Workday just doesn't conform to traditional molds: it's privately held but has lots of Fortune 500 customers; it expects to go public in 18 months but its co-founders view that as a means to an end instead of the end in itself; and in a sector dominated by companies up to 500 times larger than it is, Workday is spreading the word that those big guys personify the past while Workday frames the future.
Co-founders and co-CEOs Dave Duffield and Aneel Bhusri launched Workday about five years ago because their experiences running Peoplesoft—Duffield was the founder—convinced them that huge opportunities for creating customer value existed in niches either not served or poorly served by Oracle and SAP.
Since then, the company has built a rapidly growing customer base that is as close to rabidly loyal as any I've ever come across in this business. At events where Workday customers are speaking, I've seen that passion create dissonance among audience members who then say things like, 'Well, that all sounds nice, but you're a Workday employee so of course you're going to say only nice things about the company!'
As is true with all small but rapidly growing tech companies (Workday's Bhusri says the company's revenue is growing at 200% per year but declines to reveal precise figures) that have exploited a niche but have aspirations to expand out to new levels, the big questions confronting Workday are these:
1) Can it continue to grow toward full escape velocity without being confronted very directly by SAP or Oracle?
2) Will one of those big competitors simply swoop in and make Workday an offer it can't refuse?
3) Can it develop relevant and dynamic products beyond its initial set (for Workday, that's HR and payroll) to provide sustained future growth?
4) Can it sustain and expand technological and performance advantages over the big guys that are so substantial that customers are willing to diversify their portfolios to bet on the new guy? And,
5) As Workday looks to extend its play upstream from HR into financials, will a critical mass of Fortune 500 companies trust a software company that's not publicly held and not widely known with something as vital as its financial operations—particularly when its products are based on a relatively new technology?
"In the last six months, the market has really changed—I can't say it's changed on a dime, but it's been building and building and now cloud and SaaS are no longer questioned—they are the future," said Bhusri in a recent interview.
"And I think the legacy vendors for the first 4 or 5 years of our existence just tried to dismiss us as being a company and a technology platform that wasn't going to reach large companies. Lawson's CEO has a great quote about how SaaS was going to explode in a couple of years, and he's right—it did—but it didn't explode in the [destructive] way they thought, but rather in a very different way.
"In the first half of this year," adds Bhusri, "we grew more than 200% year over year, and our pipeline is filled with a number of very large Fortune 500 companies."
That growth has not gone unnoticed—several weeks ago at Oracle Open World, as Larry Ellison was previewing some of the capabilities of Oracle's new Fusion applications, he cited on a couple of occasions features and functions that would match or exceed what Workday's products can do.
That sort of competitive challenge hardly intimidates Bhusri, who makes no effort to hide his disdain for the bare-knuckle tactics Ellison deployed in his hostile takeover of Peoplesoft six years ago after Bhusri and Duffield had been brought back in to run the company.
And now, he said, Workday is able to begin setting the terms for the next battle:
"Three or four years ago, it was our dream that we'd eventually get to these customers and now it's reality," Bhusri said. "And I think the large vendors now realize they can't fight cloud and SaaS—they're trying to co-opt it but they're doing it with old technology, which is just warmed-over hosting.
"It's much like the battle Marc Benioff had to take on with Siebel 6-7 years ago around why multitenancy matters: why it matters for customers in terms of the pace of innovation and working with the vendor that has the lowest-cost model; and why it matters for the vendor, which is able to do a lot better job for the customer by having everyone on that same version," Bhusri said.
"We're having to have those discussions all over again because now, all of a sudden, it matters, which I think is good for us because it means that cloud and SaaS are here to stay."
Leveraging that stability, Bhusri and Duffield are in the midst of pushing Workday's product line up and out into accounting, and in so doing they also intend to leverage some of the intensely loyal relationships they've built with Fortune 500 customers who use their HR products.
"About a year ago, we started reaching a place from a functional perspective that we could get full parity with the legacy systems on core HR and payroll, and we're also building out talent. And since then, I think, we've left the legacy solutions in the dust," Bhusri said, noting that Workday realizes it can't just be as good as the big alternatives—it has to be significantly better.
