Yuri Arcurs / Shutterstock.com

Even customer service has started a shift to the cloud, and a company that specializes in precisely that is Parature. I first encountered Parature in 2011. The basic idea with its cloud-based software is to reduce the cost and time commitment required to answer the same support questions over and over. Simple as that.

Well, building on a partnership first established two years ago, Parature is about to announce that it is teaming up with Microsoft, the maker of Dynamics CRM software.

The new integration will give Dynamics users a platform from which to engage with customers on the Web, via live chat session, on their mobile devices or through social networks.

Key features include a self-service part that creates a knowledge base customers can use to get quick answers to regular questions on their own. Repeated questions tend to eat up a lot of time and attention that could be better spent elsewhere.

There’s also a chat service, so your service agents can be right there in real time. And there’s a social component as well, including Parature for Facebook and support for Twitter. Yes, customer support happens there, too.

The point of the integration is to get customer data that lives in the CRM application all in the same place as records of support calls and help requests. Logical, right?

Anyway, Parature has come a long way since I last looked in on it. It has been used to support approximately 55 million end users worldwide, and its customers include IBM and the U.S. Environmental Protection Agency. It’s backed by about $30 million in VC investments from Accel Partners, Valhalla Partners and Sierra Ventures.

Image: Yuri Arcurs / Shutterstock.com

Image copyright pupunkkop

The IPO is the lifeblood of our stock markets; it’s the vehicle that helps bring capital, liquidity and a sense of optimism to the U. S. economy. In the late 1990s, we had a market that was flush with technology-related IPOs. Today’s IPO market has been a series of stops and starts compared to then, and notably tainted by highly scrutinized, extremely volatile offerings.

While there have been recent successful IPOs like Eloqua, FleetMatics, Palo Alto Networks, ServiceNow, Splunk, Workday and Yelp, the investing public and the media are still skeptical. We keep seeing headlines like “The Other Tech IPO that Just Faltered,” “IPOs Remain Out of Kilter,” and “Lofty Gains Lift Gloom in IPO Market.” I have yet to talk to anyone who thinks much is going to change. It’s unfortunate, because I believe if you step back and look from a broad perspective, the elements are in place to bring the IPO pipeline closer to what it once was. It’s time to stop bashing it and look forward.

Throughout my years as a securities lawyer, investment banker and now venture capitalist, I have been intimately involved with over 100 initial public offerings. Most of them have been venture-backed companies in the technology sector. Many who have tracked my career would say I have worked on more technology IPOs than any other venture capitalist out there, with my first rodeo being with Four Phase Systems in 1975 all the way to FleetMatics, which went public in October.

I spent almost 20 years as a technology investment banker, eight of which were spent at Montgomery Securities, where I ran technology investment banking. It was there that I saw our IPO deal pipeline — at its peak — larger than Wall Street’s entire venture-backed company today. I came to this stark realization only recently, when I looked at a half-page sheet of upcoming public technology offerings from all the investment banking firms. It’s shocking to see. Our own deal sheet at Montgomery would always run onto a second page — and we were just one of the major firms at the time.

I am a firm believer that things can change. We can boost the pipeline of attractive offerings in today’s market by looking at it as a three-legged stool so that we start to fill more pages.

Three-Legged Stool Beneath the IPO Ecosystem
I view the IPO market as a three-legged stool that needs to be supported by a specific triad of parts to stay stable. Two of the three are already in place. The first leg is represented by a huge crop of strong attractive growth companies. The second is based on a favorable regulatory environment due to the recent passage of the Jumpstart our Business Startups (JOBS) Act. The third leg involves the investment banking system, which is the leg that needs adjustment. Once the three are aligned together, I believe the market can be ripe for recovery.

Leg No. 1: An Abundance of Venture-Backed Innovative Growth Companies
From what I am seeing right now, there are an incredible number of entrepreneurs creating compelling growth companies. While there were significantly more IPOs in the 1990s, the number of private companies currently being built is about five times what it was during that time. For example, in 1991, there were 319 venture investments in the core areas of the technology we know today. In 2011, there were 1,825. Yet there are far fewer IPOs.

Today’s entrepreneurs are defining massive, fast-growing markets that hardly existed 15 years ago, such as enterprise mobility, social marketing and big data analytics. They are also disrupting large established industries like travel, transportation and legal services. Compared to the 1990s, technology companies today have more sustainable, scalable models that can result in successful public companies in the long-term, where as we all know, only the strong will survive under the scrutiny of the public markets.

Companies today are vastly ahead of those I saw 20 years ago — stronger management teams, less capital intensive, bigger markets and better business models. An abundance of venture-backed innovative growth companies exists today. From this perspective, it is the best time ever. Therefore, the first leg of the stool is in full effect.

Leg No. 2: Favorable Regulatory Environment
Much of the previous regulatory clampdown (e.g., Sarbanes-Oxley and the Spitzer settlements) has been relieved under the JOBS Act. Now a smoother path exists to guide growth companies to go through the IPO process. This regulation has the potential to significantly affect the IPO process for smaller companies in a number of ways:

• Creating an IPO “on-ramp” for emerging growth companies (EGCs) with reduced SEC filing requirements
• Providing for realistic scaled disclosure, governance and accounting obligations for EGCs
• Relaxing restrictions on research analysts
• Allowing “testing of the waters”
• Allowing confidential IPO filings

Although there is now more flexibility, companies are not taking full advantage of the actions that are now allowed under the JOBS Act. While there are still some elements where the SEC needs to issue fuller guidelines, companies could be bolder and take advantage of the new laws.

Two of these areas — testing the waters and confidential IPO filings — are huge changes that companies should embrace. I’ll explain.

Testing the waters offers a huge advantage to young companies trying to gain an understanding of potential market reception. Historically, a company had to rely on feedback from its lead investment bankers as to what the likely reaction of the institutional buyer would be. While the bankers offer a reasonable proxy, they are far less informative than real life dry runs with a few institutional buyers. The bankers, having sold hard to get the business, have a natural optimistic bias and a tendency to support the company’s existing positioning. Testing of the waters is a terrific opportunity to explore the receptivity of the institutional buyer to the company, its positioning and target valuation. This can mitigate the risk of a disappointing or failed IPO. Amazingly, not everyone is doing this.

