Has Workday ceded the cloud platform to Salesforce and Microsoft?

Workday CEO Aneel Bhusri shed some additional light last week on the five clouds that he believes make up the emerging enterprise applications landscape. But in reflecting on his comments, I wondered whether the vendor is being ambitious enough in its strategy to lead in just one of those five clouds, when others are pursuing more of a platform strategy that could allow them to extend their footprint beyond their core cloud.

So what did Bhusri say last week? In remarks to media and analysts at the Workday Rising EMEA conference in Dublin, he explained where he sees Workday in relation to other leading cloud vendors.

Workday itself occupies the administrative cloud, which while it sounds rather dull, consists of the core functions needed to run a business. Bhusri explained:

We focus around the administrative cloud. HR and finance go hand-in-hand together. That provides the backbone for running your business. If you're not a manufacturing business, that is your ERP.

Later in the day, I spent some time with Mark Nittler, Workday's VP of enterprise strategy, who elaborated further on the components that make up that business management proposition. Follow the link to read more.

Integration to Salesforce, Microsoft

The second cloud in Bhusri's landscape is the customer-facing cloud, where Salesforce's dominance is well established. Workday integrates well to the Salesforce cloud and Bhusri said he expects this to go further in the future.

I think you'll see deeper integration with Salesforce, particularly as our financial product takes off.

There will be a similar commitment to integrate with vendors in the third cloud, which caters for collaboration and productivity. Compared to the client-server era, vendors today are much more prepared to work with other platforms to make sure they interoperate, he said.

I would expect deeper integration with Microsoft and some of the productivity vendors over time.

Vendors are very different than twenty, thirty years ago. Of the legacy companies, Microsoft is the one that really gets it. [Companies like] Box, Dropbox, Slack, I would see us interacting with all those. It's just the world we live in.

Bhusri didn't elaborate on the other two of his five clouds, beyond naming ServiceNow as a leader in the IT cloud. He barely mentioned the vertical industry cloud, which completes the line-up.

My take - the platform flank

My issue with Workday's cloud strategy is that it's exposed on two separate flanks.

The first line of exposure is that Workday has stedfastly refused to go down the platform path that both Salesforce and Microsoft have adopted. Although it does have an ISV ecosystem, it tightly controls entry to this select coterie, with an intensive certification process that takes at least a year, and more often two, to complete. Company president Phil Wilmington recently explained to me why Workday controls its partners so carefully, but as I commented then, keeping the Workday cloud so pristine constrains its progress into new markets.

In contrast, Salesforce and Microsoft both have thriving ecosystems. The Salesforce partner ecosystem is now worth tens of billions according to IDC (part of a quarter-trillion-dollar Salesforce economy tallied by the research firm). Microsoft has put together a strong cloud platform proposition by melding Azure with its Dynamics and Office 365 product families, which its partner ecosystem is gradually learning to love.

Both of those platforms include financials offerings. Microsoft has just announced the Azure-hosted cloud-native version of its flagship Dynamics AX ERP product. The Salesforce cloud includes several partners that offer financials, most notably FinancialForce.com and also manufacturing specialists Kenandy and Rootstock, as well as HR vendors including Fairsail (which has already claimed customer wins from Workday).

None of these products are in the same class as Workday when it comes to meeting the financials and HR needs of large enterprises, but they are able to support the needs of substantial midmarket businesses. Perhaps in the future they will scale up to challenge Workday in the largest accounts, too.

Meanwhile, there's always going to the nagging question at the back of many customers' minds asking, do I really want to run my financials and HR on a separate cloud if I have the option of doing everything on one single cloud? That argument may be enough to outweigh some weaknesses in Workday's competitors.

My take - the verticals flank

The second line of exposure is the vertical industry cloud. These are cloud solutions that are tailored to the specific needs of vertical industries, whether that be energy, retail, aerospace, public sector or many others. Some of these may be built as standalone cloud offerings — Plex Systems is an example in the discrete manufacturing sector — but many are emerging built on other cloud platforms, with several leading examples in the Salesforce ecosystem.

Workday's exposure on this front has a couple of dimensions. First of all, its targeting of people-centric industries leaves it with no full-featured administrative cloud offering for product and asset-intensive industries. This leaves it open to enterprise-class challengers coming out of those industries. Certainly Workday will have to share its cloud market with them unless it can widen the scope of its own offering. Current players of note are more in the midmarket, but of those, NetSuite in retail and Plex Systems in manufacturing are already well established.

Secondly, Workday's limited platform ambitions and highly restricted partner ecosystem do not allow it to nurture third-party vertical cloud players built on its own cloud. This drives vertical cloud innovators to build on competing clouds, whether on their own or using the existing resources available to them on the Salesforce, Microsoft or other clouds (Box is also pursuing a Salesforce-like platform strategy).

For now, industry cloud solutions are in their infancy, but as they mature, that nagging question again rears its head, and this time with even more urgency. If all my vertical functionality is built on a specific cloud that also fulfils all my other functional needs, do I really want the bother of integrating to a business administration system built on a completely separate cloud?

None of these question marks have much impact on Workday's prospects of success in the short term. There's plenty of low-hanging fruit among enterprises whose pressing need is to move off ageing business systems to a more flexible, mobile-friendly and integrated cloud platform. But at some point in the future they will become more pertinent to the vendor's growth strategy.

Image credits: Five cloud smoke stacks in blue sky © chungking – Fotolia.com; headshot by @workday.

Disclosure: FinancialForce.com, NetSuite, Plex Systems, Salesforce and Workday are diginomica premier partners. Workday funded my travel to Dublin for Workday Rising EMEA.