Workday IPO – First Impressions


So the much anticipated IPO of Workday is here. http://www.sec.gov/Archives/edgar/data/1327811/000119312512375787/d385110ds1.htm#toc385110_13  . Pretty detailed S-1 too. I just flipped through it and also read Dennis Howlett’s blog on it on ZDNET.

The best part of this is that the founders have a long term plan to keep control of the company, and virtually eliminate chances of a hostile take over. I wonder if this will get punished by market or not – probably it will, just for the short term. Customers should like this arrangement – so in long term this should work in company’s favor.

No surprises on revenue – and excellent growth rate. And while COGS is high, it is not that bad given they are young and need to invest in getting big client names, product development, marketing and so on. That will generally stabilize in future and make the company more profitable.

It is interesting to note in the S-1 that “…most of our non-cancellable contract terms have averaged four years“. I fully understand the reason to do this. I just wish some cloud pundits stop saying SaaS companies somehow always do “pay by drink” and “no lock-in like legacy vendors” .  There is plenty of lock-in for SaaS players, and I never really understood why some pundits try to portray otherwise. Customers are not stupid – they know how economics work for vendors, and they factor it into buying decisions.

Mr McNamara , CEO of Flextronics is a Director for the company, and has stock in the company. Flextronics is a big name customer of the company too. I really like Workday’s strategy of getting some skin in the game from customers, and industry leaders. Interestingly, SaaS pundits don’t always mention this relationship of Workday and Flextronics when they highlight “Flextronics chose Workday” .

There is not a lot of presence outside US from revenue perspective. It is not a big deal since there are plenty of customers to go after in US itself for next few years. But they do need to expand in short order to remain viable for global companies. Workday is still kind of a one trick Pony with just HR as their game since very few customers have used them for Financials. For them to be a credible threat to ORCL and SAP and so on, they have long ways to go. R&D should stay high for many years while they develop all the functionality depth and breadth.

S-1 says it takes 3 to 9 months for an implementation. Dennis Howlett characterizes it as “incredibly fast” in his excellent blog. http://www.zdnet.com/understanding-workdays-ipo-filing-7000003569/ . I am not sure  if this is a completely fair characterization since the 12 to 18 months of on-premises SW typically has multiple modules of functionality unlike what Workday offers today.  Since Dennis definitely knows cloud and Workday more than I do, I assume he had more in mind when he wrote this.

All things considered, I think Workday is a fantastic company with a bright future. Good luck to them on their IPO.

 

Added : https://plus.google.com/118281770914088081017/posts/b8fJR6w71Yq  excellent summary in bullets from Jarret P

Still In Doubt About BW on HANA ? Ask Steve Lucas and Vijay in Global Webinar on September 5th, 2012


From the day HANA was announced, people in SAP ecosystem have been trying to find a crisp answer to “Does HANA replace BW? “. Countless blogs and tweets have been posted about that topic, as well as Q&A sessions, emails and so on. Guess what – that doubt still lingers . Not a week passes without someone asking me this question .  Of course that is not the only question – people want to know why they should migrate to BW on HANA, what is the process to do that and so on.

After one of such twitter conversations where many people restarted this conversation, Steve Lucas and I got together to figure out what is the best way to answer this once and for all.  Mico Yuk suggested a public webinar – along the lines of her “All Access” ones.  In fact, Mico did such a session with Steve last week or so which I unfortunately could not participate in due to other commitments.  Apparently, there was not enough time to get through all the questions.  That I fully believe is the case with HANA – I have had day long workshops with clients, and there will usually still be more questions at the end.

Steve and I are holding a Global Webinar on September 5th, 2012 at 1PM EST to try to tackle this issue.  SAP Insider will be hosting this event. Please join us and ask whatever questions you have on this topic. We are not planning to do this as a presentation with lots of slides. There probably will be a couple of slides just to introduce the topic, speakers and so on, but the intention is to make this as interactive as we can.  The intention is to let you ask questions and we will try to answer. If we cannot find you a good answer on the spot, we will follow up with a follow up blog to get to those.

Here is where you can register for the event.

https://event.on24.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=505959&sessionid=1&key=665DCDD239948C2B8529BA8C852C7377&sourcepage=register

I am sure a lot of you already know Steve (especially Steve) and me – but in case you do not, please check the above link for a brief on our profiles.

If you leave your questions on this blog as a comment, I will make sure we discuss those in the webinar. Of course, you could also ask  live during the webinar.

I am looking forward to the webinar next Wednesday .  Lets have some fun, and hopefully put at least the “Does HANA replace BW ?” question to bed  🙂

 

Apple Vs Samsung – Never Mind The Customer, Eh?


So I just heard the news that Apple got richer by a billion dollars , and Samsung has to pay up that money for patent infringements. Well, Apple did not get the whole amount it was seeking, but $1B is not too shabby. Since the Jurors only took under 3 days to decide on the case – I think Apple’s lawyers probably did an incredible job convincing them. Maybe they and other lawyers with similar expertise will see a bull market now for their skills and experience .

