Why ADP Is the Biggest Cloud Company You’ve Never Heard Of

Take a look at your last paycheck. If you work in the U.S., there’s a one in six chance that somewhere on it, or on the stub, you’ll find the logo of a company you’ve probably never heard of, never given much thought to, but which plays a significant role in the day-to-day lives of many companies around the world.

It’s called ADP, and it’s a $10 billion (fiscal 2011 sales) outfit that processes the paychecks received last year by some 33 million people around the world — and which processed some $1.2 trillion in payments to workers in the U.S. And it does almost all of it in the cloud.

Long before companies like Salesforce.com and Amazon popularized “the cloud” as the important technology force shaping business, before we even had the phrase “software as a service,” ADP was selling its clients on a service that in hindsight sounds very “cloudy.” Rather than shoulder the cost associated with running a payroll on their own, companies large and small would hire ADP to take that business function on for them, on a contract basis.

“If you go back enough years, we were known as a ‘service bureau,'” says ADP’s CIO Mike Capone. “It was all run off a mainframe. Payrolls would come in on a Monday or a Tuesday, and paychecks would go out on a Friday. That was the model.”

And though for a time it sold some traditional software, by early last decade ADP starting pushing its customers toward the Internet, with no software to install or manage on-site. It was so logical that no one really gave it any thought, Capone says. In the same way it made sense to outsource payroll to a third party, it also made sense to do it without selling any software, but rather let customers run it via the Web. “Back then, it was just obvious that this was the way to do it,” Capone says. “And so we just did it this way.”

And so it has been for years. About half of ADP’s revenue comes from payroll services; the other half from other things — benefits, human resources, time and attendance management, taxes — that any business with more than, say, two employees, needs to varying degrees. And ADP’s 570,000 clients run the gamut from tiny mom-and-pops to huge global companies, and more than 200,000 are cloud-based clients. Among ADP’s bigger customers are giants like Sodexo, Alcoa and Swiss Re.

Its rivals run the gamut, too. There’s Paychex in the payroll business; SuccessFactors and Workday in various bits of the human capital management business. Lawson and SAP and even Oracle’s PeopleSoft unit overlap with other parts of its business.

However, on Monday, ADP is doubling down on the cloud with what it’s describing as a “big bet” product that brings its entire stack of service offerings into one. The company has dubbed it “Vantage,” and it is essentially aimed at unifying payroll, recruiting, talent management, benefits and a batch of other things that businesses large and small need on a day-to-day basis, into a single cloud service. The company says it spent $600 million and 18 months researching and building it, and will announce it at a conference in Las Vegas.

I talked with Don Weinstein, a senior vice president at ADP’s headquarters in Roseland, N.J., recently. He told me that often companies get all these services from different vendors. The result is that data from one application ends up being trapped, because there’s no easy to way to move it into a related application from another vendor. The result is a messy kludge of in-house combinations that have been integrated, often badly.

And all these processes have costs. A study by PricewaterhouseCoopers found that large companies spend an average $1,400 per employee per year on things like payroll, workforce administration, time and attendance, and health benefits, and at midsized companies of between 100 and 1,000 employees, the costs reach nearly $2,000 per employee per year. They’re also the kind of processes that any self-respecting CIO will want to make more efficient or less costly.

The aim with Vantage, Weinstein says, is to give businesses a single vendor and a single stack of services they can use with all these processes, and with the data shared easily across applications. The result, he hopes, is that businesses will like what they see and start using more of ADP’s stuff, and add on other services over time. “We’re expecting to sell a broader array of product,” he says. “Half our business still comes just from payroll. But our intent is to offer this one integrated solution, and win a bigger share of their wallet.”

I also saw a demo, and while it’s not exactly as exciting as seeing the demo of the latest iPhone, you can see how it might make the lives of people in the back office of many companies easier. As with any SaaS application, all the data is stored in a single database, and everything runs through a common browser. Years of analysis of business processes has given it some idea of how things tend to flow in companies, and so it suggests logical next steps in every process.

It works along the same lines that Amazon does when it suggests books you might like based on the last one you bought or looked at. If you just added a new employee — say, in the job of a janitor — your next logical step may be to order him a uniform, so the system will suggest you do so, and take you to the process for doing that. Add a new sales exec, and you are guided to enable his or her access to company sales and performance tools. Not exactly riveting stuff, but if you run a company, it’s all very necessary.

Necessary enough that analysts covering ADP’s stock say it will grow its annual sales to about $11.4 billion. That’s a serious cloud.