Network E昀昀ects & the ‘Supermarket for SaaS’ RIPPLING IS NOT AN HR SYSTEM But an employee management system has many more adjacencies than a payroll system — probably Rippling is not an HR system — we call it an Employee 70 or 80 thousand of them. Management System to distinguish it from HRIS This introduces a di昀昀erent dynamic — one where any systems, precisely because we think the problem we market leader has swiftly compounding advantages solve is much broader than HR, and the right system over the other competitors in the space. The company to solve this problem is a level down in the stack from with the most integrations will get the most custom- an HR system, or even the HR department itself. ers, because clients will naturally choose the product We think every company that currently has a pay- that can connect with the most of their current and roll system would be better served by an Employee future business systems, and the company with the Management System, instead — one that integrates most clients will get the most integrations — because broadly to manage employee data across the com- 3rd-party engineers can only build and support apps pany. Over time, if we’re right, perhaps markets will in a limited number of systems and will naturally let shift in this direction. market share guide their decisions on where to build. It’s worth asking: “How will the market for employee The e昀昀ect of this shift is similar to how the introduc- management systems be di昀昀erent than the one for tion of smartphone app stores led to rapid concen- payroll and HR software?” tration of market share in the handset industry. This new market for Employee Management Systems will One key di昀昀erence is network e昀昀ects. be much more concentrated than the one for payroll software: perhaps the market leader has 60% market Today, ADP is the largest payroll company in the share, and the number two player has 30% market United States. But the market is fragmented. ADP share, and everyone else is 昀椀ghting of the remaining only has about 15% - 20% market share, and there 10%. are tens of thousands of payroll service bureaus. As a result, the market leaders for employee manage- That’s because there’s no self-reinforcing advantage ment systems could be successful on a much larger to being the market leader — nothing about ADP’s scale than even the most successful of today’s payroll position as the market leader makes my experience and HRIS companies. as their client any better. That is, in part, because ADP views their world nar- The bull case for Rippling is that we could be one of rowly. In ADP’s world, there are only 7 or 8 systems them. that abutt payroll and HRIS — things like time track- ing, performance management, bene昀椀ts administra- tion, and retirement. 11 Rippling Memo