The confidential IPO filing is probably the most important change. Historically, EGCs were understandably concerned about showing their hand to competitors, suppliers and customers in an IPO filing unless they were quite sure that the IPO was going ahead. This created a certain caution by management teams. Now, companies can file confidentially and avoid these issues. They can get the clock rolling, work out any disclosure or accounting issues with the SEC, and only when they are ready to market the IPO do they need to show their hand. And this doesn’t preclude the “dual tracking” of an IPO and an M&A exit. A company can announce that it has filed even though the contents of the filing are still confidential. Nothing wrong with having your cake and eating it, too! The confidential IPO filing is a no-brainer that should be embraced and will allow companies to file that otherwise would have been on the fence and waiting.

Leg No. 3: The Investment Banking System
And now for the area in need of the most improvement: The investment banking ecosystem, which will require some changes and adjustment to reach its full potential and further drive our IPO pipeline.

The healthy IPO market of the 1990s was in large part created by the “Four Horsemen” of the technology investment banking world: Montgomery Securities, Hambrecht & Quist, Alex Brown and Robertson Stephens. Along with the well-known “Bulge Bracket” firms, those four boutique banks drove most of the technology IPO business during that period. These firms were small, nimble and not afraid to take risks. While those specific firms no longer exist and there have been many changes to the investment banking landscape, there is still top talent at both large and boutique growth-oriented investment banks.

Those people who have the skills and knowledge to bring value to growth companies exist today, and I can think of a number of firms fully qualified to be the next “Four Horsemen.” But even though we have the banks and the talent, the banking system still needs the economic incentive to get the banks more involved and motivated to bring companies public.

Currently, underwriting syndicates are being created in a way that dramatically limits the economic incentives to small firms. In the 1990s, the economics, or banking fees, were more favorably divided among the lead banks and the co-managers of the deal. In the current environment, a co-manager receives only 5 percent to 10 percent of the economics compared to 20 percent to 50 percent in the past. Therefore, most investment bankers are more incentivized to work on an M&A deal, because the fees are there. More money.

In addition, we have seen six to eight firms underwrite each of today’s deals. I believe companies should hire one firm as lead and between two to four co-managers, and give all participants the economics to incentivize them to develop a great deal. We have the investment banks that can provide research and trading support, but better deal flow and attractive economics are required to make the engines run.

Finally, the banking industry needs to make adjustments in pricing strategies. During my career, I have learned that the psychology of maintaining momentum is essential to complete a successful IPO. At pricing, the perception is that you need to price at least slightly above the range or revised range to prove it was a “hot” deal. Just look at all the headlines of recent IPO pricings and you’ll clearly recall who did well on day one.

Unfortunately, with some of the large IPOs that priced in 2012, the size of the deal and the price range was set too high. This has been problematic. It sets unachievable expectations and the deal becomes viewed as a failure and disappointment when it fails to meet those expectations. This is true not only for the IPO, but for a company’s early future as a public company.

I believe not every deal needs to be huge and highly publicized, and changing our viewpoints toward this will help. We used to have a higher frequency of smaller-sized IPOs. In recent years, all the offerings have been viewed as either great or horrible, which creates a huge perception gap. It ultimately discourages institutional and individual investors alike from taking a position in a new IPO deal. But in the past, there was more of a bell curve and most IPOs were considered “moderately” successful and many went on to become great public companies. Today, we have a bimodal distribution.

The smallest category as we see in this chart is the “well-priced” deal, up modestly (up to 20 percent). Rather, the bigger categories are big winners or big losers.

Source: Dealogic

So what now?
While things are not going to change overnight, we can create a more fertile environment when the venture capital industry, investment banks and growth companies begin to collaborate and drive changes in the IPO ecosystem and get deals flowing again. My experience tells me it’s possible. I’ve seen it before, and it can happen again, at an even greater scale, to become the most robust IPO market in history. We have been complaining for years that the IPO market is dead, but with a few small tweaks, it’s here for the taking.

Sandy Miller is a General Partner with Institutional Venture Partners (IVP). He focuses on later-stage venture and growth equity investments in technology, Internet and digital media companies. He was recognized by Forbes Magazine as one of the top 100 venture capitalists in the world by his inclusion in all of the Forbes Midas Lists since 2007.

SAP shares fell more than 4 percent as the company reported revenue came in at €5.02 billion ($6.7 billion), constituting an increase of about 9 percent year-on-year. Operating profits were €1.59 billion. Since the results were preliminary, the company didn’t report net profits. That disclosure will come on Jan 23.

The sales results missed the mark that analysts had been expecting: Sales of €5.13 billion and an operating profit of €1.95 billion.

The new HANA product that was the focus of the big launch last week moves business data into memory chips and off spinning hard drives, thus making access to that data more immediate. The company has been working on a transition from its existing suite of on-premise software applications for businesses for several years and announced the completion of the process last week. And while sales of HANA were stronger than expected at €194 million, they still make up a relatively small slice of SAP’s overall revenue pie.

Also, last week co-CEO Jim Hagemann Snabe said without elaborating that the company’s medium-term guidance will be revised upward. Currently the company expects to report annual sales of €20 billion by 2015.

SAP competes closely with software giant Oracle as well as with certain cloud-based software companies including Netsuite, Salesforce.com and Workday.

In the 15 months since that conversation, SAP has been on the move. HANA is not only done, but all of SAP’s primary applications are running on it. SAP has pivoted from running all of its applications in an old-school on-premise fashion to offering them both in the cloud and on premises, or on a mixed hybrid-cloud basis.

It also made a significant acquisition of SuccessFactors, the cloud-based human capital management (HCM) company. SuccessFactors is now a significant business unit within SAP, and includes all of its previous HCM software assets, and it competes with that market’s fast-moving cloud player, Workday.

Last week, SAP hosted a global launch event to announce that the three-year effort to convert its entire suite of business applications to the cloud — and to the HANA architecture — was complete. It also provided me an opportunity to catch up with McDermott in New York. Here’s a sample of our conversation:

AllThingsD: Bill, the last time we talked about HANA, you hadn’t quite moved all your primary applications over to it. It’s not exactly a huge piece of your business yet, but let’s start there. How is HANA coming along?

