Workday’s Last Workday? AI and the Future of Enterprise Software

0:00No one likes doing like these crazy tasks inside of Workday. No employee likes interacting with Workday. No one wants to go into this portal. So if you can go out there and solve these problems, there's a huge potty to go after. If you think about where you have to go capture these customers, if someone has already become a customer of Workday, but already become a customer of ServiceNow or Salesforce, it is so hard to rip them off. That's why these gross solar retention is all what they are. They're the most standard 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

1:02to 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 Mona during the situation. I am here with Joe Schmidt, the fourth. Joe is a... You're making that delineation, I appreciate it. Joe is a partner on the enterprise team at A16Z, and we are here to actually, I think first just answer a big important question, which is why has the enterprise team been right? So many obituaries lately, so many eulogies lately. And what have these eulogies been for? Yeah, no, thanks for having me on Saturday to be here. Yeah, it's funny you call them eulogies, and I think that this piece was intended

2:04to 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 the big enterprise buyers is basically adopting some shift and then building their platform around it. Once those kind of core primitives have been set, you know, basically these markets end up moving into a different type of innovation, which ends up being like point solutions that are built on top of some kind of core backend system. And the reason for that is if you think about like what these systems are actually doing if you take Workday, obviously codifies like kind of your HR business processes and a bunch of business logic internal to your company inside of like one relational database. 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

3:06experiences 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, CHR or 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, you know, 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've seen 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 habituaries, which I hate calling them that, it's like these are opportunity pieces. And it's an opportunity for Workday, just the same as it is for, you know, 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.

4:08And 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 every 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 the comments are too. So that's why we're writing these pieces and that's the opportunity. Yeah. So the SaaS products of your can get their, you know, their juicy PE ratios. They can't, you know, bank on incremental revenue and crazy operating leverage anymore. They actually have to do real work. And, you know, like either pivot and, you know, adopt AI or get out competed by, you know, the insurgents who are.

5:08So with that in mind, I feel like we should pull up your piece and, you know, chat through it. Yeah. So let's just get into it. And you can, this is a, it's called Workday's Last Workday. We published it on a16z.news this morning. And you open 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 open acceptance. I do. So can you, can you sort of explain this sentence? Like what does this tell us about the nature of enterprise software? How can something be, you know, crucially important, but also, like, unloved completely? Yeah, I mean, I think, maybe it's, it goes back to what I just talked about in terms of like when, when inalities 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, in their day to day.

6:10And maybe some people are, you know, Workday professionals, whether it's consultants or, or HR admins that actually deal with this on a day to day basis. But when, 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 people soft, Oracle, you know, businesses that were, that existed back in the past. And it was built for, like, those internal teams, right? 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%, you know, gross dollar retention. Like, it is the name in the category. But I really don't think that the user interface for employees is anything close to what great software looks like today, right? Like, I am, we are a Workday shop here at Injury Sonoroid. It's like, I won't log into Workday. No, I'm not kidding you. Three times in the past 12 months. I am the insurance person here in Injury Sonoroid. I have no idea what my benefits are. No idea. I went in actually not too long ago to actually try to find my compensation information in Workday.

7:12It took me six and a half minutes. Like, I am a technology person. 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, you know, 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 don't know if 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, why is this so difficult to you? So, completely, completely resonates. I think like, you also earlier, we're talking about platform shifts. And like, you have this great kind of new history lesson right here. Like, we shouldn't 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 just be super clear

8:14about 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 kind of hostile takeover of people soft, you know, there's Larry Ellison, these, you know, these amazing entrepreneurs and Dave Duffield and any of those, I'm gonna script his last name, Busray. But you, you see them come back and say, hey, we see this shift, like we just lost our baby. We know exactly what to build. We know all of the edge cases that you need to solve for. And solving for that in 2005 was actually a heck of a lot, you know, it's still really hard, but it's even harder back then. Just considering how hard it was to build software. And so I think these guys are amazing entrepreneurs. They saw this opportunity and they built the cloud native version of what they had just built at PeopleSoft. And so they were the perfect founding team. They built this incredible business. And I think it's just an amazing success story.

9:16So that's really what they wrote. And obviously there's the architectural gap. And then there's this other, you know, kind of backdrop that basically every, you know, leading enterprise software company of today wrote, which was this shift from, hey, we're going to spend a bunch of money on CapEx and have a bunch of servers in the back. And you know, in some back office too, you know, hey, we want something that's multi-tenant and like, you know, kind of shifting that into OpExpend. And so that's what they kind of designed their business to do. And that's what they did. So now when you look at today, there is not, to my knowledge, someone that's built like an enterprise ready, right? Feature parity, HR, HRIS or HCM. Like there's just not someone that's done that for the enterprise. I think you can actually do that. I think you can build it. I think it's extremely challenging. And, but I think the reason for that is now companies can look at this piece of software and say it can do things today because of the way, you know, agents allow you to work. And the things that humans can do if they have any idea to piece of software, I can do things today that the past versions of this couldn't do.

