Towards the end of my quarterly earnings call last week with Bill McDermott, co-CEO SAP he said: "The cloud is real at SAP. We're going to assemble a portfolio of on-demand applications with Business ByDesign and then we're going to impose our will on the market."

I came off that call with one thought in mind. McDermott could convincingly sell the idea the moon is made of green cheese to otherwise sane adults. And get them to pay for the pleasure of obtaining that knowledge. He's that good a salesperson. But as I walked away from the phone and returned to Workday's user conference I saw a different reality.

If Workday continues on its present trajectory, it stands a very good chance of rendering both SAP and Oracle irrelevant to the market. It is already happening. Here's how it plays out and why.

The duopoly of SAP-Oracle have pretty much ground out the enterprise turf for themselves. Other players like Microsoft and Infor cannot come close to them. They are very much in the Tier 2 bracket when thinking about enterprise plays.

That aside, all these players are fatally flawed. As you look at their financials they are heavily dependent upon a 90-95 percent maintenance margin business (PDF download) that effectively sees their customers paying at least twice over in five to six years from the day they first sign up for a licence. It's one heck of a business model but it only works for as long as the vendors continue to feed the pipeline of licensed sales.

Salesforce.com has already taken $2 billion plus out of the market (PDF download) with their CRM solution. The Salesforce.com ecosystem that includes Heroku and Radian6, along with a fast growing set of implementation practices at Accenture, Deloitte, PwC plus smaller players like Appirio are chewing into that fat SAP-Oracle believes is their right. Let's look at the Workday specifics.

Market momentum
Workday has come from near nothing three years ago to a $2.1 billion valuation based upon annual billings that are currently heading towards $300 million. Most of that revenue comes from customers that would be natural SAP-Oracle shops. The same is happening with Salesforce.com as it moves steadily upmarket, helped along by the SIs.

Workday is interesting because they've done something we've not seen in the market before. They are taking money off SAP-Oracle's table stakes in accounts where you would think the incumbents are impregnable. The notion that large scale rip and replace is a non-starter has been proven to be a fallacy and that trend will continue. What predictions make sense in 2012, the year Workday plans on an IPO? Billings at $500 million 2012-13? It's on the cards.

Customer Satisfaction
Workday started by going after the HR/HCM market. Its customers are happy. Its users are largely happy. While I have agreed not to talk specifics, a couple of anonymised quotes are worth noting.

When I asked a 20-year PeopleSoft customer why they'd move, the answer was not surprising but must be painful to Oracle: "When I see Oracle abandoning PeopleSoft, why shouldn't I?" The reference is to their seeing no real roadmap beyond PeopleSoft 9.1 except an upgrade to Fusion, a largely new and untested solution with no obvious cloud advantage. There is after all only one price list (PDF download) and that looks suspiciously like an attempt to keep customers wedded to an on-premise model.

I asked another customer why they've moved to Workday financials: "We'd implemented HR, finance saw it and got jealous of what HR have." That was pretty much the initial selection process. I've heard that general theme repeated several times. It is a testament to the degree of satisfaction that Workday imbues in its customer base.

At the conference co-CEO Dave Duffield reported 96 percent of customers would recommend Workday to potential customers. "We're working on the others," he said. During deep dive sessions, Workday actively sought feedback on issues customers want solved. I focused on financials because, if anyone is going to moan, it will be finance people.

In the sessions I attended I didn't hear a single serious grumble. I sense checked with colleagues and a similar story emerged. Workday has some big technical hurdles to overcome but it is clear that customers trust Workday to deliver. Oracle Fusion was delayed many times and is at least two years late coming to market. SAP HANA is largely a technology play with little by way of apps after three years of development. The trust comparison is stark. Discussing this topic with one colleague, he said: "Try that [customer satisfaction assessment] at an SAP event and you'd find 90 percent pissed off at something."

Fast delivery
During his keynote, co-CEO Aneel Bhusri provided insights into functionality coming in Workday 15, the next release due December this year. He also gave hints about what is coming in WD16-17, which will be delivered during the spring and late summer of 2012. I knew that Workday has a three releases a year cadence but it suddenly struck me just how important this is as a differentiator. Apart from keeping customers happy about required functionality, it means customers have something they can almost taste pretty much every 16 weeks. You cannot say that about the incumbents.

