Workday filed for its long awaited initial public offering and the cloud human capital management provider disclosed a bevy of wrinkles to ponder.
The company, which primarily competes with SAP and Oracle, has a bit of a mystique about it as a private entity. That said, Workday was worrisome enough for SAP to acquire SuccessFactors. Workday was also competitive enough that Oracle bought Taleo.
In many respects, Workday's software combination of HR and finance is set to serve as the next-gen ERP system for services based companies. Of course, SAP and Oracle also see themselves as the ERP systems that matter going forward.
Rest assured that Workday's IPO filing will kick off a war of words with SAP and Oracle. With that in mind, here are my top 10 takeaways from Workday's IPO.
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1. Workday was forged in a way to prevent a hostile takeover. Workday co-CEOs Dave Duffield and Aneel Bhusri have set up the company's corporate structure to maintain control and prevent a rival like Oracle from acquiring it. Why? Duffield and Bhusri are both PeopleSoft veterans and have scars from Oracle's hostile takeover.
Control is one thing, but Duffield and Bhusri have even entered a proxy voting arrangement. If one of the co-CEOs dies, the other gets his voting rights. Workday said in its IPO filing.
Under the voting agreement, each of Mr. Duffield and Mr. Bhusri will grant a proxy holder the right to exercise all of the voting and consent rights of his and his permitted transferee’s Class B common stock following his death or during his incapacity. Initially, Mr. Duffield has designated Mr. Bhusri as his designated proxy holder, and Mr. Bhusri has designated Mr. Duffield as his designated proxy holder. Each co-founder will have the right during his lifetime to remove his designated proxy holder and replace him with a new proxy holder approved by our board of directors. In the event that there is no proxy holder approved by our board of directors for the Class B common stock subject to the voting agreement, the voting and consent rights of such Class B common stock will be exercised by our board of directors acting by majority vote. Upon the death or incapacity of a co-founder, his designated proxy holder will have an irrevocable proxy to vote or otherwise consent to any matters in respect of the deceased or incapacitated co-founder’s Class B common stock.
2. Workday has ramped its headcount quickly. Workday now has 1,450 employees. That figure caught a few people by surprise. Sure, Workday's headcount isn't much relative to the giants it's trying to slay, but it's a pretty big ramp in a short amount of time.
3. International expansion is key. Workday said that it plans to add to its direct sales team and expand abroad. The company said:
We currently have a direct sales presence in seven countries outside the United States, despite having authorized users worldwide. We plan to expand our sales capability internationally by expanding our direct sales force and by collaborating with strategic partners around the world. We have recently opened sales offices in London and Hong Kong, and intend to focus our international efforts on Northern Europe and South Asia in the near term.
4. Partnerships are critical. Workday cited Salesforce.com, also a customer, as a key partner as well as SaaS companies Zuora, Cornerstone OnDemand and Tidemark. Consultants and integrators are also key and Workday cites partnerships with Deloitte, Accenture, IBM, PWC, Towers Watson and WiPro and cloud-based integrators like Appirio, DayNine, Omnipoint and Collaborative Solutions. Of that group, Workday's ability to work with the likes of PWC, IBM and Accenture will be critical to future growth. After all, those integrators install a lot of Oracle and SAP software.
5. Workday uses third party hosted data centers in Ashburn, Virginia; Lithia Springs, Georgia; Portland, Oregon; Dublin, Ireland; and Amsterdam, the Netherlands.
6. Oracle and SAP are the two primary rivals. "Oracle Corporation and SAP AG are established enterprise software companies that have greater name recognition, larger customer bases, much longer operating histories and significantly greater financial, technical, sales, marketing and other resources than we have and are able to provide comprehensive business applications that are broader in scope than our current suite of applications," said Workday.
7. The Salesforce relationship is outlined. Salesforce is a Workday partner, spotlight customer and potential competitor. Workday noted:
We may also face competition from a variety of vendors of cloud-based and on-premise software applications that address only a portion of one of our applications. In addition, other companies that provide cloud-based applications in different target markets, such as Salesforce.com and NetSuite, may develop applications or acquire companies that operate in our target markets.
8. Workday has lost money in each period since its founding in 2005. That fact is somewhat surprising.
9. Workday has 325 customers to date with a largest deployment to a global workforce of 200,000 employees.
10. R&D spending---37 percent of revenue for the six months ended July 31---will be focused on Workday's financial management application in the near term. Workday financial software has been adopted by about 10 percent of its customer base. In the long run, R&D spending will be directed toward new markets.