Workday on Tuesday will host its annual customer powwow, provide an update on its technology and build an ecosystem that increasingly boils down to big deals.
The company's Workday Rising conference kicks off with a keynote from co-CEOs Aneel Bhursri and Dave Duffield. The two will be chatting to customers as their perch leading a newly public entity.
With that backdrop---along with customer wins such as the University of Rochester, TripAdvisor and J.B. Hunt as well as a new version of its cloud HR and financials package---it's worth noting why Workday is worrisome to the likes of Oracle and SAP and a different animal relative to its software as a service peers.
As most IT buyers know, Oracle and SAP live and die by the big deals. These big deals make quarters for those two enterprise application giants and win buyers volume discounts. The aim is obvious for SAP and Oracle: Be a company's platform, become embedded and collect maintenance revenue for a long time.
Workday is also about the big deal. In other words, Workday isn't likely to nibble around the edges of Oracle and SAP. Workday is going to suck the oxygen out of the big deal pipeline. That reason alone is why Workday is an issue for Oracle and SAP, which bought Taleo and SuccessFactors, respectively, to better compete in HR.
That point about Workday's penchant for the big deal surfaced in a research note by Cowen & Co. Peter Goldmacher. Analysts have started coverage of Workday since its IPO has been on the books for a few weeks. These analysts largely work for investment banks that served as Workday's underwriters, but the nuggets are worth noting. Here's what Goldmacher said about Workday's big deal focus (emphasis mine):
At present, Workday is a SaaS-based HCM alternative to decades old Oracle and SAP on premise deployments. The value prop is better functionality at lower cost, a compelling alternative for the Oracle/SAP installed base that is increasingly frustrated by a lack of innovation and excessive maintenance fees. With a toehold in Financials and an application roadmap likely to include CRM, SCM and MFG, we expect Workday to enjoy a decade long run of Oracle/SAP replacements...Workday differs from its SaaS peer group because it is exclusively a big deal business; Workday's ASP is approximately $480K and growing. While the company is and will continue to operate at significant losses in the near term, the compounding effect of large deals in a subscription model will enable the company to be profitable at a $1.5B rev run rate and still enjoy strong growth rates.
That average selling price of $480,000 does put Workday on a different playing field. Most SaaS vendors started smaller---SMBs and midsized companies---and then started chasing the GEs of the world. For that playbook, just look at Salesforce.com.
Wells Fargo analyst Jason Maynard said:
We believe that Workday has a wide-open runway for growth over the next 3-5 years, replacing legacy, on-premise HCM and financial management systems. The company continues to invest in product innovation, globalization, customization features, sales resources, and partner enablement, which should help Workday to scale effectively.
Workday will have to balance its product development as well as the distribution and wining and dining required to win over CEOs. But the upshot is that most observers see Workday as a much larger company in short order. According to Morgan Stanley, Workday's growth is outpacing Salesforce and SuccessFactors at similar stages in their development.