Why High-Flying Workday Is Pushing ML over M&A

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After posting excellent quarterly results buttressed by last year’s acquisition of Adaptive Insights, Workday CEO Aneel Bhusri said the high-flying company is focusing much more intensely on machine learning than on additional M&A.

Before getting to that, here are a few quick details on Workday’s fiscal Q1 results for the 3 months ended April 30:

  • total revenue of $825 million, up 33%;
  • subscription revenue of $701 million, up 34%;
  • revenue outside the U.S. up 42% to $197 million, representing 24% of total revenue;
  • subscription-revenue backlog of $6.8 billion, up 30%;
  • guidance for full-year subscription revenue was increased to about $3.05 billion; and
  • Prism Analytics revenue grew 70% in the quarter.

As impressive as those numbers are, I found Bhusri’s commentary on the earnings call regarding machine learning to be even more compelling. That’s because it points to how Workday plans to continue competing and winning against companies 10 times its size in the hyper-aggressive enterprise-technology market.

Asked by an analyst to describe Workday’s approach to infusing its software with machine-learning capabilities, Bhusri said Workday’s taking a long-term approach that will, in his words, put it “ahead of our competition” and even enable it to “extend that gap.”

“For the last three years, we’ve basically been sewing-in the machine learning capabilities into the platform rather than making it an app-by-app feature. You could add machine learning to one specific app, but then it’s not leveraged by the rest of the applications—so instead, we’re taking a longer-term approach by building it into the fabric. And today, we’ve already got several examples of where it’s in place,” Bhusri said as he offered two examples:

  • for career-planning, ML helps Workday software recommend career moves a person should take, or courses that will help advance that person’s career; and
  • in finance, automating many auditing processes.

Bhusri also promised Workday will “unveil a whole wave of more capabilities at our next user conference” later this year.

And Bhusri deflected a suggestion that the infusion of machine-learning capabilities will allow Workday to charge more for its applications.

“I don’t see it as a pricing issue—we’re not going to charge extra for it,” he said.

CEO Aneel Bhusri made some interesting comments about Machine Learning on Workday Q1 Earnings call
Aneel Bhusri

“It’s hard to see charging one price for the products with machine learning and then charging less for those that don’t have machine learning. Rather, it’s going to be a core capability required just to stay competitive.

“Now, maybe that will give us pricing leverage because we’ll be ahead of our competition. And I think it’s very likely that we’re already ahead and will just extend that gap.”

But while Bhusri was unmistakably bullish on the need for continuing to push aggressively into the modern world of machine learning, he expressed little or no enthusiasm for tackling another big acquisition, such as last year’s deal with Adaptive Insights that greatly accelerated Workday’s move into planning and budgeting.

Asked about the prospect of more M&A, Bhusri replied, “My personal view is that larger acquisitions are really, really difficult.

“And frankly, we had a lot of things fell in place with Adaptive: for one, we knew the team really well as [Adaptive Insights founder and CEO Tom Bogan] Tom and I are close friends going back 15 years.

“And, we had very similar corporate cultures, with a very similar focus on customers. Then the products and technology were very complementary. Plus, we knew the space—and we knew we were pretty far behind where Adaptive was,” Bhusri said.

“I just don’t think there’s a lot more targets out there like that,” he added, noting that any potential “big ones will have to pass through a very tight filter on cultural fit, on technology compatibility, on limited overlap in terms of both revenue and technology.”

Never say never and all that, but Bhusri made it very clear that Workday is devoting its time, attention and resources to machine learning, to completing the technical integration of the Adaptive Insights products, and to further refining its nascent PaaS offerings.

That commitment includes a huge new $94-million development center at Workday headquarters in Pleasanton, Calif., that will house more than 2,200 employees, CFO Robynne Sisco said on the earnings call.

 

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