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Chapter 1: What challenges do employees face when using Workday?
No one likes doing like these crazy tasks inside of Workday. No employee likes interacting with Workday. No one wants to go into this portal. And so if you can go out there and solve these problems, there's a huge pie to go after.
If you think about where you have to go capture these customers, if someone has already become a customer of Workday or already become a customer of ServiceNow or Salesforce, it is so hard to rip them off. That's why these gross dollar retentions are what they are. Like they're the gold standards for a reason. We're seeing the like cracks in the most defensible businesses in the world.
And it's a really exciting time and the race is on.
What does it take to replace one of the most entrenched systems in enterprise software? For the past two decades, platforms like Workday have become the backbone of how companies manage people, data, and operations. They're deeply embedded, highly defensible, and nearly impossible to rip out. But platform shifts change the rules.
Just as cloud transformed enterprise software in the 2000s, AI is creating a new opportunity to rethink how these systems work. and whether they should exist in their current form at all. The question now is not whether these systems are valuable, but whether they can evolve fast enough. Elena Berger speaks with Joe Schmidt, partner on the enterprise team at A16Z.
Hello, everyone, and welcome to Monitoring the Situation. I am here with Joe Schmidt, the fourth. Joe is a... Thank you for making that delineation. I appreciate it. Joe is... A partner on the enterprise team at A16C. And we are here to actually, I think, first just answer a big important question, which is why has the enterprise team been writing so many obituaries lately?
And what have these eulogies been for?
Yeah, no, thanks for having me on. Excited to be here. Yeah, it's funny calling them eulogies. And I think that this piece was intended to be much more balanced than maybe people have taken it to be. But I think that, you know, if you just think about where we are in the cycle right now with enterprise software, a lot of the biggest businesses that are out there today
were kind of built in the last kind of technology shift, which was obviously the shift from on-prem to cloud. And that's really the big opportunity for most companies that are being built. Selling to big enterprise buyers is basically adopting some big shift and then building their platform around it. Once those kind of core primitives have been set, you know, basically these markets get
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Chapter 2: How have platform shifts historically impacted enterprise software?
And there's a bunch of really complex stuff that happens there. But the actual experience of that, like, you know, that an actual employee or, you know, an HR administrator or someone in IT experiences, is fundamentally the same, you know, today as it was in 2005.
And so if you come in and you say, hey, I'm going to rebuild Workday, and you tell, you know, CHRO that, or you tell, you know, the CIO that, they're going to be like, okay, but like, what does it actually do differently than what Workday has done previously? And you're going to say, you know, until now, it would have been very hard to say it was going to do something different.
And so what many companies have been doing over the past 15, 20 years, and this has been basically all of enterprise software, has been building little point solutions on top of that. So you'll be seeing a bunch of things in recruiting, a bunch of things in finance, and so on and so forth. And Workday has become the home for a lot of those businesses over time.
Obviously, we talked about some of their acquisitions. And so what's really interesting about this moment in time and why we're writing so many obituaries, which I hate calling them that, it's like these are opportunity pieces, right?
and it's an opportunity for Workday, just the same as it is for startups, is that for the first time you can actually go to a CHRO or you can go to a CIO and say, the way that this core system works for you today can be so fundamentally different and we can change the actual way that the work is being done by your team
and the way that these platforms are actually interacted with by your employees or your customers. That's the opportunity. I see that in HR. We're seeing that in ITSM. We're seeing that in CRM. We're seeing that in the biggest and most defensible categories, historically defensible categories. And I think we're going to see a re-platforming.
And that's why you see obviously what's happening in the stock markets happening today because a lot of investors are talking about that and are worried about that. And a lot of incumbents are too. So that's why we're writing these pieces and that's the opportunity.
Yeah, so the SaaS products of yore can't get their juicy PE ratios. They can't bank on incremental revenue and crazy operating leverage anymore. They actually have to do real work. And, you know, like... either pivot and adopt AI or get out-competed by the insurgents who are. So with that in mind, I feel like we should pull up your piece and chat through it. Yeah, happy to. So...
Let's just get into it. It's called Workday's Last Workday. We published it on a16z.news this morning. And you opened the piece by calling Workday the most important and least loved product in enterprise software. And I know that, you know, I think you agonized over this opening sentence a lot. I did. So, can you sort of explain this sentence?
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Chapter 3: What are the limitations of legacy SaaS platforms like Workday?
