But after Oracle's hostile takeover of PeopleSoft in January 2005, the two "legacy ERP guys," as Bhusri puts it, switched sides. They set out to build an on-demand platform whose sole purpose would be to replace companies' existing on-premise HR and ERP systems. Square in their sights were companies like Oracle and its PeopleSoft applications, which Duffield and Bhusri had evangelized for so many years.

In May 2005 they launched Workday, in much the same way that Salesforce.com went after the CRM market. Today, the privately held company offers on-demand HR and financial applications. Duffield and Bhusri argue that their products put an emphasis on user-friendly ERP applications and come with easy-to-integrate regular updates. The company closed out 2007 with 35 companies as customers, each averaging between 5,000 and 10,000 employees.

Ray Wang, a principal analyst at Forrester Research and a former PeopleSoft employee, says Workday's benefits are similar to other software-as-a-service vendors: rapid implementation (days and weeks instead of months and years), subscription pricing (cost per user, per month, versus $100,000 to millions up front); and frequent upgrades (system features and updates delivered every three to six months instead of every two to three years). "Workday is well positioned in the HCM [human capital management] space, and they are rapidly moving into the financials and supply chain space," Wang says. "Dave's reputation has brought significant interest to the company."

CIO.com Senior Editor Thomas Wailgum talked with Duffield, who is Workday's CEO, and Bhusri, the company's president, about their transformation from on-premise to on-demand adherents, and why CIOs and other IT executives resist on-demand applications.

CIO: How did Workday come together?

Aneel Bhusri: After the hostile takeover, we felt that the next wave of ERP was going to be on-demand. So in May 2005 we started the company.

Aneel Bhusri

In looking out at the marketplace and the technologies of on-demand, Web services, object-oriented technologies and what had happened with the consumer Internet, we saw all these pieces coming together in creating a new application platform. One of most important things for us was that [we had to make sure] we were doing this for the right reasons—not just for nostalgic reasons. We had a great run at PeopleSoft, but there really had to be an opportunity to build the next great applications company.