10:17And so when you think about what it takes for a large enterprise to rip and replace some piece of core technology, the experience has to be very different. The cost report that has to be different and has to allow you to save a bunch of money, grow, have a better employer customer experience, and a material way. And so I think that's what we're seeing with other businesses across enterprise software. We're seeing that in the other big categories that I mentioned in here. And I think we're gonna see it in HR. And so that's the opportunity. Yeah, and just to maybe straw man, the critics for a second, because you do talk a little bit about, you know, okay, we have Lake Gusto and we have here, let me just find this bit right here. So like, what would you say to these guys who are kind of like, well, we have Deal, and we have Gusto, we have all these other startups that are kind of, you know, in the space already, like, what is... So I think there's two is an answer to that question. One, there's the people that are going kind of after a core HR and core payroll today. And then there's kind of the orthogonal,

11:19or adjacent opportunities, like, you know, obviously, and Dreson is, I think the biggest investor in Deal, and I'm an enormous Deal fan. I think it's an incredible team. They're not exactly doing this, you know, play, right? So I think that like, that's just a separate kind of category in of itself. And I think maybe the part, the company that builds this business that we're talking about in this post could be an amazing partner with Deal over time, right? So I think there's an opportunity there. Then you talk about Gusto and the other people that are kind of building what I would call a Greenfield type strategy for, you know, an HR system. That is an opportunity, right? And we see that across many different categories. Like, we have businesses in our portfolio that are doing that for European, like, real it. There's companies that are going after that for CRM, right? There are businesses that are doing that in all these other categories, banking, right? Think of Mercury. So there are those plays. I think that that's the only way that you can build these types of companies when it's not in the middle or beginning, or sorry, not the middle, but the beginning of a platform shift. Because if you think about where you have to go

12:20and capture these customers, if someone has already become a customer of workday or already become a customer of service now or Salesforce, it is so hard to rip them off. That's why these, you know, gross dollar retention are what they are. Like they're the best standards for a reason. What should be, it should be, it should be look at this. Yeah, we can look at them. I mean, look at this. Look at this. For a second, yeah. It's an amazing business. And so what I think the opportunity is now is you can go after these people and go ahead to head instead of Greenfield, it's Brownfield, and say, hey, you have been a hostage to work day, right? Like you have been a hostage here, and you can be freed with whatever new piece of software if someone can build this in the right way in form and fashion. So that's the opportunity. And I think that what we're gonna see is enterprises now have the kinetic kind of energy build up inside of them to go do the rip and replace. But you need to build this in the right way, and you need to solve the problems intelligently. And then I think you'll do this. And there's gonna be a lot of people who listen to this or read my post and say, hey, you're full of air. Like, you know, you clearly haven't thought about this or talked to anyone.

13:20The reality is, I talked to like a bunch of Fortune 500 and also private companies that like use work day. And I told them the kind of business that like I think should exist. And some of them were like, I would buy this from you if it existed right now. So it's like, it is actually already happening. No one likes doing like these crazy tasks inside of work day. No employee likes interacting with work day. 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. So before we get like super granular about what these problems are and what the opportunity spaces, like I feel like we should talk about what work day is doing right now. Because like, like it's not like they've been sitting on their asses. Their AI ARR has hit like $400 million in yearly run rate. It's growing triple digits here on year. Like they're not doing nothing. So can you talk about the products that they do have and kind of where you feel like they fall short or maybe where you feel like they're sufficient or good?

14:23Yeah. So first, I wrote this piece to be balanced because I do think like, again, I said it, work day is one of my favorite software stories ever. Like I think the business is unbelievably defensible. Intel 12 months ago, I would have never thought about even writing this post. And it took 12 months of me thinking about this to write this piece because I was like, I had to convince myself that it was possible. And there are like, I think what I'm seeing are like the early signs of cracks. And so one of my favorite parts of this, and this is not just specific to work day, but there are so many different enterprise software companies now that are reporting some metric affiliated with AI revenue that I think is just like kind of ridiculous. And so when I talked to professionals about like the flex credits, like I would say flex credits and people would just start laughing. And it's interesting to get that reaction because I think it's basically, I wrote this, I think it's basically just a procurement innovation. I don't think anything is actually fundamentally changing. It still costs $25,000 to go get like a work day