McDermott: We have 1,000 customers on it now, so it’s growing really fast. The last update we gave, we indicated that we think it could be a half-billion U.S.-dollar business, which would make it the fastest-growing software product in the history of the world. So it’s big.

The last time we talked, you hadn’t quite moved all your applications over to HANA. The big one that was missing was the Enterprise Resource Planning piece. Can I assume that part of the news today is about that process being completed?

That’s exactly it. The big news today is about the whole SAP suite being moved over to HANA. All the things that the business suite does — how you manage your supply chain and manfacture your products and get them to market, how you manage your people, how you manage your customer relationships, everything around you in that whole end-to-end value chain — runs in what we call the business suite. And we go to market with that suite in 24 industries, small, medium and large, all over the world. Now that whole suite runs on HANA.

For the benefit of people who struggle with the idea of what the software actually does, can you give me a good example of who uses it, and how?

We work with this company HSE24, it’s like a QVC in Europe. They are selling product on television, there’s a meter at the lower right-hand corner of the screen telling you how many of that item are left. That’s run on SAP software. When you call in to the call center, they already know from the sensors on the social networks, via HANA, what you’re likely to want. And then they can also do the upsell and the cross-sell. One of the customers that is going to be featured today is John Deere. We’ll talk about how they can, based on usage history and patterns, provide preventative maintenance on the things that will need it the most.

There’s obviously more to it than simply running existing processes faster and cheaper and more efficiently, right?

The wild part about all this is sort of like this: No one could have predicted that Disney would become the Disney we know today when Walt drew a picture of a mouse. What you have is the limitless potential. CEOs have the ability to rethink business models, based on having the speed and the insight and the simplicity to truly change how they run their companies and transform industries. You and I fly too much, and sometimes flights get canceled. It happens. If I have to get out of Moscow and get back to New York, the airline can charge me more. If my original flight is canceled, and I’m on the line with three other people, you can get more money out of me. Dynamic real-time pricing can transform the airline industry.

Is this all the result of intelligence you’ve brought from the applications themselves, that are getting a new benefit from being run in-memory on HANA?

There are two ways to look at it. The in-memory architecture makes it fast, and simplifies it. The application makes it so smart. You’re combining transactions and analytics. And you’re also doing things we like to call “extreme applications.” You may be a big consumer products company, and you have trade promotions that go to different stores in different geographies. If you ask them how it’s going at a particular store in Brazil, they will have a hard time answering unless they’re using HANA, because it captures all the transaction data. They know exactly who’s buying what, and using which promotion or deal.

Talk to me about the competitive landscape. Oracle CEO Larry Ellison loves to lob verbal grenades at you from time to time. Care to lob one back?

In the old days, the answer would have been yes. What’s happened is that we take it a compliment when people try to spread fear, uncertainty and doubt. It’s a sign they’re worried. But they don’t have to be, because we’re open, and our most important mission is to make customers happy and fulfill their ambitions. We’re fully cooperative with Oracle, with IBM and with Microsoft. So, anything that a customer chooses to do with one of them, they can continue to do it, and we are highly supportive of that.

Obviously, SAP’s applications can now run optionally in the cloud or in a mixed environment. But the pure-play cloud companies like Salesforce.com and Workday are certainly showing some strength. What sort of competitive threat are you seeing from them?

I think SAP has responded in the cloud. SAP Cloud will take care of your customers on-premise or on-demand. We announced SAP Customer 360, and it runs on HANA. So it’s real-time, it’s predictive, and it’s in memory. If you want to buy it on a public cloud on a subscription basis like Salesforce, we now have it. Once people realize it’s running on HANA, we’re going to have an advantage. Salesforce has done a good job of building a large cloud company, but they have done it on an old architecture. You can’t do real-time analytics on the Saleforce.com platform. That’s a big Achilles’ heel. On talent, Workday is a good company, they built a good HCM solution. We bought SuccessFactors, and then we took all the assets of SAP’s existing HCM application and put them under SuccessFactors. So now, as it relates to people, wait until you see, in June, the list of companies who are running SuccessFactors. Workday had a great opportunity to go in where there was no competition, and we didn’t have a response. We had HCM, but it was all on-premise. The market wanted talent in the cloud. Now they are going against us, and there’s a lot of competition.

Late last year, it landed a significant round of venture capital funding, a $25 million Series C led by Sequoia Capital. Prior investors Andreessen Horowitz, Greylock Partners, Khosla Ventures and Floodgate all participated, too. The round nudged Okta’s total capital raised to north of $52 million.

The funding announcement was accompanied by a larger vision statement about what Okta aims to achieve. In that statement, CEO Todd McKinnon argued that “identity is central to how work gets done in a business,” meaning that Okta aims to be a lot more than the company that makes it easy to manage account credentials.

I recently had a chance to catch up with McKinnon in New York to talk about what he meant by that, and to flesh out what he sees happening at Okta in the coming year.

AllThingsD: You’ve just landed a big C round investment, but it coincided with the publication of a big vision statement. What is the vision statement all about?

McKinnon: I think people misunderstand a lot of things about our company. The first thing they think is that we’re just for cloud stuff. And CIOs and other people thinking about building the next generation of their IT environment don’t want two identity systems. They don’t want the old that barely worked, and the new one that doesn’t talk to the old one. They want one. And we’re positioned to build that. We’re trying to be more aggressive at communicating that.

Initially, everyone understood the identity layer to be a simple manner of managing all the credentials for using cloud services. Now you’re reaching into more on-premise products. How much of a pivot is that for you?

The vision has always been about a single identity layer for everything. The reality is that we started as a little cloud company; the most receptive buyers were companies doing a lot of cloud stuff. So that was how we communicated about ourselves to the marketplace. And now the product has matured to a point where we can really communicate about the vision, about a unified way of managing identity.

Give me some sense of momentum. Funding is certainly an indirect indicator, but what else is going on?

We have, in the last year, added 140 enterprise customers, which brings us to more than 200. We’ve added 300,000 end users. Those are paid enterprise-user seats, which means there’s real money behind them, and that has brought our total user footprint to 500,000.

The obvious thing that people start wondering about a company like yours is when you might be ripe for acquisition, or if you’re going to go the distance. I can think of a handful of cloud and software companies, like Salesforce.com or Oracle or IBM, that could be logical buyers. What are your thoughts about this?

