(Bloomberg) -- Last December, in a large building resembling a warehouse in the Bay Area suburb of Pleasanton, California, 2,400 Workday Inc. employees or “workmates” gathered for a day of raucous festivities. An employee band, cheekily misspelled Wrok Day (as in Rock Day), played songs like Nirvana’s “Smells Like Teen Spirit,” and Hall & Oates’s “You Make My Dreams.” Some in the crowd waved glow sticks and cheered. But the most rapturous applause at the event was reserved for a number: $10 billion. In his speech to the troops, Aneel Bhusri, the co-founder and chief executive officer, said the 14-year-old upstart was targeting that annual sales milestone in as many as six years, up from $2 billion last year.
“We can get there,” he said as the crowd cheered. “It’s achievable under almost any scenario.”
Workday makes applications that help companies with mundane tasks like keeping payroll, plotting expenses, tracking employee absences and managing job candidates. It sounds unglamorous, but as in many of Silicon Valley’s business-focused software fields, there’s fierce drama behind the scenes. Workday co-founders Bhusri and David Duffield once had a human resources software company, PeopleSoft, that was taken over by Oracle Corp. in a famously hostile acquisition. Now they're back with a familiar rival: Oracle.
Most large companies still run older financial tools made by Oracle, the world’s second-largest software maker, or the German giant SAP SE. Workday has persuaded big corporate clients like Bank of America and Amazon.com Inc. to use its software, but the key to reaching that magical $10 billion number is getting more companies to switch their cloud-based accounting tools as well.
“The biggest challenge for Workday is inertia,” Anurag Rana, an analyst at Bloomberg Intelligence, said. Accounting systems are “the heart and lungs of your operation and people are reluctant to change that. It is very difficult to get rid of your SAP and Oracle systems and move to the cloud.” Workday’s customer service record may be its most valuable tool in growing its client list, he added.
Bhusri has tried to take on Oracle and SAP in part by cultivating a kinder, gentler image. Both of Workday’s larger rivals have accused customers of violating complex contracts, and asked for large financial penalties. Lawsuits have sometimes resulted, such as SAP’s suit with beverage maker Diageo, which was settled out of court in 2017. Oracle and SAP have also both been accused of pressuring clients to upgrade their software. An SAP spokeswoman declined to comment. Oracle didn’t respond to a request to comment.
In a business known for its egotistical characters – including Oracle Chairman Larry Ellison, who frequently rants against his rivals – Bhusri said in an interview he’s determined to compete as a “nice guy,” comparing himself with Stephen Curry, the point guard of the Golden State Warriors, who has a reputation for being amiable.
But Bhusri is just as likely to lob insults at his competitors, even if he feigns to soften the blow. “They’re both struggling making a transition. Someone called them dinosaurs,” he said to his employees about Oracle and SAP on stage in December. “Not me.”
In 2005, Oracle completed its hostile takeover of PeopleSoft, culminating a grueling 18-month affair that included an antitrust lawsuit with the U.S. government and PeopleSoft’s board rejecting no fewer than five Oracle bids. Duffield and Bhusri were powerless to stop it and left feeling disappointed. Later that year, they met for breakfast at a diner in Truckee, California, and plotted their next step, sketching on a napkin the first stages of what would become Workday, which would use newer technology than PeopleSoft – cloud computing.
Workday is Bhusri and Duffield’s do-over, and in their bid to get this one right, they gave Workday a dual-class stock that ensures they could prevent any unwanted takeover. Bhusri and Duffield collectively own more than 96 percent of Workday’s Class B shares, giving them control even though the company’s Class A shares are publicly traded.
Workday has built itself to be the anti-Oracle – while they both compete for the same clients with similar products, Workday boasts that it has prioritized its employee experience above all other considerations, arguing that happy employees lead to satisfied customers. Oracle, meanwhile, is currently battling the U.S. Department of Labor, which alleged that the company shortchanged employees by $400 million because of discriminatory practices.
Workday is often cited on lists of best places to work, and it has an attrition rate of less than 10 percent – low in Silicon Valley, where workers have a reputation for swapping employers with the seasons. It also sends a weekly satisfaction survey to workers; organizes frequent parties; and allows unusual team-building projects, like the time one group of employees decided to foster a dog who lived at the office during business hours.
Workday devotes two-thirds of its expenses to its employees, Co-President Robynne Sisco said. That goes toward compensation and benefits. “When we look at companies like Oracle, we think they don’t treat their employees as strategic priorities, and it will be to their long-term detriment,” said Sisco, who used to work under Safra Catz at Oracle, before Catz became Oracle’s CEO.
Oracle is paying attention. In September, Mark Hurd, who shares the CEO title with Catz, said on a conference call with analysts that Oracle had notched key wins against Workday. Airbnb Inc. had replaced Workday Financials with Oracle software, he said, as did asset management company Legg Mason Inc. (Workday said that Airbnb remains a customer.) “We’re killing Workday in” accounting software, Ellison said during an earnings conference call in December.
To make it to $10 billion, Workday will have to do a better job of convincing conservative chief financial officers to do their bookkeeping in the cloud. Most large companies only upgrade these systems, which track revenue and expenses, once a generation. Oracle and SAP have made it a priority to hold onto these customers.
Workday executives say the timing hasn’t been quite right. “It’s actually been a viable product for quite some time,” Sisco said, “But the market just wasn't ready for it yet.”
Workday’s difficulties in the accounting software market have forced it to try to cut some corners. The company purchased Adaptive Insights Inc. last year for $1.55 billion, in its largest acquisition to date. Adaptive makes financial planning software that Workday sees as a conduit for persuading customers to buy more internet-based financial software. Workday had a competing product on the market, but said buying Adaptive sped up their momentum in this market by more than two years.
But in some ways, Bhusri has already gotten revenge. His company’s sales grew 36 percent in fiscal 2018 and its stock jumped by an enviable 54 percent during the last year. Bhusri thinks all of Workday’s quirks, big and small, are responsible for its momentum.
“We tell people, if you don’t want to have fun, go work for SAP or Oracle,” Bhusri said in an interview. “Culture overwhelms strategy. In 10 years, as long as we have our culture, it won’t matter what our strategy is.”
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