15:23extend license and then build an app. Like, you know, it's still like these flex credits are still just like a procurement innovation. There's not like actually agentic experiences that are being delivered inside people's work day instances and work day platforms. So I think that that's like a big kind of farce right now is that this AI revenue is actually AI revenue. Instead of just like one CIO talking to another saying, I need AI revenue, I need to spend money on AI. Let's get together, you know, and I joke, let's go to Ruse Chris and sell over it. Like, you know, nothing like a voter cake and procurement innovation to make it work. Yeah, yeah, and now I think this brings us to kind of like, okay, what, you know, this is what the title of, you know, the entire second half of the piece is, what an AI native work day should look like. Yeah. Should we just kind of talk through a couple of these categories and kind of what you've seen, what you've heard, the kind of founders

16:25that you're talking to, also the kind of demands that you're hearing from Fortune 500s and just kind of like, what does this look like? Yeah, I think like, I write this because I think that these are six very important properties. And then I talk a little bit about like, tactically, how I think you should start. I think that these were the big ones, though, of like, why do people not switch, right? And like, what could you get, what could get someone to switch? I think the first one is like, unanimously understood now to anyone who's like, seen what coding agents can do and has like seen what like, great migration businesses or like, implementation businesses that are AI native are doing today. I think you can deploy a system like this and call it 30 to 60 days, whereas historically, this is 12 plus months easily and can be much longer than that and cost you a bunch of money. Like, that is going to happen. It's going to happen across enterprise software and that's why, you know, like, that is the fundamental building block of like, why these businesses now can be kind of ripped and replaced much simpler. When I talk about workbench native,

17:25I thought a lot about like, what to call this. But if you talk to an HR, you know, administrator, there's so many like, random things that they have to do to make work day work on a daily basis. And like, this can be something as simple as like doing payroll for like a certain type of role inside the company that like, doesn't have the exact same parameters and so they have to do it in a G sheet. It could be spinning up a new business unit like doing a bunch of configuration. It can be like, trying to think about an employee experience where Elena, you know, you lived in New York until recently, you were coming to San Francisco and you wanted to know, hey, who's in San Francisco is Joe in San Francisco? Like, how do I actually find out about information, right? There's like no good way of doing that inside workday. So like, how do you build that experience? So I think that like, this workbench native, like allowing HR teams to genuinely build versus, hey, spend $25,000 to like, build anything on top of workday and then also get yourself a consultant that can build it for you. Like, I think the days of that in an enterprise software

18:25are gone. Like anyone who's experienced the, you know, joy and magic of like building things with cloud code is going to tell you like, that is going to be everywhere at some point. So I think that's going to be really critical. This agent first piece is, I think that like, thinking about the way that like, I talked through my, you know, issue or your issue of trying to like get anything out of workday. Like, I just think that like, agent first is going to be the way that these systems, you know, work in the future. You saw the Salesforce headless announcement, like they're, they're doing as much as they possibly can to shift towards this future. As I see workday doing this too. So I think that like, people are going to stay inside the work that, you know, the tools that they're using or like, there's going to be an AI native version of this. You can just actually allow agents to do work for you. I think you open pieces, critical security is like, paramount and permissioning is really critical. And then the compliance piece is like the last, the last one, which is, you know, this is a heavily regulated space. And so just thinking through like, how do I monitor that? And how do I make sure that like my platform is like,

19:25enterprise ready, global ready from the start is critical. So anyway, I think that's like, the properties, exactly what it looks like in day zero, though. Like I think that like some radiance with Nord is going to have to figure out how to like, generate that kinetic energy and that like urgency for the buyer with whatever that initial tool is. Yeah. And then let's, let's just talk about the end of the piece a little bit. So you sort of argue that, you know, this is, this is actually about more than, you know, HR software. It's also about, you know, how humans and agents interact. And I would love to just hear, hear you talk a little bit more about that and hear, hear down, yeah, we're down here. Like like I would love to hear a little bit more about that and kind of, you know, what do you mean when you say that and kind of can you help sketch out what that looks like? Yeah, I mean, I think that like as you have more agents

20:26doing work on behalf of humans, like understanding their roles in permission inside of the company is going to be critical. And so like, how do you actually like use what is like one of the most critical, you know, pieces of like, or, or purposes of data inside the enterprise to inform that agentic future? Like you need a, in my opinion, you need an agent, like an agent first kind of core to do that. And so I think that's going to be a big problem for CIOs. And I've heard this actually from, from many big CIOs of just like, all right, like how do we do permissioning? How do we do tracking across our company as we adopt more tools? And so I think that could actually be like a backdrop of this. You know, that could also mean like, hey, these, all these other third party tools that we're adopting, not just building, also need access to this information and they needed in a clean and cohesive way that's kind of the native. 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