We’re building the identity layer for the next generation of corporate IT. Everyone is going to want to do something like this. You saw Saleforce’s announcement that they want to do this, too. This is clearly something strategic. The value of our product comes from it being in the hands of a neutral party. Our customers want Switzerland; they don’t want someone like, say, a Salesforce.com or a Google, because it would be beholden to their own apps.

I’m reminded that David Sacks, the CEO at Yammer, used to say something similar about being Switzerland when asked about being acquired. Look what happened there: Yammer is now part of Microsoft. Couldn’t the same thing happen to you? And what would it mean if it did?

It’s different for us. If you never connected Yammer to anything, it could be valuable. If any one of our integration partners, say, Jive or Box, or any one of those companies cuts us off, the value of the product goes down. So it’s different in that regard. The Yammer platform is still valuable with no integrations. Our platform is not. So I think that’s a big difference. It gets back to the funding. We’re venture-backed. At the end of the day, I have a responsibility to my shareholders, and we have to build enough momentum in the company to have the outcome of not being acquired, to be superior in the minds of my shareholders than the outcome of being acquired. Clearly at Yammer, they couldn’t do that.

Now you jumped ahead to my next question. Salesforce’s Marc Benioff announced a plan to create a competitor to Okta, and we talked about it at the time. How far, to the extent that you’re aware, has that effort come along? Are you worried about it?

Anytime a big company announces they want to compete with you, you should be worried. They said they’re going to build a product, and that’s definitely going to be a competitive threat. The reality is that Salesforce is doing a lot of things, and they’re spread very thinly. I don’t think they’re going to make the kind of investment necessary.

What will you do with the money?

The big thing is to build out the product. Right now, it’s robust, scalable, used by tons of customers live. But there’s a lot of work to do on it. We have 2,000 connectors to different applications and services, but there’s more than 2,000 of those. We need 20,000 connectors and then we need 50,000. We need to really expand that number and connect to everything. Every device, every application, every platform. So we’re going to use the money to build the product in that way. If a customer has an application that’s built by some regional provider, with maybe 50 customers in some niche business, to a customer in a certain vertical, that application is very important. They don’t want to have some kind of one-off situation where they can sign in to everything they use, but not this one thing. And it’s not economical for us to go out and build the connector ourselves. So we need to have a platform where someone can go and build the connector themselves and share it with anyone who might need it. The thing about our platform, because it’s based in the cloud, is that it can be maintained and supported over time. There’s also some exciting things we can do with helping companies collaborate with each other. So if two companies are using Okta, they can connect their systems across firewalls more easily. That’s the identity network we’ve been talking about.

Founders Dave Duffield and Aneel Bhusri have been around long enough to know that this is simply a beginning, and they also know that as much as investors love subscription businesses, Wall Street has a fundamental misunderstanding of how to accurately value them.

In the last few years, a new business model has taken hold — it’s happening in music (Spotify), transportation (Zipcar), consumer goods (Shoedazzle), and, of course, in the software industry with the dominance of the cloud as the preferred model for consuming applications. But even while the Subscription Economy has taken hold across multiple, multi-billion dollar industries, investors, analysts and investor media continue to miss the fundamental differences between product and subscription companies that make their financial measurements just as different.

• Subscription businesses are about building and monetizing recurring customer relationships, not about building and shipping units for discrete one-time transactions.
• Subscription businesses are forward-looking, not backward-looking. The health of the business is in what it is likely to make this year, the next year and the next, not what it has shipped, earned and spent in the past period.
• Subscription companies operate on recurring revenue and recurring expenses and therefore care about recurring profit, not operating profit.

Just think about it. We all know that if Bob is willing to give you $100, while John is willing to give you $100 a year for the next eight years, John’s offer is much more valuable. In the same sense, subscription businesses should be a more attractive investment than traditional one-time sales models. With a subscription revenue model, each year you start off with a known revenue level, versus having to chase every dollar of revenue, each year, from ground zero. Whereas in the traditional model, you invest in R&D, cost of goods, and sales & marketing with the hope of generating future revenue, in the subscription model, revenue from customers you have already acquired can be used to fuel future growth.

Regardless, most investors and analysts still look at EPS and P/E ratios when evaluating subscription companies, even though they are essentially worthless metrics in the Subscription Economy. Take this commentary from Morningstar’s Rick Sumner around Workday’s IPO:

Workday is now among the most richly valued of recent cloud computing IPOs, with a valuation of 22 times trailing sales in the last twelve months. IT software company ServiceNow, which went public in June, was valued at roughly 14 times during the time of its IPO, while e-commerce platform provider Demandware was valued at 17 times. “Workday can grow when it’s smaller, but the question becomes when they get in excess of a billion in revenue, can they still bolt on this high growth rate to justify its valuation?”

I know what Dave and Aneel are in for. Take my experience at Salesforce.com — arguably the first company to popularize a publicly-traded subscription business. I started as employee No. 11, and was part of the executive team through the IPO in 2004 until I left to start Zuora in 2008. During that time, we spent a lot of time and energy educating Wall Street investors and analysts on the vast differences in SaaS company performance from a traditional software company. Many remained fixed on the P/E ratio, and could not fathom investing in a company trading — at that point — 200X future earnings. Inside Salesforce.com, we knew that operating profit was essentially meaningless to measuring our value. (Honestly, as an investor, I would ding a subscription business that brought operating profit to the bottom line, seeing it as a signal from the company that it is cutting Sales and Marketing spending because it can’t efficiently acquire new bookings.)

Fast forward eight years. SaaS as a category has overtaken traditional software because it is a fundamentally better business model for the customer and the vendor. Even Oracle and SAP are attempting to change their mix (spoiler alert: they will fail). Yet in eight years, Wall Street seems to have learned almost nothing. And with the Subscription Economy growing in communications, media, consumer services and more, you would expect that Wall Street analysts would finally have a better handle on the metrics that do matter.

For example, the most important financial statistic for valuing Salesforce.com is buried as a footnote on page 11 of its FY 2011 annual report — “Select off-balance sheet accounts” — $2.2 billion in unbilled deferred revenue. But that’s not a GAAP metric, so it’s not reported. You won’t see it on a balance sheet. You won’t read it in an earnings release. And you won’t hear a CFO talk about that on an earnings call.

