A Fifth Startup? It’s All In A Workday

November 13, 2006

By Sarah Lacy

Dave Duffield was alone in a hotel room 3,000 miles from home when he got the news that PeopleSoft Inc., the company he had started and built over 17 years into a software powerhouse, had been snatched away. It was Dec. 10, 2004, and Duffield was preparing to give testimony in a shareholder lawsuit when the call came from longtime colleague Aneel Bhusri. “I’ve got some very bad news” was all he needed to hear.

PeopleSoft’s independent board members had voted to accept an enhanced $10.3 billion buyout from Oracle Corp. (ORCL ) Oracle Corp., the megacompetitor Duffield had taken to calling “the bad guys” because he feared there would be layoffs and product cuts if it took over. He felt like some- one had punched him in the gut. “I was in the middle of nowhere,” he recalls. “It was totally depressing.”

Duffield had put up a good fight. Three months earlier, when he returned from retirement to try to rescue PeopleSoft from Oracle’s clutches, many were amazed. Here was a wealthy, retired man in his sixties who, with Bhusri, had turned the reins over to CEO Craig Conway back in 1999. He had philanthropy and six adopted children at home to keep him busy. What did he need with running a company again? So when Oracle Chief Executive Lawrence J. Ellison finally prevailed in the takeover battle, everyone assumed Duffield would retreat to Tahoe–with the $600 million more he made off the sale.

They were wrong. On Nov. 6, following a year of industry speculation, Duffield, 66, will launch his latest software company. The startup, his fifth, is called Workday. It’s a bold attempt to tackle head-on the giants of the business, Oracle and SAP (SAP ), with Web-based “on-demand” software.

That means taking on the old PeopleSoft products, which Oracle still sells and supports. Already, Workday bears a striking resemblance to Duffield’s old company. At its offices in Walnut Creek, Calif., executives sit in egalitarian cubicles. Many are former PeopleSofties with a strong sense of loyalty: Few forget that, following the buyout, Duffield put up $10 million of his own money to help laid-off workers. Today, CEO Duffield roams the halls in jeans and a golf shirt. Just like in the early days at PeopleSoft, it’s as if a Midwestern company has been plunked down on the edge of Silicon Valley.

Attacking Oracle and SAP, which hold 65% of the market for big-company applications, is an idea that would get most people laughed out of a venture capitalist’s office. Fortunately, Duffield is worth an estimated $1.2 billion. Bhusri, who is back as co-founder, is a partner at venture firm Greylock Partners, which jumped at the chance to fund Duffield’s next act. So far he and Greylock have ponied up $15 million and expect to invest $20 million more by yearend. Why get back in the game? “I had a good life, my kids were happy, and I could hold my head up high about what I accomplished at PeopleSoft,” Duffield says. “I wouldn’t [risk all that] unless there was a real opportunity.”

AHEAD OF THE CURVE
That opportunity is to catch the software business at a new inflection point. PeopleSoft came along when human resources and other business applications were moving from mainframe computers to PCs. It quickly became a leader in easy-to-use programs that automate HR tasks such as the administration around hiring, firing, and performance reviews. For its time, PeopleSoft produced programs that were remarkably easy to use and customize. Then it rocketed to No. 2 in software for broader use in corporate applications, such as accounting, factory planning, and supply-chain management.

Shortly before its sale, PeopleSoft had 13,000 employees and $3 billion in annual revenues. In 2003, PeopleSoft attempted to widen its lead by buying a smaller competitor, J.D. Edwards. Ellison launched a hostile bid for PeopleSoft that stunned the industry. Conway resisted vigorously but alienated shareholders who felt he needed to consider the escalating offers. Finally the board fired Conway and turned to Duffield. He opposed a sale, but was overruled by independent directors.