21:28in the most defensible, you know, businesses in the world. And it's a really exciting time and the race is on. Like this is why work they brought on the back. Like this is why they, you know, done too layoffs. This is why they're like fighting tooth and claw and, you know, buying businesses like SANA, you know, to try to, to try to find this off. Cause it's a race and the prize is huge. So, so would you, 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, like this is acceptable in the workplace. This is not, and now like the AI era

22:32is 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 like to agree with, you know, basically all of that. I think the crazy, maybe the crazy part about it historically is that this has not been like the front foot of the organization, you know, like at least in terms of like, you know, trying new things or adoption cycles. And so I think that will like, maybe it will be the, it'll be like the beacon of like, AI is actually finally reaching like more mass kind of like take off, 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'd say it, like in the major cities,

23:33and it's like the lights indicate like who has discovered that like AI can actually dramatically transform like business processes, and they're excited by it. And I think 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 just a dramatic brightening of that map. And, and I think as that happens, like we're going to see HR start to swing, and that will be like, wouldn't we really start to see take off? So that maybe is a different way of saying the same thing, you should say. Yeah, yeah, when, yeah, everybody, everybody gets their AI native HR tools. So I think I think for, for our final question. So the last piece you wrote was on Revit. Yes. The, every, every, here, let's see if this is going to, yeah, yeah, 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. They were like, wait, there have been buildings built before 97. I'm like, I'm wearing that.

24:33That was actually, that was a prerequisite for me when I was looking for apartments that had to have been built in 1997 or later, just because I didn't, I didn't trust anything. I didn't trust anything prior to that. But we had a reference to maybe one of the greatest albums, one of the greatest songs on the greatest albums of all time. So once at a lifetime off of the album Remain in Life by the Talking Heads, great album. So I, we don't yet have a song for Workday. So what is our workday song? I was very disappointed by this, by the way, because I'm now a kind of recurring theme and everything I've written has been like some silly reference to a song or like a fun movie. So I think that I was trying to come up with something and I think maybe like Hotel California. Okay. You can check out anytime you like, but you can never leave. Like that's the workday. That's been Workday's. That's good.

25:34Yeah, yeah. So I think it doesn't exactly work because obviously, I think that like people are going to start leaving. But you know, that's my, obviously, software for that. That's it. That's a good one. No, no, no, no, that's that's good. I was, I was going to like maybe, maybe you're going to do like a met up work song. Yeah. Maybe like work it by Missy Elliott. Oh, God, I think I put it on the working goal. So I was thinking I had one. I, I was thinking about it actually this morning. Have you, have you seen the sopranos? Of course. Opening theme song to the sopranos. I feel like for some reason, it's just like very, like very work for me. Yeah. I feel like it's like the soprano. Like I, I just feel like, you know, what was Toadie soprano at the end of the day of not an each other guy? Yeah. Yeah. I just, there's this one scene in this pranos where he's listening to dirty work by silly fans. Oh, yeah. That actually could, that could work. That could work. That could actually really work.

26:35I don't want to do your dirty work. Well, Thomas Anderson tie in there because that, there was a needle drop in one battle after another of dirty work. I think it's, maybe it is dirty work. It's dirty work. It has to be dirty work. It's dirty work. Yeah, I don't know. Should we change the title? We might have to change it. I feel like or the subtitle, we could change the subtitle that I don't want to do your dirty work. I don't want to do it. Can we, can we do that? Is that allowed? Someone called Denko. Get him on the horn. I can edit it. I mean, look. Look, look. Yeah, I don't want to do your dirty work. Yeah. Why not? Should we hold up the screen share again? Yeah. I could edit it. Yeah. I think we have to put that right below. Can you put it in? Put it in like this. I'll ask Denko before I do it. Yeah, ask Denko. I don't want to get fired on stream. Yeah. Look, that would be, that would be a lot of life. Because that would be dramatic. That live stream it on work day. Yeah. Yeah. That's a situation. That's it. Yeah. Yeah.

27:36Anyway, I feel like, I feel like we've, we've really, we've given this the treatment. Everybody like and subscribe to A16C dot news. Everybody follow Joe Schmidt at the fourth. Yes. Is that, is that your? Yeah. It's Joe's. That's my handle. Yeah. Don't follow my dad. Don't follow dad or son. Yeah. Um, and yeah, this was, this was a ton of fun. Let's, let's do another soon. It's right another obituary. It's a deal. More to come. Yeah. All right. Awesome. All right. Thanks. Thanks for listening to this episode of the A16Z podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify. Follow us on X, A16Z, and subscribe to our substack at a16z.substack.com. Thanks again for listening, and I'll see you in the next episode.

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