Workday: The Next Software Power?

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So far, Workday and the software-as-a-service business model have not had a big impact on the traditional software companies with which they compete. Oracle's (ORCL) application software revenues grew by a rambunctious 31% last quarter. And SAP's (SAP) own on-demand software, Business ByDesign, has gotten off to a rocky start since it was launched last September. SAP discovered potential customers wanted more capabilities than it had expected. At the same time, investors complained that the amount of money SAP was investing in the new offering was squeezing profits. So it has slowed its global rollout of the service. "There's some interest in this, but it's not as big as some say. It's overhyped," says SAP Chief Executive Henning Kagermann.

The folks at Workday are willing to be patient. Duffield, though he's 67, is driven to achieve the same kind of success with Workday that he had as founder and longtime chief executive of PeopleSoft, which was one of the leaders in traditional corporate software before it was bought by Oracle four years ago. He's bankrolling Workday with some of the $1.2 billion he made on PeopleSoft and foresees it eventually following the same kind of trajectory. "Workday could end up being the second coming of PeopleSoft," he says. His partner in the venture is Aneel Bhusri, 42, the company's president, who also was an executive at PeopleSoft.

"A Real Chance of Delivering"

The Workday strategy was to focus first on building human resources services and then flesh out the portfolio with most of the major computing systems a company needs to run its basic functions. It has already introduced accounting and payroll systems and is working on order processing and procurement modules. The company has 58 customers, and 25 of them are now fully operational on their Workday systems. Bhusri is cautiously optimistic. "A lot of people didn't think large companies would choose the on-demand model for these critical systems, but we have proven they will," he says.

Life Time Fitness is an important proof point. It was partway down the path of choosing a traditional software package when one of its managers happened to sit next to a Workday employee on an airplane flight. After meeting with Duffield and Bhusri and testing their services, Life Time Fitness abruptly changed direction. First it replaced HR and payroll systems from Ceridian with Workday's services, and now it's replacing Microsoft's (MSFT) accounting software. "It was a no-brainer to go with Workday," says John Hugo, the company's controller. "It's less expensive, and we don't get locked into contracts with hidden maintenance and upgrade costs."

Workday still has a long way to go to catch Salesforce.com, which is on track to bring in $1 billion in revenues this fiscal year. "There's only one Salesforce.com," quips Benioff, its CEO. Still, he sees plenty of promise in the business Duffield and Bhusri are building. "They have a real chance of delivering," Benioff says.

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Hamm is a senior writer for BusinessWeek in New York and author of the Globespotting blog.