New on the radar - Workday - from the PSFT folks

Dave Duffield, founder of the old Peoplesoft, including others from the earliest PSFT team, have gotten together to start a new enterprise software company - Workday. This should be one to watch. They don't say so on their website yet, but I hear its going to have an on-demand model. And its going to start life building HR apps, before moving on to other application domains.

They say they want to 'tackle the traditional ERP markets, in a non-traditional way'. Its easy to imagine this team is'nt going to be content sitting along watching the ERP market divvied up between SAP and Oracle. After all, its a team that played a huge role in the same market for about 15 years. Quite the powerhouse that PSFT was, they posed a worthy challenge to everyone else in the market. So this venture will be really interesting.

Workday faces both a bigger opportunity and a bigger challenge. That's how the business of enterprise software is, compared to striking out in other types of business. Two factors that accentuate the upside and downside risk of starting out in this business -

Firstly, the rapid pace of change - technology (SOA architectures, web-services, AJAX) and business models (on-demand, open-source) - creates faster sources of opportunity, and upside, for new players to leapfrog incumbents in terms of technical and business innovation. But that horsepower of change also faces the significant drag of market friction, if you will - a peculiar downside of starting out new in this market. Enterprise software customers are notoriously slow in responding to technology change. The majority of them take a fairly large time to justify and execute technology upgrade investments. They also face high switching costs with changing software vendors. These factors also combine to impose a resultant drag on vendor R&D investment into the new generation. And while an on-demand delivery model inherently has the advantage of less of this friction for both customers and vendors, the major incumbents in the enterprise market at this point - Oracle and SAP - are'nt largely based on the on-demand model.

So how much larger is the motive force in enterprise software compared to the drag? Its a question that decides whether an enterprise startup like Workday is going to see the upside or downside of the way change works in their target market. Salesforce.com may appear to be growing blockbuster against the drag, but actually its still only nibbling at the edges of the traditional enterprise market. Mainly I would argue because its not ready yet in terms of the product. But they have time on their side to get ready until the enterprise drag is wearing off. And so too will Workday. But so too will Oracle and SAP. They've got time on their side to justify a gradual ramp to the next generation, until market friction among their installed base starts to wear off.

And as this legacy - on-premise, license-based software, custom and proprietary integration, even client server and mainframe platforms - as it wears off, the enterprise software market is going to remain an interesting one to watch.