Zuora often discusses the three metrics that matter when valuing any SaaS business. We believe that Annual Recurring Revenue (ARR) drives everything. A company’s Growth Efficiency Index (GEI – the sales and marketing expense needed to acquire new dollars of ARR), retention rate, and recurring profit margin (how much non-sales and marketing dollars are spent on servicing existing ARR) tell you far more than profits. But not a single one of these metrics is disclosed in GAAP financials. That’s a disservice to the companies, to analysts and to individual investors.

The other day, I saw that Salesforce.com’s P/E ratio had reached 666. Chat board posters were making half-joking calls for widespread selling with the sign of the beast at hand. But unless better metrics are made clear for investors, they may as well depend on the science of the Dark Ages for next quarter guidance. The Subscription Economy is here, and it is here to stay. It’s time that Wall Street finds a way to institute new measurements of subscription companies based on the financial statistics that actually reflect its health, value and future prospects.

Tien Tzuo is CEO of Zuora, a subscription-billing company based in Silicon Valley. Previously, he was the chief strategy officer and chief marketing officer at Salesforce.com.

Sales at $72.6 million grew 99 percent year on year, and while the net loss grew to $41.3 million versus $19.7 million a year ago, it was, at 39 cents per share, a lot better than the 67 cent loss that analysts had expected.

The company said that, during the quarter, it signed deals with chemical giant DuPont as well as industrial technology concern Johnson Controls.

Looking ahead, CEO Aneel Bhusri said in a statement that Workday expects sales in the current quarter to come in between $75 million and $79 million, amounting to growth of between 74 percent and 83 percent.

Workday shares finished the regular trading session up $1.34, or more than 2 percent, to close at $53.19. Once the results were reported, they rose again after hours by another 2 percent, to $54.40.

Managing systems logs is one of the more unglamorous tasks that come with managing IT infrastructure — not that there’s much glamour in the first place — but today is the sort of day when it takes on a cooler sheen.

Today, a fascinating and fast-growing start-up called Sumo Logic announced that it has taken a $30 million Series C round of venture capital funding led by Accel Partners. It is the latest investment by Accel’s Big Data fund, led by partner Ping Li.

The round brings Sumo Logic’s total capital raised to $50.5 million. Prior investors include Greylock Partners — Workday CEO Aneel Bhusri sits on the board — and Sutter Hill Ventures.

Sumo Logic’s approach to handling logs is to treat them like any other big-data problem. It uses cloud-based software to analyze, monitor and visualize data generated by machines in real time. System logs are just another one of those collections of data that used to be considered disposable or difficult to sort through. Sumo aims to make them a key source of insight into how well — or not — IT infrastructure is running.

Sumo often gets mentioned in the same breath as Splunk, the analytics company that specializes in machine-generated data and which had a successful IPO earlier this year. Splunk even spun off a company called Loggly that specializes in log management.

I talked with Sumo Logic’s CEO Vance Loiselle on Monday. He said that companies have been looking for years for a good way to easily make use of their log files. “In the last couple of years, we’ve seen more and more companies are generating tons of log data, but also all kinds of unstructured data,” Loiselle said. “That could be for servers that are or are not running well, or applications that you need to know specific analytic data about its performance, what your customers are using, and what kind of performance they’re seeing.”

Companies have been looking for a way to get ahold of that data and do a deep dive on the patterns that can be found in it, in order to decide if changes need to be made or to see how different parts of the business are performing. Doing that analytics work in the cloud, and thus saving on the purchase of extra storage hardware plus software, is sort of a no-brainer, but up to now that’s how this work has tended to be done.

The company launched only this February. More than 800 companies have tried the free service, and already more than 40 have traded up to the paid service. Among them are Netflix, Ooyala and Limelight Networks.

When you’re rolling out a new application, the last thing you need is some weird error cropping up somewhere in the chain of servers or on the network and getting in the way. Sumo Logic’s engine quickly crunches through the log data and can be used to pinpoint exactly where the problems are so they can be corrected, Loiselle said. It also works with log files generated by virtual machines.

Loiselle said the investment will help the company grow its sales and marketing operation, but also to do some of the heavy lifting needed to build up some new core features. “We need to bring in as many high-caliber inside and outside sales people as we can because the opportunity before us is so big. First we’ll scale up in North America, and then we’ll start thinking about what we’re going to do in Europe.” There’s also a huge need to hire more engineers, he said. “We’ve doubled the size of the engineering team over the last six months, and basically we have to double it again.”

The stock priced yesterday at $28 a share, valuing the company at north of $5 billion, and shares opened at $47.05. In late trading, they were around $49, a 75 percent increase.

The debut of the shares culminated a process that began in earnest almost a year ago to the day, when Workday announced that it had raised an $85 million institutional round. It wasn’t long before it was looking for bankers, and eventually settled on Morgan Stanley, Goldman Sachs, Allen & Company and J.P. Morgan Chase & Co., who ran the offering.

I got a few minutes with co-CEOs Aneel Bhusri and CFO Mark Peek at the NYSE today, all of them wearing broad smiles. While the company is still technically in a quiet period and thus can’t speak to specific future plans, we did talk generally about what’s next for Workday.

AllThingsD: Let’s talk a little about momentum. I couldn’t help but notice that, at the recent Hewlett-Packard analysts meeting, Meg Whitman mentioned that it has adopted Workday along with Salesforce.com. That sounds like a pretty big customer win for you. Is that an indicator of things to come?

Aneel Bhusri: I think it means that the cloud is mainstream. It’s gone from being a question to being a certainty in customer relationship management (CRM) with Salesforce, and human resources with Workday. And we’re hoping to make that case in finance, as well. And HP is a testament to the fact that the largest companies are now adopting the cloud. It’s now our biggest customer. I think they have more than 300,000 employees. Our biggest before was Flextronics, at about 200,000. There just aren’t many companies that are as big or as global as HP.

How is the financial product? Last we talked about it, it was still an up-and-coming product.

Bhusri: Very well. We still have some work to do to bring it to parity with the legacy systems. Our HR business took off once it hit feature parity with the legacy systems, and I think the same thing will happen with the financial systems. Right now, we’re selling it to more medium companies. There’s a few public companies that are using it now.

And when we talk finance, we’re talking things like a company’s general ledger and things like that?

