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Brian Sommer's Month in Review - February

Brian Sommer Profile picture for user brianssommer March 3, 2020
Summary:
Thought leadership articles were sparse this month while earnings announcements and HR mergers were abundant. Here’s this month’s review of the best items of note.

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Let's start with the 'Must-Read Story of the Month'. If there’s one piece you should read this month it’s the MIT Technology Review’s 10 Breakthrough Technologies of 2020. When I read this piece, it reminds me of just how insignificant, tiny and incremental all of those “key functional enhancements” ERP vendors tell me about (e.g., “Hey Brian, did you hear? We’ve got a seventh way to allocate a balance in the General Ledger!”). The article begins with:

Here is our annual list of technological advances that we believe will make a real difference in solving important problems. How do we pick? We avoid the one-off tricks, the overhyped new gadgets. Instead we look for those breakthroughs that will truly change how we live and work.

I won’t give away their list, but it starts with the Unhackable Internet. Definitely, check it out.

Growth overall

This month, there was a lot of news about earnings. Technology firms often announce their year-end results around this time. There’s a lot at stake in these announcements as shareholders want to see outsized growth no matter what the economy is doing. By the way, current estimates have GDP growing only 2% this year in the United States. So, when a vendor proclaims something like 15% YOY growth, you must determine:

  • Is it real (e.g., is this simply a shifting of on-premises revenue to cloud subscriptions)?
  • Are the calculations driven off of a small base (e.g., going from 2 customers to 4 customers is a 200% growth rate but it’s still only a net addition of 2 customers)?
  • Is it for just one of their products/product lines (e.g., is all the growth they are reporting specific to their new cloud solutions)?
  • Is it sustainable (i.e., did they exhaust their pipeline to goose Q4 numbers)?
  • Is it the result of acquisitions?

When you parse these earnings announcements, look at them closely. Is the firm really growing? Look for actual new customer logos and verify that new revenue isn’t mostly infill sales of other products to existing customers. Verify that the revenue isn’t a new way of charging on-premises existing customers a new subscription or license for the cloud version of the same solution. Context is key in understanding these announcements.

ERP

Workday announced its year-end numbers – ERP vendor Workday announced its financial performance for 2019. In short, they reported a material amount of growth. More specifically:

  • Full Year Results: Total revenues were $3.63 billion, an increase of 28.5% from fiscal 2019. Subscription revenues were $3.10 billion, an increase of 29.8% from the prior year.
  • Q4 Results: Total revenues were $976.3 million, an increase of 23.8% from the fourth quarter of fiscal 2019. Subscription revenues were $839.7 million, an increase of 24.7% from the same period last year.
  • FY21 Guidance: Raising fiscal 2021 subscription revenue outlook to a range of $3.755 billion to $3.770 billion.

Unit4 is growing – ERP vendor Unit4 got a new CEO about 8 months ago. The company needed to show net-new growth and growth in cloud/SaaS products. This month, the company announced:

…strong financial results, organic growth and record customer wins for the fourth quarter of the fiscal year 2019. Total bookings hit 14% YoY growth and cloud bookings YoY growth was 20%. Cloud subscription revenue grew 25% in 2019 to $92.2m (€83.6m), with 27% growth in Q4. Total revenue increased by 5% to $412.8m1 (€372.2m).”

It’s good to see the cloud growth. Apparently, much of their growth was in their PSA vertical and the mid-market space. While the company reported an uptick in sales in the Nordics and North America, I look forward to seeing more of them in more North American deals.  The total revenue number is the number that really needs to grow, though.

Anaplan, Salesforce and SAP also announced earnings. Anaplan is clearly focused more on growth than profitability. Check out their results:

  • Total revenue was $348.0 million, an increase of 45% year-over-year. Subscription revenue was $307.9 million, an increase of 48% year-over-year.
  • GAAP operating loss was $148.4 million or 42.7% of total revenue, compared to $128.3 million in fiscal 2019 or 53.3% of total revenue. Non-GAAP operating loss was $56.5 million, or 16.2% of total revenue, compared to $74.4 million in fiscal 2019, or 30.9% of total revenue.
  • GAAP loss per share was $1.15, compared to $2.46 in fiscal 2019. Non-GAAP loss per share was $0.44, compared to $0.73 in fiscal 2019.