Fast forward to today: Corporate software packages have grown increasingly complex and expensive to maintain. Frustrated employers are turning to on-demand software, which is easier to use and cheaper long-term. Sellers run programs for customers, taking on the cost and hassles of operating databases and servers. Users log onto the Web to pull down information on payroll or figure out where an order is in the sales pipeline. At the same time, a new, more flexible style of programming is emerging that takes advantage of software building blocks. As companies grow, they can move pieces around without breaking up the whole system. Workday will try to exploit those changes.

But the idea that Web-based technologies can improve software isn’t exactly original. A handful of promising young companies–salesforce.com (CRM ), RightNow Technologies (RNOW ), and NetSuite, to name a few–are gaining share with midsize companies. And SAP, Oracle, and Microsoft (MSFT ) are retrofitting their programs.

So Workday has its work cut out. The largest of its five customers is Biosite Inc. (BSTE ), a biotech company with 1,100 employees. To build customer confidence, Workday needs to forge relationships with big software and services outfits. It’s in talks with Microsoft to figure out how to get Workday software to mesh with its ubiquitous desktop programs. And Accenture Ltd. (ACN ) is building a Workday practice to help big companies evaluate and implement the programs, a sign that it thinks Workday is on to something. “We think this is a huge opportunity,” says Bob Suh, Accenture’s chief tech strategist.

Still, Workday’s best asset is Duffield’s reputation as a software legend. Early on at PeopleSoft, he did much of the coding himself and personally manned booths at trade shows. His last slide at customer conferences showed his direct phone line (and, later, his e-mail). “There really is a cult following around Dave,” says AMR Research Inc. analyst Bruce Richardson. “If anyone can do this, it’s them.”

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The Friendly Face of Business Software

May 3, 2006

By Sarah Lacy

Last fall, AMR Research analyst Bruce Richardson was sitting on a couch in San Francisco’s Moscone Center during one of Salesforce.com’s many customer conferences thinking about the phenomenon the software company had become. As a scrappy upstart, it took the industry by storm, offering a cheaper and easier to install program to manage sales teams.

Dancing in Richardson’s head was a conversation he just had with the chief information officer of a large industrial company who was planning to ditch Salesforce.com’s (CRM ) software for one of the market leaders, Oracle (ORCL ) or SAP (SAP ). But when he ran into a chatty conference attendee from the same company, he asked her about the CIO’s plans. “Over my dead body,” she exclaimed. It was fierce loyalty unlike anything Richardson had encountered in his 26 years covering business software. In fact, it was downright Apple-esque, he says (see BW, 9/19/05, “An eBay for Business Software”).

Such fierce user loyalty may be the first spoils in a growing design renaissance in business software. The feature wars are over. The new software upstarts have a powerful one-two punch: cheap startup costs and drop-dead ease of use. While much of the attention in the software industry has focused on inexpensive applications that undercut pricey traditional business programs, it’s the new design movement that could prove more important. In fact, it could end up reshaping the user experience across Corporate America.

THE GEEK FACTOR. Forget what the corporate IT department thinks about business software. The actual users will tell you programs like those offered by Salesforce.com may be the first truly intuitive pieces of business software they’ve ever used. “My mom could pick this up in about three or four minutes,” says Chris Corcoran, CEO of Sunset Companies. He’s a customer of NetSuite, another on-demand company that’s getting ready for an Initial Public Offering this year (see BW, 2/13/06, “Giving the Boss the Big Picture”). “Most salespeople will tell you to take their right arm before you take away Salesforce.com,” jokes Kim Niederman, senior vice-president of worldwide sales for Polycom, a Salesforce customer.

To really appreciate the change, consider just how frustrated the buyers of business software had been. Companies spent buckets of money in up-front costs, and then more dough getting that software to work. Even more galling for tech managers is the reality that a lot of people outside of, say, the accounting department, never bother to use the products because they’re too geeky and complicated.

That’s why two big software movements have been gaining steam. The first is on-demand computing, where companies such as Salesforce run the program for the customer, selling use of it over the Internet for a monthly fee. The other big trend is the open-source software movement, where vast communities of coders collaborate to build software that’s freely available online.