Yeah, I mean, I think maybe it goes back to what I just talked about in terms of, like, when and how these were built and maybe who these were built for. And I think, you know, I'm sure some people that are watching this have interacted with Workday in their day-to-day.
And maybe some people are, you know, Workday professionals, whether it's consultants or HR admins that actually deal with this on a day-to-day basis. But when Workday was built, this is now a 20-year-old, like, you know, business. And the architecture is obviously 20 years old. It was a better version of, you know, kind of the PeopleSoft, Oracle, you know, businesses that existed back in the past.
And it was built for, like, those internal teams. And so I think it did a good job of solving for the problem that it had at the time. And I'm not going to sit here and say there's nothing good about Workday. It has 97% gross dollar retention. It is the name in the category. But I really don't think that the user interface for employees works.
is anything close to what great software looks like today, right? Like I am, we are a workday shop here at Andreessen Horowitz. Like I've logged into Workday, no, I'm not kidding you, three times in the past 12 months. I am the insurance person here at Andreessen Horowitz. I have no idea what my benefits are. No idea.
I went in actually not too long ago to like actually try to find my compensation information in Workday. It took me six and a half minutes. Like I am a technology investor. So yeah, it's just not built for that. And I think the more I talk to people, the more I realized that that experience is broken and the opportunity here is to kind of build that again.
So I think it's really important because it has very important information. What I just said, like my compensation information, my benefits, those are critical. But like navigating that is extremely hard and I've never met anyone that likes it.
I had to log in considerably more times than you in the past month because I was applying for an apartment and I had the exact same pain of like, where do I find anything? And you know, like, like, why is this so difficult to you? So yeah. Completely, completely resonates.
I think like you also earlier were talking about platform shifts and like you have this great kind of mini history lesson right here. Like we should maybe just like touch on this for a second, but kind of like what exactly was the platform shift that created Workday? And like now let's like just be super clear cut about what this new platform shift is that we're seeing right now.
Yeah, I mean, the obvious answer to the platform shift we're seeing now is, you know, kind of the shift from businesses that weren't AI native to businesses that are. That's the opportunity here. I actually love the Workday story. Like, it was, you know, a crazy...
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Chapter 4: Why is there a growing concern about AI revenue in enterprise software?
And so I think that's going to be another driver. And I think we're seeing this already in ITSM, which is like tightly related to HR. And so I think, again, we're seeing the like cracks in the most defensible ways you know, businesses in the world. And, uh, and it's a really exciting time and, and the race is on like, this is why work day brought a kneel back.
Like this is why they, you know, done two layoffs. This is why they're like fighting tooth and claw and, and, you know, buying businesses like sauna, um, you know, to try to, to try to, to, to find this off. Cause, um, it's a race and the prize is huge.
So would you make the argument that HR software is like the most anthropologically salient sort of vertical in software in terms of telling us where we are? Like, it tells us where we are in the software cycle. It tells us where we are, you know, socially. Like, you know, people on average expect these kinds of benefits. They like their yearly function health membership and their, you know...
whatever else. And, you know, like, this is acceptable in the workplace. This is not. And now, like, the AI era is going to just introduce, you know, both a completely new platform shift, but also completely new buying and procurement norms, completely new social norms, all of these things. And if you want to see where society is going, you should look at HR software.
I think so. I mean, You know, I, I like agree with, you know, basically all of that. Um, I think the, the, the crazy, maybe the crazy part about it historically is that this has not been like the, the front foot of the organization. Um, you know, like at least in terms of like, uh, you know, trying new things or adoption cycles. And so I think that we'll like, maybe it will be the, um,
It'll be, like, the beacon of, like, AI is actually finally reaching, like, more mass kind of, like, takeoff. Yeah. Because, like, that to me feels like part of, like, where we are right now. It's, like, if I had a map of the United States and, like, you know, there's, like, lights in, like, you know, the coasts or, like, I don't know how you say it, like, in the major cities.
And it's, like, the lights indicate, like, who has discovered that, like, AI can actually dramatically change.
chance warm like business processes and they're excited by it um and i think the rest of the rest of the you know kind of country is kind of dark and i think what we're going to see over the next 12 24 months is like uh just a dramatic brightening of that map um and uh and i think as that happens like we're going to see hr start to swing and and that will be that will be like when we really start to see takeoff so that maybe is a different way of saying the same thing you just said yeah
Yeah, when everybody gets their AI native HR tools. So I think for our final question, so the last piece you wrote was on Revit. Yes. Every building you've ever been in was designed by software built in 1997, which in retrospect was a bit of a controversial statement. People didn't like that.
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