More than the $1B they got from the ruling – there are many benefits AAPL would get from this ruling.

Good press is not something AAPL is short on . The cult following they have will make sure that this will be hailed as a huge win for innovation, honesty, higher standards and so on. If Oracle or someone similar sued a competitor and won, they will probably never get the same opportunity to milk mileage out of it in internet and press. Such is life 🙂

AAPL would have also successfully scared several “innovative” competitors in their markets. Some version of this trial is bound to play in most countries . Patent laws apparently differ across the world, so who knows how this will net out after lawyers on both sides play several innings each. And of course there is the appeals process too. It will be a while before dust settles. I am not sure if this win for AAPL also gets them an ongoing royalty revenue stream from Samsung.

What about customers though? $1B will not kill the Samsung company – but they will directly or indirectly pass the cost to customers going forward. I am a customer who prefers my samsung galaxy tab over an iPad, although I use an iPhone. Many friends and family members use samsung devices – and I wonder how many carriers will be now scared to keep a contract going with Samsung.

Well, Samsung also sued AAPL. That might get them back something – if not in money, then at least in good will. But I am not going to hold my breath on Samsung having a good chance to beat AAPL in US market in near future . That will be such a shame , if that is how it plays out.

For innovation to thrive, irrespective of final results of these battles in court – the patent system should be revamped and simplified. Legal innovation does not have the same effect as product innovation for us customers.

 

 

 

Facebook Stock Price Decline – The Price For Not Fitting Into The Mold ?


If you are an investor – directly, or indirectly through a 401(k) or IRA – I am sure you would have followed the fortunes of FB stock . If I had to choose one word to describe it, GREED would be it. If I get one more word, I will choose STUPIDITY.

FB  was set at a high enough price at IPO  that the company was valued overnight in the vicinity of  100 Billion dollars or so of market capitalization.  At that stage – it was all about Greed on both sides. People who had stock to offload had no problems marketing an extremely good story on future earnings, and people who wanted to buy expected to buy the next GOOG at the cheap and ride it all the way to stratosphere.

At IPO – investors seemed ok with defining long term for FB as several years. But that lasted only for a little time – now long term is just the next quarter as usual. Nothing about FB changed fundamentally, except for the controversy of allegedly not sharing all the information at IPO time . FB did not have a google-like billions of dollars revenue stream at the time of IPO, and it did not have one after the IPO.  It beat analyst expectations, but still managed to spook the street with cost increases, and lower slope of growth trends.  As always – one wonders whether tail wags the dog when it comes to the street and the public companies it covers. If you understand Malayalam – കൊണ്ടുനടന്നതും നീയെ ചാപ്പാ , കൊണ്ടുപോയി കൊല്ലിച്ചതും നീയെ ചാപ്പാ – is what comes to my mind in this context.

Stocks are compared against analyst estimates to determine what price it should be traded. For an established market – analysts have sophisticated market modelling techniques. For the “social” economy, it is hard to model a financial model like a “brick and mortar” economy.  GOOG makes most of its money through adwords – and analysts like that predictability. For now, FB makes its money via ads too.  If you judge FB on same parameters as GOOG – this stock will need to be punished even more I would think, given revenue – absolute numbers and growth –  is nowhere along similar lines as GOOG.

Why would anyone advertise on FB ? The best reason I could think of is CONTEXT.  FB might provide a better way to target the right audience for a given marketing message.  And more and more people join it every day. What I particularly like about the FB audience is that there are plenty of people there at an age group that has money to spend. As the line blurs between enterprise and consumer – I would expect that FB based marketing will pick up even more steam. The big question is – when will that happen?

I had dinner with a respected analyst and consultant few days ago in the bay area. He confirmed that he spends quite a bit on GOOG adwords, but nothing on FB advertising. I have heard this from several others since FB IPO. It just shows that FB has some ways to go in communicating to its stakeholders – developers, customers, investors et al.

That is where FB is facing some challenges today. The founder CEO is an atypical executive who cannot seem to be bothered a lot about answering questions that investors have about his company’s future. He controls vast majority of shares, so his hand cannot be forced in any way at the moment.  He is a product guy – and not a bean counter type.  He has hired capable executives for all jobs other than that of CEO. A big debate these days is whether he needs to hire someone else to do the CEO job.

This whole idea of “adult supervision” is not new. AAPL tried it when Jobs thought he needed another CEO. It didnt go too well for Jobs or AAPL. But when GOOG founders tried it with bringing in Schmidt, they had good success. There are other stories too like Yahoo’s founder trying to run the company a second time and then forced out – which makes me believe that a CEO change is not the magic bullet that will make it better for FB. If Mark Zuckerberg is smart enough to build FB to where it is today on his terms, I believe he can run it too on his terms. Even if a new CEO comes in, with his controlling shares in FB – Mr Z will still call the shots. So why bother? he has a  COO  and a CFO – why not empower them even more to deal with external world, while he can focus on making the product take its next leap?

