclusive Incline Village. The main house, a 5,000-square-foot “lodge,” was rumored to be haunted and required the services of an Indian chief, “who came by and lit some fires and exorcised the spirits,” Duffield says with a laugh.
There are all sorts of diversions on the estate. Duffield has a movie theater with a mural of actors—everyone from Laurel and Hardy to Harrison Ford—and balcony seating. There’s the “pool house,” which has a pool with a tube slide, along with rooms filled with slot machines, ping-pong tables, and a jukebox. In the inner sanctum of the lodge, Duffield has a cage for his four parrots. He’s got some tools for building model airplanes lying around, too. “I built three-quarters of one and then quit,” he says. “It just didn’t work for me.”
In 2003, Oracle offered to buy PeopleSoft for $5.1 billion in cash—a 6 percent premium. It also announced that, should the deal go through, it would fire about 5,000 of the company’s 12,000 employees. PeopleSoft’s staff and customers panicked; the board of directors, realizing their CEO was no match for Oracle’s, fired Conway; and Duffield returned to the CEO job, calling on Bhusri to help revamp the company’s product line. Oracle kept hiking its offers until it hit $10.3 billion. PeopleSoft’s board accepted. “It was the worst moment in my life,” Duffield says. “I saw 5,000 people losing their jobs. We were in a conference room to explain the decision to the employees, and there were people crying—men crying—in that room.” Ellison called Duffield. “He was very gracious,” Duffield says. “He said, ‘You have built a great company, and we will take care of it.’ ” Such reassurances did little to soothe Duffield and Bhusri. “We were wiped out physically,” Duffield says. “I had no thought of trying to start over.” Of course, a few months later he did.
Just as they had with PeopleSoft, Workday’s founders located the company in Pleasanton, in the eastern part of the Bay Area. Pleasanton is not exactly a wasteland—how could it be with a name like that?—but it’s certainly not the heart of Silicon Valley. Very few prominent technology companies set up shop in the neighborhood, and that’s how Duffield and Bhusri like it. “Valley people jump from job to job,” Bhusri says. “You just don’t have that here.”
The company has moved into a large building in an office park next to a mall. The street leading up to the campus is Workday Way—a perk Duffield earned by beating the town’s mayor in a pool tournament. While it took about 30 people to build the company’s first product, Workday’s ranks have now swelled to 1,200 people.
At Greylock, Bhusri was exposed to the inner workings of consumer Web companies such as Facebook, LinkedIn, and Dropbox. He was impressed by how their services hid tremendous technological complexity from the user. Business software makers had never given much thought to making their applications easy to use, let alone pretty. When Workday started up, Bhusri made it a priority for the company’s software to be as simple to learn as shopping on Amazon.com. “Their user interface is the big advance,” says Reed Hastings, the CEO of Netflix, which uses Workday.
While HR software might sound arcane, just about everyone who’s worked for a corporation has encountered it. When you start a new job, there’s an internal corporate site you visit to find benefits guidance and post a bit of data about yourself. For the most part, the interfaces for such software still look like they’re trapped in the 1980s. Company directories, for example, end up as little more than spreadsheets, and people seeking to approve hires or enter their expenses must wind through a labyrinth of clunky menus.
Search for Employee X on Workday’s iPad app, and the person’s picture pops up in the center of a “directory swirl”—a spoke-based org chart that you can flip through with your fingers. If you tap on the picture, you’ll see X’s direct reports, peers in other departments, performance reviews, and LinkedIn page. With a swipe of a finger—and the proper credentials, of course—a user can access X’s entire job history, including notes from former managers. “People usually think of this type of software as boring, but we think it should be delightful,” says Joe Korngiebel, the director of Workday Labs.
Among the experiments Korngiebel has running is an attempt to turn some human resources functions into a type of game. Employees can leave virtual badges—say, a party hat icon—for jobs well done on their co-worker’s profile pages and rack up points for the badges they receive. Managers can hand out points to employees who take their vacation before the holiday rush or to those who suggest a lot of potential hires to fill a position. There’s a companywide leaderboard that people can check to see where they stack up for a yearend bonus based on these point awards.
“When you get a performance review, you end up not just with all this feedback from your co-workers but also from the corporate system about the money you saved for getting low airfares on trips,” Korngiebel says. Another Workday project currently in development is a kind of Google Maps for offices. A customer will upload floor plans, and Workday will build out a virtual office that shows the locations of desks and conference rooms. If a company wants, it can have people checkin at their desks, á la Foursquare, to see who’s available for a meeting.
Though a cynic might say that making an HR person’s job easier isn’t necessarily a priority, Workday’s customers give the technology high marks. About 18 months ago, Michael Zill, the CIO of medical technology supplier CareFusion, was on a business trip in Malaysia. While sitting in a bar after work, Zill fired up the Workday app on his smartphone. A list of to-do items appeared on the screen. Zill clicked on one item—a potential hire—and pored over the dossier compiled by his co-workers. Satisfied with the prospect’s credentials, Zill jabbed the approval button with his finger and hired a new worker—and did all that before finishing his Guinness. “We don’t recommend something like this happening at a bar,” Zill says. “But the reality is that life happens everywhere now.”