Bhusri: Yes. It’s a full suite. General ledger, accounts receivable, accounts payable, assets, purchasing. People don’t buy it in individual pieces anymore, but as a suite.

Let’s talk about Oracle CEO Larry Ellison. He’s been beating up on Workday every chance he gets. Obviously, there’s some history there, since Oracle acquired your previous company, PeopleSoft. What do you think of what he’s been saying? Oracle is also doing a big pivot toward running all its applications in the cloud, and in a mixed on-premise and off-premise manner. What do you think of all this?

Bhusri: First of all, I think it’s great that Oracle is embracing the cloud. I think it makes it easier for the customer. And so is SAP. It’s all good for the customer. We personally don’t believe in the hybrid model. At the end of the day, without a true multi-tenant, one version model, you can’t really solve the pain of the upgrade cycle. With a customer that is hosted, or on-premise, the upgrade path is no different than it was before. We take over all the software upgrades, and that’s where all the cost savings come from. And Salesforce sees it the same way, and so do Amazon and Google.

Obviously, the mixed on-premise and off-premise approach doesn’t work for you. You can’t deliver Workday in a hybrid manner?

Bhusri: We could. We just choose not to, because we don’t think its the right model. It would be very easy to give a customer a copy of our software and let them run it on their own hardware, but the whole beauty of the on-demand model is that the upgrade process is now the domain of the vendor. That is why people are on versions of other software that are three and four versions behind, because they couldn’t get the upgrades done.

What sort of competitive threat do you see coming from Oracle’s Fusion apps? Every Oracle application runs in the cloud now.

Bhusri: Oracle is definitely a formidable competitor. You can see how fast we are growing. I’m not sure that Fusion was ever meant to be a cloud application. Its name comes from “fusing” Oracle and PeopleSoft and JD Edwards. It was never intended to be a cloud app, but Oracle has the resources to get that done. We see it competitively, but so far it isn’t really slowing us down. The good thing is that the market is going to expand, because no one is waving the flag for on-premise software anymore. I mean, Oracle and SAP have both basically said they’re all in on the cloud. We happen to be the youngest company of the three, but we have the most mature product. We’ve been doing this in the new way for seven years, and they are just getting going.

So, with the caveat that I’m not asking for guidance, where do you want things to be by this time next year?

Mark Peek, CFO: Today, about half of our R&D spend is on the financials product. So we’re really working on expanding the market. We believe there are about 23,000 companies in the world that have 1,000 or more employees. Today, we have 340 of those in HCM (human capital management), and 30-plus in finance. And so our R&D focus is on financial. We want to hit the updates and grow the business in HR, and get additional flagship companies in the financials product, as well. We’re also going to focus a lot on international expansion. About 90 percent of our revenue is from North America, so we’ll want to expand internationally and work with partners who can work on the deployments for us.

Bhusri: We will have done three more updates, and I would like to say a year from now we’ll be showing off a few flagship customers in finance, like we did with HR in Flextronics and Chiquita. We have very good customers in finance right now, but they’re not Fortune 500 customers just yet. Once we have a few, it will be the tipping point for financials going into the cloud, as well.

After HR and finance, is there a third leg to the stool that you want to add down the road?

Bhusri: Down the road, if there’s one area we’re intrigued with, it’s analytics. Anything that ties in to the HR world and the finance world. We’re doing a great job on transactions, and we have our embedded business intelligence. But then there’s this whole data warehouse space that needs to be disrupted, as well. That’s an area on the radar. But for the time being, what we’re doing on in the HR and financial space is going to keep us really busy.

Back to international expansion for a minute. How are you seeing Europe, given all the trouble there?

Bhusri: Our European business, though its growing off a small base, is the fastest-growing piece of our business. I think Europe is going through a tough patch right, now, but in some ways we help them cut costs. It’s not the reason for being, but it’s a benefit that’s helping. In the cloud, we’re about half the cost over a five-year period as the legacy systems. And European customers want the same cost-benefit as the North American ones.

Peek: When the economy is tough is when people tighten their IT budgets, but they are also looking for ways to save money. Back during the recession, we were growing 50 percent. Even though people were taking discretionary money and moving quickly. If they can save money, they will.

Here’s a video of Workday’s bell-ringing ceremony at the NYSE this morning:

The offering is expected to raise upward of $591 million, and it should command a market capitalization of about $5 billion after trading of its shares begins on the New York Stock Exchange.

The company specializes in human resources software that runs in the cloud, and has a lot of buzz owing much to the story of its origins. Co-founders and co-CEOs Aneel Bhusri and Dave Duffield ran PeopleSoft, a human resources software concern that was targeted for a hostile takeover by Oracle and its CEO Larry Ellison in 2005.

A lot of people have focused on Workday as being something of a revenge project for Bhusri and Duffield, but the pair have tended to dissuade that view. “We don’t think about Larry or have any animosity. …You have to bless Larry’s heart for giving us this opportunity. I would never have been part of this Workday thing without Larry,” Duffield told Bloomberg Businessweek over the summer.

But it’s clear that Ellison has been thinking about Workday. He never misses a chance to disparage it, as he did at D:All Things Digital in June. And according to a count by Bloomberg TV, Ellison has mentioned Workday eight times in Oracle earnings calls, as many as he has another rival, Salesforce.com.

As the old saying goes, there’s no such thing as bad publicity, and when someone like Larry Ellison kicks you in public, people are going to wonder what all the fuss is about. The fuss, it turns out, is real, though not yet sizable.

According to its latest filings with the SEC, Workday has 340 customers, most of them large companies, among them electronics manufacturing giant Flextronics, the Four Seasons hotel chain, insurer AIG and consumer-health giant Kimberly Clark. Workday says its largest deployment is with a customer with a workforce of more than 200,000 people. And another, potentially bigger one, is on the way: Hewlett-Packard CEO Meg Whitman also disclosed last week that HP is deploying Workday, and it has a global work force north of 300,000. Google is a new customer, too.

While that all sounds impressive, and seems like an excellent indicator of momentum, Workday is still relatively small. It reported revenue that was just shy of $120 million in the first six months of the year, and if it finishes the year at double that figure, it doesn’t appear quite muscular enough to pose much of a threat — at least not yet — to Oracle, whose applications software business, including HR apps, was $3 billion in 2012.

