Workday\'s I.P.O.: \'The Incumbents Are Not Prepared\'

On Friday, Workday held one of the most anticipated enterprise tech initial public offerings of the year, closing at $48.69 a share, up 74 percent. The company pocketed about $675 million. Even more than money, its co-founder says, Workday bought itself credibility for a coming battle with competitors like Oracle and SAP.

Workday sells cloud-based software that is used to run human resources and corporate financial systems. When you aim to sell that to big business, “being public matters,” said Aneel Bhusri, the co-founder and Workday's chairman and co-chief executive. “A lot of companies are conservative, and maybe got burned in the Internet bubble 10 years ago. Companies they worked with went out of business.”

Now, he said, Workday and a few other enterprise software companies would challenge bigger incumbents, which have more applications but are shifting from an older model to delivering software as a service via the cloud. In this case, big enterpr ise software companies like Oracle have snapped up a lot of their competitors, and are trying to use their market power to sell companies on buying everything from them.

“Oracle's products are a mishmash” of different kinds of software, Mr. Bhusri said. “It's the same for SAP.”

Other newcomers have posited a contest between many cloud companies offering mix-and- match applications that customers buy, versus incumbents locking customers into a cloud-based “stack” of computing power and applications. Mr. Bhusri thought there would be some choice, but also the domination of a few new companies according to broad areas of business expertise, with Workday at the center of one of them.

The Workday I.P.O., Mr. Bhusri said, completes a four-part model of cloud-based enterprise software. The first cloud, exemplified by Salesforce.com, he says, concentrates on customer-facing software, like sales and customer collaboration products. The second, occupied b y Workday, looks inward to the processes that run the business.

An information technology automation cloud, which Mr. Bhusri says is dominated by ServiceNow, is the third element. ServiceNow went public in August. A fourth cloud would consist of business- and industry-specific applications developed by independent consultants and in-house engineers.

“From a customer standpoint, if you can get the best of breed from each, throw in Google for e-mail and documents, how is that not better? How is a large vendor going to compete?” Mr. Bhusri says.

While the argument about corporate software rests on tech trends, on a human level Workday also looks like a revenge play. Mr. Bhusri's co-founder and co-chief executive is David Duffield, who started PeopleSoft, a human resources software company. Mr. Bhusri made his career working closely with Mr. Duffield, but after the two men left it, PeopleSoft stumbled. Mr. Duffield tried to come back, but PeopleSoft was pur chased by Oracle in 2005. Mr. Duffield, a billionaire, set up a fund for PeopleSoft employees adversely affected by the takeover, and began working with Mr. Bhusri on Workday.

“This is the start of a 20-year battle,” Mr. Bhusri said Friday. “The incumbents are not prepared.”