Are Workday and NetSuite on a collision course in enterprise resource management? That theory has been tossed around a good bit in recent weeks as Workday moves into financials, a stronghold for NetSuite---at least in software as a service.
JMP Securities analyst Patrick Walravens in two research notes made the case that Workday and NetSuite will increasingly be competing for companies with 1,000 to 3,000 employees. On the surface, the argument holds up. To wit:
- Workday is in multiple enterprises via human capital management (HCM) software and expanding into financials, which represents about 5 percent of revenue.
- NetSuite already has a good financials foothold and is moving up market via two-tier ERP. In a nutshell, large companies are using NetSuite in subsidiaries and international businesses and connecting it to existing investments in SAP and Oracle.
- Workday is starting with its financials business with smaller companies and working up. That playbook resembles what NetSuite did.
The two companies, which don't compete today, will increasingly run into each other. Walravens says that SaaS ERM will be a $15 billion market in 2020. Workday is No. 1 in SaaS ERM with 10 percent share and NetSuite has 9 percent share.
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NetSuite’s business suite is broader than ERM, offering, for example, customer relationship management functionality. While Workday is ahead in terms of total ERM revenue, it is heavily weighted toward human capital management, while NetSuite is by far the leader in SaaS financial management systems and SaaS business suites.
Walravens acknowledged that SAP and Oracle will also be players, but haven't focused on ERM on-demand as much. Competition with the likes of Intaact and Plex Systems may be more notable.
The headline event over the next year or two will revolve around NetSuite vs. Workday. Workday is likely to be aggressive in financials to gain share and that reality will mean that the company may go after NetSuite companies.
In other words, Workday will do its own spin on two-tier ERP at least for non-manufacturing companies. "We expect the level of competition to increase over the next 12-24 months as Workday moves down market and becomes more aggressive around its financials while NetSuite continues its march up market and into the subsidiaries of larger companies," said Walravens.
On the small company front, Workday and NetSuite could be battling for graduates from Intuit.
Walravens' argument makes sense, but does have a few weaknesses. For starters, both companies can make a fine living taking customers from Oracle and SAP. Meanwhile, the ERM pie is large enough for both NetSuite and Workday to do well. The other catch is that Workday and NetSuite may also chase different verticals entirely. NetSuite's approach works for manufacturing companies and Workday is more for enterprises that are services based.
If current revenue estimates hold up over the years, Workday will also dwarf NetSuite and have more scale. That scale alone could change the battleground.