However, the story about Workday is less about what it is today than about what it could become in the next few years. A more accurate measure of that potential is bookings — essentially the combined value of multiyear contracts. By that measure, Workday is more impressive: Bookings are on track to break the $500 million mark this year.

Workday’s advantage is that it is supposedly cheaper to operate than the older, established way of installing software on company-owned systems. Customers never have to actually touch cloud software, and therefore don’t have to pay for the ongoing service and support contracts that come with software that runs the old way.

The fundamental pivot toward running applications in the cloud is making many converts. Oracle just spent most of last week talking about how its applications — including its HR software — can run purely on a software-as-a-service basis, or installed on hardware that the customer owns, or in a flexible mix-and-match manner.

So, while Workday may not overtly be about “revenge of the PeopleSoft guys,” its brewing matchup with Oracle, if nothing else, will bear watching in the months and years to come.

Aneel Bhusri

Workday, the most-watched IPO in the tech world since Facebook, says its stock will bow in at between $24 and $26 a share, raising north of $590 million and nudging its overall valuation toward the $4 billion $5 billion mark. The disclosure came in an updated S1 filing with the U.S. Securities and Exchange Commission. It will trade under the ticker symbol WDAY.

Workday has been on a steady march toward this moment since it took an $85 million institutional investment round last year when it was valued at a then eye-popping $2 billion.

Co-CEOs Aneel Bhusri and Dave Duffield will control about 67 percent of the proxy through a two-layered share structure that gives holders of Class B shares 10 votes to every one vote for a typical Class A shareholder.

Workday should price any day now.

Update: I updated the headline and the text to reflect Workday’s valuation as being closer to $5 billion than $4 billion.

The company now says it will offer 22,750,000 Class A shares at a price of between $21 and $24 a share. At the midpoint of that range, it should raise about $512 million, at a valuation of about $3.6 billion. It also said it will trade on the New York Stock Exchange under the ticker symbol WDAY.

The company is often described as “PeopleSoft in the cloud” mainly because its two and co-CEOs Aneel Bhusri and Dave Duffield both ran PeopleSoft during the period that software giant Oracle completed its hostile takeover of that company in 2005.

Bhusri and Duffield will collectively control about 67 percent of the shares, which should be worth about $2.4 billion. Greylock Partners, the venture capital fund where Bhusri is a partner, has a stake amounting to about 11 percent of equity. New Enterprise Associates has about 10 percent. COO Michael Stankey has a stake amounting to 2.5 percent.

And while it has reported about $120 million in revenue for the first six months of 2012 as of July 31, the real number to be watching — it is a cloud company, after all — is the deferred revenue number, an indicator of uptake in subscriptions to its service. As of July 31 it was $247 million.

The company’s valuation has nearly doubled in the last year since its $85 million institutional investment round, when it was valued at $2 billion.

The competitive landscape for Workday is also heating up. Oracle CEO Larry Ellison announced last night that all of its applications — including PeopleSoft — will now run on a software-as-a-service basis. Previously, it had been a traditional on-premise software product. Ellison likes to publicly beat up on Workday from time to time, which is widely considered to be more of a good thing for Workday than a bad thing. In an onstage interview at D:All Things Digital in June, Ellison said that Oracle “beats Workday all the time.” Ellison also said, “It’s going to be very interesting to monitor Workday.” And so it will.

The company says it expects to see 50,000 attendees this year, and is featuring more than 2,500 sessions presented by more than 3,500 speakers across 14 individual venues. And forget about booking a hotel room in San Francisco this week: People attending OpenWorld have booked nearly 98,000 hotel nights.

So what’s on the agenda? Expect to hear a lot about the cloud. Oracle’s latest update to its core database software, known as 12c, will be unveiled. It’s the first major revision to Oracle’s database software in about five years. The “c” naturally stands for cloud, which Oracle is going to be embracing in a significant way at this event.

The speeches kick off Sunday night with the first of two keynotes from Oracle CEO Larry Ellison. Co-President and former Hewlett-Packard CEO Mark Hurd is speaking twice as well, once on Monday and again on Thursday.

Oracle is likely to continue to challenge the notion that it’s on the defensive from companies like Salesforce.com. Ellison has publicly disparagedSalesforce and another cloud-based software company Workday, both of which compete directly with Oracle.

Salesforce (whose recent Dreamforce conference also blocked traffic) has built what’s forecast to be a $3 billion annual business selling customer relationship software that runs in the cloud, and its CEO Marc Benioff is a former Oracle exec and Ellison protégé. Workday, due for a $400 million initial public offering soon, is run by Aneel Bhusri and Dave Duffield, the founders of PeopleSoft, a company Oracle acquired in a hostile takeover. It offers a breed of software known as human capital management software used by HR departments at big companies.

Ellison and Benioff have feuded — sometimes publicly — over their competing visions of the cloud and how software should be delivered to large companies. Benioff is fond of saying that if a company ever takes delivery of a server at a loading dock, they’re not running the “true cloud.” Ellison — who also has a significant hardware business to consider — argues that big customers need a mixed approach: Where some will be happy farming out the work of managing the hardware to someone else, others will want to own it outright, while still others will want to mix and match. He’s also fond of pointing out that Salesforce is a big customer of Oracle’s database.

Oracle isn’t the only company arguing for the mixed cloud approach. IBM and Hewlett-Packard and Dell — hardware vendors all — tend to see the cloud in this way, as does Microsoft, which offers its products in both hosted and on-premise varieties.

Still, there’s no mistaking Oracle has come to embrace the “software-as-a-service” model long personified by Benioff and Bhusri as well as Netsuite, a cloud software player run by former Oracle exec Zach Nelson and in which Ellison is an investor. (Nelson is speaking at Openworld, too.) Oracle is pivoting toward delivering all of its software as a service, allowing customers to choose which approach best suits them. On Oracle’s last earnings call, Hurd made a point of calling out a long list of customer wins for cloud-based CRM and HCM offerings: Accenture, Adobe, Cisco Systems — where Benioff is a new director — Colgate-Palmolive and Proctor & Gamble are all running Oracle applications in the cloud.

Indeed, Oracle has said it is now the second-largest company offering software-as-a-service behind Salesforce itself. It reported $1 billion in bookings for cloud software in June. Expect an update on the size of that business in Ellison’s remarks.