Workday’s opportunity to strike typically comes when a company goes through a dramatic change, such as a major acquisition or when a multiyear software contract comes up for renewal. It’s a difficult process for companies to move their data from existing systems to Workday’s service, but the startup carries the promise of lower costs over the long haul. Since Workday is a cloud-computing company, it can assure its customers that they’ll always have the latest version of its software. Workday tends to update its software every three months. That pace has Oracle and SAP scrambling—they’re used to pushing out new versions every 18 months or so and then watching as customers take years to pull the trigger on upgrading. “It must be frustrating for Oracle and SAP,” says Hastings, the Netflix CEO. “I’m sure the latest version of their software is amazing, but it’s just that no one is using it.”
Netflix started out using Workday’s human resources software and has since adopted the company’s newer financial management software as well. Hastings says that as successful as Workday is, winning over large, old-line companies will never be easy. “The switching cost away from Oracle or SAP is just enormous,” Hastings says. “So, I think Oracle and SAP will do just fine.”
Duffield and Bhusri are eating lunch at a diner in Truckee, Calif., not far from Lake Tahoe. They’re best friends who meet regularly for “Chardonnay dinners” and describe their co-CEO arrangement in marital terms. Duffield concentrates on looking after customers, while Bhusri handles day-to-day operations and communes with Workday’s engineers to craft the company’s strategy. “We’re perfect together,” says Duffield. “It really is like when you’re with your wife at the best of times and there’s no arguing or posturing for dominance. It’s just compassion and trust.”
About half of Workday’s employees are PeopleSoft veterans, and the co-CEOs have tried to replicate PeopleSoft’s employee-friendly culture. There are parties on Fridays where Bhusri has been known to belt out Blister in the Sun on a makeshift stage. And pizza-and-beer bashes in a Silicon Valley pool hall when a new version of the Workday code is released. Every employee gets stock options and is encouraged to take part in the Workday Foundation and other charitable causes.
In 2008, Duffield threw a company picnic to end all company picnics. He hosted Workday staffers and their spouses at his 600-acre Ponderosa Ranch—the filming location of the old television show Bonanza and later a Wild West theme park. He hired actors to inhabit the fake town, and employees got to partake in shootouts, barbecues, and mechanical bull rides. They also threw back some beers and sodas at the town’s saloon, which Duffield’s wife restored to working condition.
The touchy-feely stuff is nice, and just about anyone you ask will describe Duffield and Bhusri as nice guys. The problem is that Oracle still stands in the way of their vision. And Oracle does not play nice.
During a recent speech at the AllThingsD technology conference, Oracle’s Ellison made it clear that Workday is on his to-do list. Prompted by a question from the audience, Ellison went off on a Workday tirade. He poked fun at Workday for not running on iPhones and iPads (it does) and not using a database to store important information (in fact, Workday uses an Oracle database). Ellison then castigated Workday as a frail toy not ready for big, important customers. “We beat Workday all the time,” Ellison said. “I’m not worried about them.”
Reid Hoffman, a LinkedIn co-founder and Workday investor who was in the audience, says the speech “followed that Shakespearean line about he doth protest too much.” Bhusri was also in attendance and had thought about sitting next to Marc Benioff, the CEO of Salesforce.com, to watch Ellison. Benioff left Ellison’s side at Oracle years ago to found Salesforce, which blazed the cloud-computing trail for companies like Workday. Bhusri figured it best to avoid catching Ellison’s attention and moved a few seats away from Benioff.
Ellison, who spent the last couple of years dissing cloud computing as overblown, has come around. Last year, Oracle bought RightNow, a company that sells cloud technology aimed at customer service jobs such as managing call centers. Earlier this year, Oracle spent $1.9 billion on Taleo, a maker of cloud software used for employee recruitment. For its part, SAP paid $3.4 billion for SuccessFactors, a rival to Taleo. “We’re more serious about the cloud than five years before,” says Sven Denecken, vice president of cloud strategy at SAP. “The industry has changed, and we too want faster and faster innovation.” Analysts such as Peter Goldmacher at Cowen & Co. have described these moves as a response to the growing threat posed by Workday. At the June 6 press conference, Oracle launched Oracle Cloud.
Bhusri thinks it’s too late for SAP to mount much of a charge in the cloud. He expects Oracle to acquire NetSuite, a cloud-computing company in which Ellison is an investor. “Oracle has validated the cloud and our model now,” Bhusri says. Then he remembers the don’t-mention-the-O-word directive: “I spend my time looking at what Facebook and Amazon are doing, not Oracle or SAP.”
On the plane, in his chauffeured car, and while putting down a patty melt at lunch, Duffield keeps insisting he doesn’t begrudge Ellison. “The way PeopleSoft ended was a real downer,” he says, “but it’s hard to get annoyed with a fella for making business decisions.” Workday, Duffield says, won’t suffer the same fate as PeopleSoft, and while neither he nor Bhusri puts it into words, it’s clear that one of their goals is to show that they don’t have to be Ellison to beat Ellison. “Being nice and competitive are two different things,” Duffield says. “We’re nice guys kicking ass.”
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