More important, the fact Workday has brought an impressive set of solutions to market in such a short period of time speaks to their agility. I believe they will be fully functionally comparable to SAP-Oracle within two to three years. In some areas like business intelligence, they are already ahead of the game and especially in delivering novel approaches to planning, budgeting and forecasting via the Tidemark partnership. If Workday maintains its pace then it races ahead after 2014, making it a natural short list candidate for any business. Oracle can argue it has Fusion but most of the smart money says it will get little real traction before 2013. SAP has extended support for ECC6 through 2020.

That's a clear signal the company has nothing fundamentally new to offer in the core applications. The only reason for extending support is to provide breathing space while it figures out how to build the Business Suite for the cloud market. Workday of course is not standing still.

Cloud power
During the conference I gave a Q&A on why finance has to look at what's on offer for cloud accounting. One of my key points is that the systems of the past were built during a time when compute resources were constrained. Today we have plentiful technology and massive amounts of compute power.

My first accounting solution ran in 4MB of RAM. What could you run in 4MB these days? HANA comes in 64GB RAM configurations with a limited developer sandbox requiring 16GB but going up to 1TB RAM in production systems. Why would you pay the premium for these technologies when Workday has architected for them anyway?

Rethinking applications
We have new techniques and technologies that allow us to re-imagine applications. And we have the Internet. Workday has taken all those resources and rethought accounting. Instead of thinking about information as a by-product of transaction processing, they embedded analysis into the system from the word go. There is no need to add on third party products that help finance provide its business support role unless you regard the Tidemark partnership as an add-on. Incumbents want extra licensing - and maintenance - for their solutions. Which is more attractive to a potential buyer?

More for less
Along with the speed to market, Workday has not burned billions in cash getting there. Its total funding is $250 million. Of that, Bhusri told me the company doesn't need the $85 million it recently raised. He also hinted the company is close to break even. How much have SAP-Oracle spent on engineering their solutions?

Accelerated adoption
In thinking about Workday's billing rate I recall SAP reached DEM831 million in revenue by 1982. That's about USD 630 million. Workday implemented its first customer three years ago. It will blow past that number in 2013, eight years after its founding. Times were different back in the day but my sense is that Workday is growing faster than Salesforce.com which has consistently shown solid double-digit growth for some years. The incumbents are not doing badly at all but to achieve comparable run rates they've had to bring new solutions that are incremental to what went before.

Ecosystem advantage
Both Workday and Salesforce.com have active ecosystems. So do SAP-Oracle. The differentiator is that both Workday and Salesforce are able to partner quickly and well. SAP-Oracle partners are largely backfilling or problem solving.

A couple of months back, I was asking Workday what was happening with its financial cloud of partners. It's a vital ingredient to fleshing out solutions and a key to meeting broader needs.

At the conference Bhusri announced partnerships with Zuora for billing and Tidemark for planning, forecasting and budgeting. I know the evaluation process for Zuora was a matter of weeks. Tidemark only came out of stealth mode a week or so ago. Both are world class solutions. We don't hear about strategic partnerships from SAP-Oracle. If anything, SAP appears to be going backwards, saying the bulk of its net new business on HANA is coming from its own sales teams. Partners I speak with are treading water. And even if you buy into the HANA story what you're really looking at is yet another layer on top of a creaking stack of software that has its roots going back some 40 years.

The downside
While much looks rosy for Workday, fact is that all customers are on a forced upgrade march. During the conference, Duffield was at pains to point out 'we're all on a single code base.' But what happens if you're not ready to consume what Workday offers? The good news is that enhancements are switched off as standard. The better news is that new releases include at least 30 percent customer-specified enhancements. The bad news is that when you get too far out of synch, you will likely experience internal disruption.

Workday showcased Deloitte, PwC and Accenture as implementation partners. Safe pairs of hands you might think except those firms are locked into a time and materials model. Cloud requires a business model rethink that values outcomes. The good news is that whatever the upgrade for an incumbent, Workday's end user economics are way more attractive.

Given some of the numbers I am being quoted, savvy SIs could shave 70-80 percent off what PeopleSoft customers are being sold as upgrade and still come out ahead functionally. "Whatever they're quoting. we'll shave it," said one SI. I guarantee it will be more cost effective going with Workday. I've crunched the numbers.

Bottom line
We have happy HR customers, rapid release cycles, a new approach to functionality, solid partnerships and hyper growth. Add it all up and you have a confection that has to be lethal to the incumbents. Now - should anyone bet against SAP and Oracle? Absolutely not - at least not today.

But I can see a day coming when the steam runs out of the new licence engine. When that happens, things will start to crumble. By then - and I am predicting in the 2015-17 time frame - Workday and Salesforce.com will have become the new giants of enterprise software.

Of course, like most predictions, I could be completely wrong.