POSITIVE IMPRESSIONS. It’s not that all of those open-source contributors are great designers. The key to the appeal is the try-it-before-you-buy-it nature of the open-source movement. When the software works and it’s easy, it catches on fast within companies and quickly builds a grassroots following. Increasingly, open-source designers understand that their audience is counting on them to develop easy-to-use programs.

Take customer relationship management company SugarCRM. It even seeks to provide some entertainment with different “skins” it offers for its interface. Sales people can log client meetings and organize contacts against a backdrop of palm trees or a golf green. “It seems a little silly at first, but they smile the first time they see our application,” says Clint Oram, co-founder of SugarCRM. “That’s an important first impression.” (See BW Online, 10/3/06, “Open Source: Now It’s an Ecosystem.”)

Good design is becoming more than a nice-to-have feature. Thanks to slick Web sites like Amazon.com, people are coming to expect software that takes no or little training to use. In fact, Salesforce’s first prototype bore an intentional resemblance to Amazon.com. The only difference: The tabs were changed from categories such as “Books” and “DVDs” to things like “Contacts” and “Sales Leads.” Says Parker Harris, Salesforce’s co-founder: “We want to get a toe-hold, and once people start using us, we know they’re going to like it. That’s our secret sauce.”

TALENT SHORTAGE. It shouldn’t come as a big surprise that on-demand software is focused on the user experience. The down side of letting customers pay by the month is that they can more easily switch to a rival. So on-demand software providers have to keep their customers happy with uncluttered, user friendly designs that, at least for now, the old guard can’t match.

“SAP and Oracle may be the standards, but if you get something that works, people will hold onto it forever,” Richardson says. Security software company IronPort Systems is one of several who tried to switch from Salesforce and faced a full-on revolt from the rank and file. “We’re stuck,” says CEO Scott Weiss.

That’s a good news/bad news scenario for usability companies such as Adaptive Path in San Francisco. Jesse James Garrett, director of user-experience strategy at Adaptive Path, says his business is booming and it’s near impossible to find good freelancers to bring in to meet all the demand. If they haven’t taken jobs at Google (GOOG ) or Yahoo (YHOO ), they have taken jobs with the new software up and comers.

ALWAYS EVOLVING. A lot of these are consumer-oriented Web sites, but just as many are Web applications aimed at businesses. The talent pool of good designers is getting so dry that venture-capital firm Sierra Ventures has hired Adaptive Path on retainer to consult with startups on usability and design before they even write a line of code — a big departure from the way software is usually crafted.

It’s not just a greater focus on usability. Companies like Salesforce and NetSuite have a natural advantage. Since they host the software, they can track every mouse click, just as an e-commerce site can watch how shoppers navigate the virtual aisles. So user feedback is almost instantaneous. If people are getting stuck, companies can make real-time changes to the site. It’s like the entire user base is in a real time usability lab. “We actually host companies’ Web stores, so we learn how great Web stores work,” says Evan Goldberg founder and chief technology officer of NetSuite.

Such constant tweaking — largely invisible to customers — represents another major difference in the way software is made and maintained. Traditional software companies do one big release every few years, and the upgrades are time-consuming and expensive. Hosted software is more an eternal work in progress. It’s continually updated, based on traditional focus groups and on watching how people use the software.

ADVANTAGE: SMALL FRY. That kind of direct connection struck Todd McKinnon immediately when he became vice-president of development for Salesforce.com. He previously worked for PeopleSoft, now part of Oracle — a company known for its good user interfaces. “At PeopleSoft we couldn’t get a release out in two years,” he says. “Here, we do it every four months, and a day later it’s being used by hundreds of thousands of people.”

Adds usability guru Garrett: “The big guys just handed this advantage to the smaller players.” And, as the overbooked calendars of usability experts show, scrappy upstarts aim to make the most of it.

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