Much of that growth has come from Oracle’s aggressive pace of acquisitions. It has been gobbling up cloud-based software companies such as RightNow and Taleo.

And Oracle’s service offerings don’t stop at software: They extend to hardware, too. Customers can purchase ExaData and ExaLogic hardware and then run them inside an Oracle-owned and -maintained data center. The point is to get the hardware up and running quickly without having to bear the time and expense associated with setting it up.

So, if you care about the cloud — and nearly everyone in enterprise IT does these days — it’s going to be an interesting week.

In a document filed with the Securities and Exchange Commission today, the company said that the bulk of the proceeds will go toward working capital and other general corporate purposes.

Underwriters include Morgan Stanley, Allen & Co., Cowen and Co., Pacific Crest Securities, Canaccord Genuity, Wells Fargo Securities, JMP Securities, J.P. Morgan and Goldman Sachs & Co.

The seven-year-old company, which has 1,450 employees, says it has seen tremendous growth for its enterprise resource management software.

Over the past three years, the company’s revenue has skyrocketed, increasing 400 percent to $134.4 million. And in the first six months of 2012 it has already booked $119.5 million in revenues. However, the company has a history of losses. In the year ended Jan. 31, it lost $80 million. In the prior year (which is slightly different, because the company changed its fiscal calendar), Workday lost $56.2 million for the year ended Dec. 31, 2010.

As of July 31, Workday had cash and cash equivalents of $122.7 million.

The IPO filing comes a little later than originally expected. My colleague Arik Hesseldahl reported previously that the company had been on track for a late-summer or early fall road show, so that shares could debut between October and December, depending on how favorable market conditions were. Those events may now be pushed out a little further.

The biggest shareholders are the company’s co-CEOs, Aneel Bhusri and Dave Duffield, who own 19.3 percent and 53.4 percent of the company, respectively. Greylock Partners and New Enterprise Associates are the two largest VCs backing the company, owning 11 percent and 10 percent of shares, respectively.

The company is announcing a bunch of important news today. The big piece is that its application is coming out of beta testing and is now ready for general availability; along with that, it is disclosing some of its customers — and one of them, at least, is kind of cool.

The second is that it has hired Phil Wilmington as its new president and COO. He has been executive chairman since January. Wilmington was President at OutlookSoft, the company that he and Tidemark CEO Christian Gheorghe ran together — Gheorghe was CEO CTO — before it was acquired by SAP in 2007. Before OutlookSoft, Wilmington had been co-president at PeopleSoft until it was taken over by Oracle.

You’ll remember that this is one of several start-ups aiming to attack the juicy vein of enterprise software that’s currently dominated by the Oracles and SAPs of the world, and more often than not by applications that tend to run on-premise. And naturally, like so many other upstart business software outfits these days, it runs it all in the cloud, or more precisely, the “software-as-a-service” model made so popular by outfits like Salesforce.com and Workday.

The unsexy way to describe it is Enterprise Performance Management, and it’s the stuff that businesses use to plan their finances and operations. Over a pair of lunches last year, Gheorghe explained something that sounded a lot like what all the other so-called “business intelligence” applications in the cloud are trying to do. His argument then, and now, is that while lots of applications give you good information, few help guide you to a decision or a course of business action. Gheorghe says that, in Tidemark, these applications have been “reimagined.”

One key problem holding it up is that data from one side of the business doesn’t get mashed up with data from another. What happens then is that enterprising executives try to do it themselves in Excel spreadsheets, which, even if you’re really good at building spreadsheets, isn’t optimal.

Tidemark’s play is to deliver real-time business data that has been adjusted for risk and assembled in consideration of all the strategic, financial and operational forecasting that has already been done. It also runs on the iPad or any other tablet or smartphone that supports HTML5, which shouldn’t be surprising anymore, but still is to me.

Those three applications Gheorghe told me about last October are ready for general availability: Metrics Management and Management Reporting basically answers the “what’s happening?” question about a business with a more sophisticated “what is happening and why?” kind of approach; Enterprise Planning is a classic budgeting and forecasting app; and Profitability Monitoring — by product, customer and channel — tells you precisely which aspects of your business are profitable or losing money.

Here’s the part where it’s time to name the customers. One CIO told me that he got his CEO excited to use Tidemark in a bar. That sounds a little sketchy, until you realize that the company is Pabst Brewing. CIO Ben Haines said that in the beer business, you sell via third parties. In this case, there are about 600 different distributors that it does business with, and all of them send data back to Pabst in different ways. “It’s all disparate, and we try to make sense of it and try to figure out what’s going on,” Hains said. Then there’s data from Nielsen covering what consumers are saying and doing, and then there’s shipping data coming from individual breweries. The challenge has been to mix them all up and make them useful. Not easy, that.

Haines had built out systems running IBM’s Cognos, but said that it can be years before it’s up and running and tuned enough to deliver data you can actually use. “We don’t have that kind of time,” he said. “Most people run their companies on spreadsheets because their business intelligence applications haven’t kept up.” It used to be that Pabst would have generated about 400 different reports that different execs would have to have, and people might read them, they might not, and when they did, they had to hunt for the data they needed to do their jobs.

One night in a meeting at a bar — it is a beer company, after all — Tidemark execs whipped out an iPad and showed Pabst President John Coleman all of the company’s live data at a glance, in a dashboard. He was an instant fan.

Other customers being named today are also sort of cool. One is CEC Entertainment, which is better known as the company behind the 550-store Chuck E. Cheese pizza chain. The other is Platinum Hospitality Management, a manager and operator of mid-market hotels that works with Hilton and Marriott, among others.

Tidemark also has some strong financial backing from venture capital firms, including Greylock Partners and Andreessen Horowitz, which invested $6.3 million back when Tidemark was still a stealth start-up called Proferi. Later rounds included Redpoint Ventures with Greylock and AH also participating, and as of January, Tidemark had raised a combined $35.5 million. Ben Horowitz of AH is a director. Aneel Bhusri, the former PeopleSoft CEO turned Greylock Partner who is also co-CEO at the soon-to-be-public Workday led Tidemark’s A round. Dave Duffield, another former PeopleSoft CEO and the other co-CEO of Workday, also invested in that round.