The seven-year old company Workday, founded by Peoplesoft founder David Duffield went IPO this morning and immediately jumped 71%. The IPO price was set for $28 and it is treading around $48 after 3 hours. The market cap is reaching a whopping $6.5B. This also makes Duffield very wealthy with his 44% ownership ($2.5B). The co-CEO Anil Bhusree (Greylock Partners) is also a billionaire with his 17% stake in the company. Both started Workday after the hostile takeover of Peoplesoft by Oracle back in 2005. The total investment in Workday was over $200M and its revenue has been growing steadily, probably reaching over $500m at the end of next fiscal year.

Workday provides cloud-based human resources, payroll and financial management tools. So what is new? I think they have learnt from their deep experience at Peoplesoft and built this company to provide great user experience at much lower cost. Offering this as SaaS reduces capex and also much reduced consulting expenses (as much as 80%). Oracle or SAP applications require a hefty “services” cost, as consultants are brought in to customize and install the software. It is said that for every product license dollar, customers need to spend $6 to $7 in consulting. Workday aims at replacing the legacy in-house packaged applications such as SAP and Oracle. Recently companies like HP and Google have announced to endorse Workday for their internal use.

Workday started in the human resource area, but is expanding to financial management and eventually to ERP. The secret is in the architecture and design and ease-of-use. By making it multi-tenant and fast and using touch UI via tablets, they appear very modern and attractive. They have spent the time carefully building this product for the enterprise user, used to very archaic interfaces of charts and graphs and complex management.

Oracle and SAP are not sitting idle. In the human resource area, Oracle has bought Taleo (offered as cloud service) and SAP bought Success Factors. The other set of competition comes from SaaS companies such as SalesForce.com, Netsuite, and several niche players. It will be interesting to see how Workday manages its growth over next 2-3 years.