"That has been the catalyst for companies to turn off the legacy systems because while they love what we're doing and they like the model, we had to have the functionality to retire the old system, and we've now hit that threshold for HR and payroll. In the next 12-18 months, I think we'll start hitting that threshold in the broader financial suites."
Bhusri expects that Workday's "first wave of large financials customers will come out of our base of large HR customers because they now have comfort with Workday and they have comfort with the technology. The CFO has signed off on the Workday model in the past, and increasingly [with financial apps] we're getting the question of, 'When will you be ready for a company of our size?'
"For the next 12 months, we'll focus on the 1,000- to 5,000-person market in financials, but coming out of the end of 2011 and into 2012 we're gonna take the governor off and really go after the Fortune 500, which is pretty much how we went after the HR market as well."
Bhusri acknowledges that financials will be "a very big nut to crack." And to crack that nut, Bhusri and Duffield realize they'll need a new set of internal tools—a more-powerful nutcracker, if you will—one that's supported by the full credibility and visibility of the stock market.
"Most of our large customers, such as these Fortune 500 prospects, want the transparency of a public company," Bhusri said. "Dave and I don't want to take the company public as an end goal—that's not a necessary step along our path to creating a great company—but the transparency of our financial statements, the view that we're here for the long term? That does happen when you take the company public."
It's interesting to consider the untraditional dynamics of the various constituencies who'll benefit from the IPO that Bhusri estimates could be 18 months in the offing—right around the time he expects Workday's financial applications will be starting to gain significant marketplace momentum among big companies.
While Duffield, a billionaire from his Peoplesoft holdings, and Bhusri don't need the money that an IPO would bring, the customers who'll be evaluating not only Workday's HR products but also its new financial apps will need Workday to have the credibility that only a publicly held company can prove.
"I would say that the HR and IT people would like us to do it so that when they go to their CEO and CFO and say, 'We want to go with Workday,' it's an easier conversation if they can then say that it's a decent-sized public company with a healthy market cap and cash on the balance sheet—that's the reason to do it," Bhusri said. (He also added that after an IPO, Duffield will retain majority ownership—and would therefore be able to ward off any hostile-takeover attempts.)
In the meantime, as the industry continues its rapid evolution and as the cloud continues to become more widely accepted, Bhusri expects that Google could be either a competitor, or a partner, or perhaps even both.
"Where the next competitor comes from, I'm not really sure—I mean, it could be Google. I think the easier part is the domain knowledge around HR and financials, and the harder part is building the cloud architecture from scratch, and Google has the chops to do that," he said.
On the flip side, Bhusri said, "I'd like to have a close partnership with either Microsoft or Google. Given how competitive they are with each other, I'm not sure you can be working with both, but I'd like to see our products more tightly integrated with Microsoft Office suite, or Google Apps, or Google Docs. Right now it's more about integration because the goal is to enrich that experience for the end user."
And Bhusri, who's intensely well connected with small and mid-sized technology companies of all types throughout Silicon Valley, realizes that those same types of changes and permutations he's planning for his own company could result in current partners becoming future competitors—in particular, Salesforce.com.
"We've got a very good partnership with Salesforce to date—at least so far, they've decided not to come into our business, which would be a natural one to think about. Marc and I are good friends, but that might change—but, to date, we're a big customer of ours and we're a smaller customer of theirs."
Such is life in the software business, particularly for a small but high-growth company founded by industry veterans intent on not just dancing with the elephants but on dancing rings around the elephants. It's an challenging role that Bhusri says he and Duffield and Workday eagerly embrace.
"We're at a place right now in both the company's life-cycle and the evolution of the industry where we're gonna start acting more like a market leader, so I think you can expect us to be more provocative, but still in our nice Workday tone," he said.
"But we are looking to raise awareness of the company because we now know that this is the future, and we're on it, and we want to capitalize on that."
Bob Evans is senior VP and director of
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