Workday’s robust 22.3% growth in Q3 subscription revenue is due in part to an escalating trend among customers to spend more money with a smaller number of cloud providers.
As business customers concerned about the global economy put greater scrutiny on tech investments, it is possible and perhaps even likely that second- and third-tier vendors will suffer as customers determine that going all-in with a limited set of major cloud vendors is the best way to go.
“There is no question that the macro environment presents increased uncertainty,” co-founder and co-CEO Aneel Bhusri said in his prepared remarks on the call.
“But as we’ve said before, we are well positioned in this type of environment because our cloud finance and HR solutions are truly mission-critical.”
A minute later, Bhusri explained that more business customers are deciding to select Workday for both HR and financials to gain the benefit of fully integrated apps with a single architecture and data model.
After listing four customers that have just added Workday Financials, Bhusri said, “It’s important to note that each of these customers has also selected us for HCM, reinforcing the power of the full Workday platform, providing further evidence that companies are going all-in with us.”
Later in the call, co-CEO Chano Fernandez expanded on Bhusri’s “all-in” perspective by declaring that as customers are taking multiple steps to deal with the troubled economic environment, they are whittling down the number of cloud vendors they work with for key operations.
Noting that he has met with hundreds of customers in the past few months, Fernandez said, “There is a clear desire to consolidate and prioritize spend across an organization’s more-strategic technology vendors. Given our positioning as the backbone of digital business across HR and finance, this trend has led to more and more companies going all-in with Workday as they look to harness the power of their data across the enterprise.”
From the various comments made by Workday executives during the call, I’ve pulled out four factors they cited as the main drivers behind Workday’s momentum:
- an enhanced focus on industry clouds and industry-specific solutions;
- an increased emphasis on bolstering Workday’s partners ecosystem and ensuring those partners are driving unique value for customers;
- Workday’s expanding outreach to CIOs to help them build or extend their own apps with Workday’s fast-growing platform, called Extend; and
- Workday’s ongoing focus on deploying advanced technologies — primarily artificial intelligence (AI) and machine learning (ML) —to help customers automate, accelerate, and optimize their operations.
As a result, the need among Workday customers for narrow point solutions and add-ons from smaller tech vendors is diminishing.
That possibility came out multiple times during the Q&A portion of the call, including in response to the very first question, which focused on what was driving Workday’s ongoing momentum.
Fernandez replied, “I believe the mission-critical nature of our solutions really resonates with our customers as they are modernizing their HR and finance systems. And as I said in my comments as well, there is a consolidation of spend across strategic vendors, and we clearly are being one of those these guys.”
Co-president Doug Robinson, who leads Workday’s global sales organization, echoed that outlook during the Q&A session.
“A theme that I certainly heard at our customer conference is our large customers wanting to consolidate, and to rationalize the number of suppliers and expand their footprint with us,” Robinson said.
Now, of course, any company could say, “Customers are consolidating their spending and giving most of their money to us.” With Workday, the difference is two-fold: First, Workday has a significant and growing list of customers that have decided to go with it for both HCM and Financials; and the 22.3% growth rate in subscription revenue for the quarter ended Oct. 31 is probably the best metric of all. At a time when the growth rates of most major cloud providers are moderating, Workday’s has continued to rise — so clearly it is taking share from others.
Plus, my prediction from earlier this week was that Workday would post quarterly subscription-revenue growth of 20%, and their actual number of 22.3% blew past my forecast with plenty of room to spare.
Nicely done, Workday.
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