October 12, 2012, Posted by Richard Zolezzi

Workday’s strong debut as a public company must be a sweet return for PeopleSoft founder Dave Duffield and Aneel Bhusri who have positioned Workday to be the “go to” HCM solution provider architected and built completely for the cloud.

Priced at $28 per share and finishing up $20.69 on the day to $48.69 (+73%), Workday blasted out of the gates raising $637MM and capturing an $8.7B market cap.  Was it the team, the HCM space itself or the power of all things cloud that led to the strong reception?  Undeniably all three.

With its product suite built from day one for the cloud and as a major Salesforce.com partner, Workday can claim the native cloud pedigree that other vendors are racing to acquire.  In the HCM space, we are witnessing the migration from HCM 1.0 to HCM 2.0—which is all about the cloud.

SAP began the arms race by buying Success Factors at the end of 2011 for $3.4B (12X trailing sales).  Not far behind, Oracle bought Taleo in February of this year for $1.9B (6.5X trailing sales), and  IBM followed suit with its announced acquisition of Kenexa in August for $1.3B (3.8X sales).  Salesforce.com itself is entering the space with its Work.com offering based on its Rypple acquisition and new companies native on Force.com are getting lots of buzz, including Jobscience.

So what does it mean for the market?  Gartner predicts that the cloud enterprise software market will grow to $17B in 2013, representing almost 6% of the total market (up from only $5.3B in 2009).  HCM 2.0, like so many other enterprise software categories, has seen a growing movement to the cloud and away from proprietary, on premise software suites.

IT decisions are becoming more strategic, particularly those that relate to people—a company’s most important assets.  In the fierce competition to attract, train and retain the best employees, companies need HCM systems that are agile, collaborative and mobile.  They need systems that can be leveraged by the entire employee base, rather than available only as expensive “seats” in the HR silo and among hiring managers.

Clearly, the cloud is reshuffling the deck for software providers. Native cloud HCM systems, rather than retooled on-premise architectures, will increasingly have the advantage going forward.  Consolidation trends will also continue, as larger providers acquire best-of-breed and more nimble cloud-based providers.  Interactions among people where and when they naturally occur (i.e. social and mobile) are the creative energy that HCM systems will continue to harness to meet company and employee needs.  Well done Workday!

Richard Zolezzi is a Partner at Catapult Advisors, an investment bank providing M&A and capital raising advice to leading software and internet companies. https://www.catapultadvisors.com