Workday is a cloud-based software solution that specializes in human capital management, more commonly referred to as HCM. This platform is intended to help company leaders track and manage their employees’ performances while also providing insight into the financial status of the company as a whole.
Have you ever wondered how Workday makes money? Is it profitable? How does this company manage to stay afloat amidst fierce competition from Oracle and SAP? If so, this article will answer all of your questions in detail.
Workday operates on a subscription-based business model. It makes money from subscriptions and professional service fees. Subscription revenues consist of monthly fees that clients pay to access the company’s software. Professional service fees are the charges for consulting services associated with the implementation and customization of Workday products and reports.
We’ll take a closer look at their business model and find out different revenue streams of Workday, one by one.
So, let’s dive right in.
Workday, Inc. is a prominent American software vendor focusing on financial and human capital management cloud-based solutions. Based in Pleasanton, CA, the company offers critical business solutions to organizations of varying sizes. It has a viable business model that helps achieve growth.
Workday develops and delivers cloud applications for human capital management (HCM), finance, and enterprise performance management (EPM).
The company’s HCM solutions comprise its core human capital software that provides business functionality such as talent management, performance management, compensation, and succession planning capabilities to help clients attract, develop, motivate and retain employees.
Its current product offerings include:
- Workday Human Capital Management
- Workday Financial Management
- Spend management software – simplifies the way companies manage spending
- Enterprise analytics and reporting software
- Process automation tools
- App development extensions – simplifies cloud integration
- Student information system software
- Enterprise business planning software
Revenue Streams of Workday
Workday monetizes services through subscriptions and software sales. Clients take advantage of its cloud-based platform, which offers enterprise management solutions like financial management, talent management, enterprise planning, human capital management, and spend management.
Workday delivers its software primarily to business customers through a SaaS delivery model. It currently has over 8000 customers globally.
Its distinctive open application architecture allows partners to develop and deliver a wide range of applications using a standardized set of cloud APIs, including professional services, analytics, and connectors to on-premises data sources.
Workday’s robust technology platform is highly scalable and secure, providing customers with a clear economic advantage because they only need to pay for the software they use.
Workday’s Value Proposition
Workday’s mass-market business model offers several value propositions, including performance, accessibility, status, and convenience. Clients take advantage of a wide selection of products, thanks to Workday’s strategic acquisitions.
As a result, the company now owns platforms like Upshot, Zaption, and Gridcraft. In turn, Workday (WDAY) diversified its services and overall capabilities.
It ensures convenience by providing business solutions that simplify day-to-day operations for clients. The service provider allows clients to leverage unified finance and human resource management system. By utilizing the solution, clients minimize complexity, thanks to real-time reporting and the availability of analytics tools.
As a prominent software-as-a-service (SaaS), Workday maintains a 99.9 percent uptime rate. In addition, it bolsters security and privacy by maintaining regulatory compliance. Every two years, it releases a major update to keep its system secure and running smoothly.
It boasts a strong brand, thanks to its stellar track record, high customer satisfaction rate, and overall success.
Workday serves thousands of business clients globally. These clients include
- Sony Corporation
- Johnson & Johnson
- Warner Music Group
- Electronic Arts
- Visa Inc.
- Church & Dwight
The software vendor’s value proposition has helped attract prominent corporate clients and several accolades. Workday is the recipient of Gartner’s 2020 HCM Magic Quadrant ‘Leader’ award for midmarket and large enterprises.
Investors find the software vendor attractive because it offers cloud-based SaaS products that address key operating needs for midsize and large corporate clients.
Many top companies use the solutions to support remote teams. With Workday’s apps, companies can streamline payroll processes and the creation of expense reports.
The business solutions provider offers division manager dashboards to simplify remote team supervision. Companies using the solutions also benefit from tools for enterprise planning, talent management, and expenditure management.
Meanwhile, educational institutions can use Workday’s platform and product extensions to assist learners in studying from home. Likewise, school districts gain access to workforce management tools and payroll solutions.
These tools make it easier to manage teaching and administrative staff working remotely.
Is Workday (WDAY) Making Money?
Founded in March 2005, Workday capitalized on the work-from-home revolution triggered by the pandemic. As a result, its stock rose significantly between January and September 2020. It jumped from $167.46 to $208.41.
The company’s revenues grew by approximately 19.62 percent in the second quarter of 2020. According to reports, its profits rose from $691.52 million in January 2020 to $777.69 million in July 2020.
In 2019, Workday enrolled an increased number of new corporate clients. These customers contributed to a marked increase in the software vendor’s profits. It beat revenue forecasts for the financial year. The company derives 85 percent of its total revenue from software subscriptions, which grew by 34.3 percent to $701 million.
Analysts attribute the increase in subscriptions to a widespread shift to cloud-based business apps. More companies now rely on these applications to manage various operational aspects, including payroll and human resources.
Given this background, Workday is working tirelessly to transform itself into a one-stop platform for back-office services. Hence, it acquired the software development firm Adaptive Insights in 2018.
In 2019, the vendor revised its subscription revenue projections for 2020 upwards to approximately $3.060 billion. The estimates were significantly higher than analysts’ expectations.
Workday’s projections received a boost when its signed new prominent corporate clients, such as Procter & Gamble, Carl Zeiss AG, Old Mutual Limited, and Cisco Systems.