Zuckerberg plays to his user base more than his investors. I cannot find a reason to fault him for that.  He prefers jeans to suits – big deal. Does wearing a suit make him a better CEO? If FB proves to be a success, Zuckerberg would have blazed a trail for many CEOs in future to choose a path that fits them, and not the street. If FB fails, I doubt it will be in large part because of CEO’s etiquette etc.  So in my opinion, he should not worry about fitting into the mold that the corporate world expects him to.

He does have to worry about talent though. With stocks tumbling, there is a real risk of his best talent jumping ship. Even if they don’t jump ship – they might lose motivation to do as well as they have done before. It is not a start up any more – that is history. In the new world, he needs a new version of future to keep his top talent from having other plans. If anything – that will be his true test of leadership. If he keeps his focus on retaining talent, and enhancing his product – I firmly believe, the street concerns will sort out itself. The funny part of retaining talent is that he would have faced the same troubles of keeping employees if they made their big millions, and then left the company to do their own thing, or to just retire young. Darned if you do, Darned if you don’t 🙂

There is a possibility that declining stock prices might make other companies decrease their use of FB as an advertisement vehicle. I seriously doubt that would be a massive problem though. A good example is Yahoo which made a profit even when everyone seemed to write them off.  Most users of FB would not care about who owns FB, or their stock price. Those are the users that advertisers will chase – and as long as FB does not decline in users, I doubt they will run into this issue.

With lower stock prices – there might be renewed interest for another company to acquire them. A hostile take over is not going to happen the way things stand now – but if FB people wants to cash out, selling out might be a very easy route to take in the medium term.

FB did not do its IPO enough justice. The price was set higher without enough justification. Then there were the waves of initial investors getting out, with probably couple more waves to come. The sheer number of shares made available makes the problem worse. In hindsight – they could have gone public earlier, so that investors could have moved up with a wave of increased user base these past 2 years. Or they could have remained public for a little more time while they figure out a sustainable business model and a story that the external investor world can understand. I guess greed and stupidity do have a tendency to go hand in hand.

 

 

 

When Private Sector Sucks As Much As Public Sector In India


As an Indian living and working in US, I am interested in the political and economical development in both countries. In the US – since this is election season, there is a lot of rhetoric on the extreme sides of the spectrum. One side wants extreme role for government and another wants minimum possible government intervention. In India – it is different. Large government involvement is still the only agenda irrespective of political party affiliation- with privatization getting attention only since the 90s.

Pro-reform leaders like the Indian Prime Minister are all for privatization. One of the areas where there is significant privatization is in Infrastructure – specifically roads. BOT (Build,Operate,Transfer) is very popular for roads. The general idea is the government designs, and private part does building, collecting tolls for a period, and then transfer back to government.

In general – this is a good model, and I have always thought that is the only way to get India to develop faster. But I did not understand the perils of this approach till very recently. Here are 2 examples to make the point, both of which were brought out by an excellent program called “Asianet Newshour”.

BOT for roads is a scam of epic proportions in some cases. In one case – exposed by Asianet news hour – a private company just opened few other companies under different names ( using same office address)  and won contracts (probably with the required political blessings) for road contracts in Kerala. Next, they do a better version (for them , not for people) of BOT . They get money from government for part of the road, and then inflated the cost by a factor of 3 or 4. And even before roads are completed to specs – and not even putting streetlights – they have started collecting a good chunk of money as tolls. Worst case – there was an MLA on the program on TV- a guy elected by people to watch out for them – trying his best to defend the private company vehemently when he had all the facts thrown at him by rest of the panel.  Remember the 2G  scam ? this one looks to be in that league or worse.

Government had leased many farm/forest acres to private farmers in the past for cultivation, under strict norms. These farmers – including big companies that does farming of cash crops – were not supposed to change crops, sell, sublet or encroach adjacent land. Well, guess what – they did all of that and more. And the regulations are so outdated, that nothing much can be done to penalize their wrong actions. I was shocked to see a sting operation on “Asianet Newshour” that showed a communist party local leader explaining clearly the steps needed to claim acres of forest land in Kerala for private owners.  And another political leader is saying that the leased land should not be taken back by government when lease expires or when terms of lease are violated. And he will probably have his way too, given the coalition government cannot sustain without his party.

It is not that the government is doing something brilliant either.  After all these decades of winning independence from Britain – India is still not self sufficient on power. There was the largest ever power cut last week with hundreds of millions of people affected.  Most National highway stretches have 2 lanes at most.  There are plenty of restaurants that serve food that kills people or make them seiously sick. Very little is done to fix any of this with a long term perspective. Corruption is so common place that people barely complain any more. Look at Olympics – for a country with billion people – we have not even won a gold medal yet in London so far. We are still singing praises of Milkha Singh and PT Usha who came close to winning a bronze decades ago in athletics. We have no planning to make it any better next time either.

Anna Hazare had a huge fan following not that long ago. And where did he end up? He just announced his team will contest elections and reduce corruption. And at this point – hardly anyone is supporting his campaign. Why? simply because his team just bickered on every thing and could not put forward a plan that citizens of India could understand as viable.

So where does that leave India ? If neither private sector not public sector is the answer, what is the answer? is Luck the answer?