Workday acquires Adaptive Insights

My thoughts on the news that broke in the past week regarding Adaptive. One word: Wow! This is big news!! No spin. My excitement is genuine! Let’s try to break this deal down.

Why does Workday spend $1.55B to purchase Adaptive? – At a high level, there are a few strategic drivers behind an acquisition like this. Before we get into these it’s important to note that Workday is no stranger to the CPM space.  Workday and Dave Duffield (Chairman of Workday) both have been investors in early CPM startups like Tidemark.[1] Workday has also invested in their own planning products.

So if they have their own Planning product, why buy another?

This has been a common acquisition for ERP companies. CPM is hard.  It’s a specialized product that must meet the needs of a very discerning buyer: the CFO. Most of the Tier 1 ERP vendors have gone down the similar journey: start to build, then turnaround and buy (eg. Oracle with Hyperion, SAP with Outlooksoft & Business Objects).

I was in Boston speaking at a CFO conference. The topic of ERP purchase came up. After a lengthy discussion, a CFO got up and said “Implementing ERP is like getting brain surgery, there is a high likelihood of dying on the operating table”. That statement has been ruminating for the past few months. In the end, I think what he’s saying is this: replacing a large system like an ERP is costly, difficult, and often time adds no direct value to the CFO.  Meanwhile, there can be a lot of risk to the CFO should things not go well. Said yet another way, the CFO is part of the buying process, but doesn’t necessarily benefit from the purchase.

Enter CPM. Now an ERP company has a bright shiny tool that the CFO gets from the ERP purchase.

I digress. Back to the question at hand, Why does Workday spend $1.55B to purchase Adaptive?

This is really a recognition on Workday’s part that they have a gap in their product offering. It gives them someone to engage one of their economic buyers, the CFO. Having a CPM tool in their suite, allows them to compete against the likes of Oracle and SAP better increasing their win rate. Ultimately, they are buying Adaptive to help them sell more Workday.

Secondly, this will help to increase negative churn. Workday has 2,100 customers, most of which likely are using Excel for CPM. For context there are currently only 30-40 joint Workday/Adaptive customers. That is a large addressable market from which to create more ARR (annual reoccurring revenue). Remember, cloud companies are different than more traditional business. They get valued on the speed at which they can grow their ARR.  Mounting losses and cash burn doesn’t seem to dampen their valuations. Cross selling Adaptive into the Workday base, could yield a significant growth lever for their ARR.

A third motivation for this purchase is to protect their customer base. Workday has 2,100 customers, and churn is a real threat for any SaaS company. Without a solid CPM offering of their own, their customers are at risk of buying CPM tools elsewhere (e.g. Oracle, SAP, Prophix), providing competitors with a toe-hold into Workday accounts. By contrast, having multiple products in an account makes Workday more sticky, so harder to churn.

The Power of One, anybody?

Workday product development is driven by this idea called The Power of One. In their own words, “At Workday, we have one version of software, one customer community,

 and one codeline.”[2] This is a core differentiator for Workday. Having one codeline, means all of Workday’s products will be integrated into one unified solution.  One common user experience, one common look and feel, etc. That’s good news for Workday users. This means they will have access to Adaptive’s planning tools seamlessly woven into the Workday platform. In their words: “We are committed to unifying Adaptive Insights with Workday—not bolting it on.”[3]

But what does that mean for the 3000+ Adaptive customers who are not using Workday?

Nowhere in the above analysis did I say that Workday was acquiring Adaptive to get into the general CPM space.  They are purchasing Adaptive to sell more Workday. They have clearly stated that they are planning to integrate Adaptive product into Workday’s products. So again, what about the Adaptive customers who are not using Workday? If you are using Adaptive now and are not a Workday customer, there is a high probability that you will not be an Adaptive customer upon your next renewal date. There is going to be a lot of churn in the next 3 years.

If you are a recent Adaptive customer, this can be frustrating.

On the flipside, this will create a tremendous growth opportunity for core CPM vendors like Prophix. Not only will we continue acquiring customers at our regular rapid rate. We will be able to augment our growth through churn of Adaptive customers.

To accommodate for the opportunity at hand, Prophix has already created easy Adaptive to Prophix migration tools.  Adaptive customers will be able to port their applications easily and seamlessly to Prophix, without incurring significant penalties or fees. This is another example of where Prophix is going out of its way to improve the overall customer experience. I’ll talk about this more in future blog posts.

All this said, ultimately this deal is seen by analysts and industry insiders as a strong validation of the CPM space and a confirmation of the strategic significance of CPM to ERP. So for PROPHIX, as a leader in this arena, these truly are EXCITING TIMES!!

[1] “Tidemark.” Crunchbase, www.crunchbase.com/organization/tidemark#section-acquisition-details. Accessed 20 Jun. 2018.

[2] Workday Staff Writers. “Defining the Power of One.” Workday, 7 Jun. 2018, www.blogs.workday.com/defining-the-power-of-one. Accessed 20 Jun. 2018.

[3] Dermetzis, Petros. “Workday to Acquire Adaptive Insights.” Workday, 11 Jun. 2018, www.blogs.workday.com/workday-to-acquire-adaptive-insights/. Accessed 20 Jun. 2018.