Cleveland Research  contrasted Workday’s and Anaplan’s earnings announcements. They reported:

This (editor: Workday’s Adaptive Insights) success could be having an impact on Anaplan. The company reported favorable results in the Q, however saw a deceleration in their billings growth. The company attributed this to management changes intra-Q in North America and the departure of their Chief Growth Officer, Mark Anderson. Anaplan noted favorable displacement activity of legacy providers and more expansions in preexisting customers. The company talked up their Anaplan Plus offering for FY21, citing integrations with Adobe, Google, and Salesforce.

Aera Update – Aera Technology is doing amazing things, but I believe it is (and its growing number of competitors are) missing some sales/marketing opportunities as the messaging is still a bit dense, chewy or too technical. Currently, they’re espousing the “Cognitive Operating System” tagline but I’m still not convinced that this works without some more explanation. But the good news is that messaging is easily tuned, while product development is time-consuming, expensive and hard.

What Aera does so well that traditional ERP vendors don’t is:

  • Harmonize data (all kinds of it) from different ERP, big data and other data stores. Only some of the IoT connectivity folks like Uptake can do this.
  • Uses ‘applied sciences’ to understand what’s in this data, what’s an exception, etc.
  • Digitizes a customer’s processes and knows what workflow, approvals, etc. are needed and it’s doing this in the context of the kind of data and materiality of issue it is seeing
  • Operationalizes the information by presenting the data, the analysis and its recommendations in front of the right decision maker in next to no time

ERP products generally can do a smidge of this if the data is in the (one instance of the) ERP and if an implementer has developed industry dashboards, metrics, workflows and other aids. But Aera has now constructed its operating system to materially manage the actions, insights, follow-up, service levels and efficiency gains in numerous functional areas of a business. Last year, Aera had a solid procurement/supply chain solution and now has solutions in several other functional areas.

I suspect some ERP vendor may soon present Aera CEO Fred Laluyaux with an offer his investors can’t refuse and buy Aera someday soon. I know if I were running an ERP firm and honestly assessed my own firm’s ability to create an Aera-like capability, I’d conclude that I better buy Aera now rather than show up in the market years later with a solution that approximates what Aera does today.

And, there’s another insight to this. Laluyaux put Aera on this path big time only 2-3 years ago. Where they had one functional solution and around 250 employees at the previous briefing, now they have 400 employees and a lot more functional coverage. I just don’t see ERP vendors move this fast or be so nimble.

Forbes has this worthy update on Aera.

The SAP Deadline and Oracle’s Response – Ah, I love scrappy competitors. And, smart software buyers listen to the musings of these competitors as there often are kernels of truth and relevant perspectives to ponder amidst the hype and FUD.  This month, Oracle took aim at SAP’s upgrade deadline issue and recent deadline extension.

In a ComputerWeekly piece, we read:

Asked to comment on the extension of the deadline, from 2025 to 2027, for the end of support for SAP’s older [than S/4 Hana] ERP system, Miranda said: “We are extremely proud that for over 10 years now, we have had an unchanged policy of unlimited support for our applications, supporting our on-premise customers unlimitedly until they move to the cloud, and that when the time was right for them, we would show them the value of moving to SaaS [software as a service].

I would say if we were to take an approach where we set a deadline, that forces choice onto our customers. I think when customers look at it, when they’re picking a long-term partner, hopefully they see the difference in approach [from SAP].

SAP’s Response – SAP executives, obviously, disputed some of Oracle’s assertions. In a Cloud Wars piece, Bob Evans notes:

Dismissing Larry Ellison’s claim that Oracle is about to start ripping and replacing traditional SAP ERP systems, SAP co-CEO Christian Klein recently said SAP’s market share is more than twice that of any competitor, is growing rapidly in all phases, and is adding corporate customers that have never used SAP before.

There’s much more here than simple sniping from marketplace rivals that have competed viciously for decades. As ERP capabilities evolve rapidly to meet the new demands of the digital economy, the choices corporate customers make will have huge ramifications for years to come. The ripple effect will go beyond ERP, into related database choices, CRM apps, HCM apps, and more.

I’ll probably do a piece related to this in a few days.

Politics and Oracle – Business and politics can be like oil and vinegar. They might blend together for a time but mostly must stay separate. This month, Oracle founder Larry Ellison triggered an online petition and employee walkouts for his willingness to help Donald Trump raise campaign funds.