However, the business has not been smooth sailing for the vendor. It also witnessed a widened net loss in the first quarter ending April 30, 2019. On the bright side, the healthy pace of widespread cloud migrations underpins its hopes for improved revenue growth.
Business Model of Workday
Although Workday operates in a competitive market with big brands, such as SAP and Oracle, the vendor still records significant gains in subscriptions.
It claims a considerable share of the human capital management (HCM) market, thanks to its innovative software products that deliver value without disrupting clients’ day-to-day operations.
However, increased investment in research and development comes at a cost. The company’s profits often take a knock due to increased spending in marketing and product development.
Meanwhile, Workday’s acquisition of Adaptive Insights also dug a hole in its $3.4 billion cash reserves. Nevertheless, its management team argued that the deal, which cost $1.55 billion, will help Workday accelerate the planning product roadmap.
The company plans to leverage Adaptive Insights’ advanced analytics and modeling capabilities. In turn, enhanced modeling and analytics should boost Workday’s financial management software adoption by corporate clients.
The vendor is looking to augment revenue from its HCM solutions with financial management apps, which have seen significant adoption in recent years.
In the fourth quarter of 2017, Workday welcomed more than 50 new financial management clients. Two of these clients were Fortune 500 companies.
In 2018, the software vendor took additional steps to bolster its financial management solution by incorporating three new features. These key components include:
- Workday Prism Analytics
- Workday Planning
- Workday Benchmarking
In turn, the company attracted the attention of top companies like Race Truck Petroleum, Sprouts Farmers Market, and Rivera.
Workday further enhanced its business software suite’s appeal by introducing supply chain planning and management software. This approach helps the vendor support clients’ need to switch costs when it comes to back-office software.
Workday is recording successes with its financial management software by targeting the world’s most prominent companies. Many global organizations are yet to migrate to cloud-based financial management solutions.
Workday finds it relatively easier to compete effectively with established vendors like SAP and Oracle with its enterprise cloud-native apps.
It is no surprise that Workday’s market share in the cloud ERP space is rising. The vendor is optimistic about future prospects, given that most new ERP spending flows into cloud-based solutions.
On the other hand, a cloud HCM Gartner Award given to Workday recently demonstrates the vendor’s growing influence in the human capital management (HCM) market.
Notable clients on Workday’s books include Qualcomm, Humana, and Citigroup Management Corporation. The most impressive part is that the list of top clients continues to grow as cloud migration gains steam.
A key factor in Workday’s market appeal is its high customer satisfaction rate. In 2021, the vendor achieved a 97 percent client satisfaction rate.
Analysts consider this aspect as a key factor that will determine the success of Workday’s business model.
Business Model Resilience
Analysts believe that Workday can weather rough patches, thanks to its resilient business model. For this reason, some experts predict the business software provider can maintain growth rates of up to 20 percent in the near term.
Likewise, investors can count on the firm retaining its status as an attractive long-term investment option.
Workday’s business model helped turn it into one of the most disruptive software vendors on the market. This multi-billion dollar a year company maintains steady free cash flow (FCF) profitability.
It achieves an impressive growth rate and FCF profitability with a combination of effective go-to-market approaches, a high customer satisfaction rate, and other key points. These catalysts undoubtedly drive significant margin expansion.
Its business model entails targeting its client base, enabling the vendor to bolster operational resilience. As a result, the firm can reduce marketing expenses while boosting revenue with add-on sales opportunities. In the past few years, the add-on opportunities have grown, helping Workday to maximize its net retention rate.
The add-on business recently helped the vendor record its first-ever $1 billion revenue in a quarter. The figure represented a revenue increase of 23 percent year on year.
A combination of a strong existing and new client base, including add-on offerings, makes it easier to maintain a growth rate of 20 percent or higher. It is no surprise that analysts see a sustained upside potential when it comes to Workday’s margin expansion. The company could outperform conservative margin projections.
A key component of Workday’s growth potential is its software licensing model. The vendor employs a per-user pricing scheme, which is significantly robust and resilient.
This approach ensures predictability in the revenue expected from individual contracts. Its licensing model only recognizes modifications in the total number of users per contract. In addition, clients sign contracts based on a minimal licensing value adjustable at renewal.
Workday licensing contracts also come with measures to minimize issues for clients due to employment changes that impact the per-user pricing scheme. A combination of base value minimums and annual contracts helps reduce volatility, limiting the downside. Clients can reset base values upon contract renewal.
Conclusion: How Does Workday Make Money?
To sum things up, Workday is a cloud-based software company that provides HR and financial management services to companies of all types and sizes to help streamline their business processes and increase efficiency. Workday works on the SAAS model and earns revenue by selling subscriptions to use its services.
Powered by their proprietary cloud software along with their live chat support and on-demand technical support, they are able to provide their customers with exceptional services that allow them to seamlessly streamline operations with services such as time tracking, human resource automation, performance management, payroll, big data analytics, and finance applications.
You’ve read all the details, now let’s wrap it up. The business model of the company is very straightforward – they offer a cloud-based financials and human resource management solution. It is one of the most dynamic companies in the segment and has grown tremendously since its inception in 2005.
Workday strives hard towards becoming the number one company in the world concerning enterprise human resources management software solutions.
We believe that companies like this will eventually replace the traditional software packages that are being used by most organizations today.
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