Make it Go Away – A German litigant has re-filed its lawsuit against Oracle. Maybe the third time’s the charm. The complaint describes a program: A-B-C as key to Oracle showing growing cloud revenues. Here’s an excerpt from a recent Computer Business Review piece:

A single passage of allegations in the complaint sums it up: “Oracle employed a strategy called ‘Audit, Bargain, Close,’ or ‘ABC,’ to coerce cloud sales during the Class Period. Oracle would install its on-premises software in the clients’ ecosystem with a variety of preferences automatically enabled that, unbeknownst to the customer, caused the customer to arguably—and unknowingly—exceed the limits of its license.

It adds: “After the customer fell into this trap, Oracle would audit the on-premises customer for violations of its on-premises software license. When it found violations, Oracle would threaten to impose extremely large penalties. Oracle would then offer to reduce or eliminate those penalties if the customer agreed to accept a short-term cloud subscription that the customer neither desired nor intended to use.”

HR

Symphony Talent and the Black Hole of Recruiting - I liked this bit I read from Symphony Talent and wished I could have seen this exhibit. The HR marketing space is often an unoriginal and boring space with messages like: Engagement – it’s not just for weddings! I’ll give Symphony an “A” for this:

The Talent Board tells us that candidate resentment is up 40%. That’s why Symphony Talent … recently brought the horrors of the candidate experience to life in an exhibit in San Francisco, complete with a 3D resume black hole. The call to action? Take a walk through your own company's candidate shoes now!

The resume black hole is a too real thing – resumes get sucked into poorly functioning applicant tracking systems, never to see the light of day again. Worse, job seekers will never know why nor will they ever hear from bad employers. When employers don’t care about their employment brand or the hell they put candidates through, then they have no right to bellyache about the lack of qualified jobseekers or the numbers of open positions they have.

AI Gets a Seat at the Table? Glassdoor got my attention with this headline. Their chief economist published a pretty interesting report on hiring trends. It’s actually a solid read.  One of their trends discusses how more and more people aren’t losing jobs to AI tools but are instead reporting to a bot or other AI tool. I’ve discussed this a fair bit over the last couple of years including a televised piece I did on Bill Kutik’s Firing Line show. Watch the entire 2017clip (especially from 1:05 to 2:50) as I cover this issue in colorful detail. Do I expect AI to get a real seat at the table? No, but I do believe every executive will be bringing AI powered insights, AI discovered anomalies and AI powered recommendations to the table all the time, now.

Ceridian’s Very Real Growth with Dayforce – The metamorphosis of Ceridian is still cranking along and progressing far better than I would have imagined. Several years ago, the company bet its future on an all-new multi-tenant cloud HR solution: Dayforce. Since then, the product has expanded functionally, added more global features and is successfully replacing predecessor and competing products. The latest stats are found in their year-end results:

  • Full year 2018 Cloud revenue of $534.3 million, up 32.2% year-over-year
  • Full year 2018 total revenue of $746.4 million, up 11.3% year-over-year
  • Excluding the effect of foreign currency fluctuations, full year 2018 Cloud revenue increased 32.3%, and full year 2018 total revenue increased 11.3% year-over-year
  • Full year 2018 operating profit of $52.8 million, up 60.0% year-over-year
  • Full year 2018 Adjusted EBITDA of $157.1 million, up 33.4% year-over-year

The real headline, to me, is that so many established vendors have absolutely failed to move most of their older installed base to the cloud. Part of that is due to them having taken too long to do so, the lack of real innovation with the new products, poor R&D productivity and a sketchy ROI story. The Ceridian story stands apart. I believe their conversion stories and customer counts as I’ve been to their user conferences and talked with the customers. It’s real.

AllyO is Growing Well - I’ve covered AI recruiting solution provider AllyO a bit over the last few years. I’ve seen them at the annual HR Tech confab in Las Vegas.

CEO/Founder Sahol Sahni recently noted:

Today, February 20, 2020, we announced our 2019 results. Similar to 2018, AllyO experienced 3.3X increase in Annual Recurring Revenue (ARR) with more than 97 percent of current customers renewing their contracts and, on average, doubling their spend with AllyO. The company’s overall customer base also nearly doubled. As a result, AllyO’s net dollar renewal rate was over 200 percent. Combined with a 2.5x growth in new customer commitments, AllyO’s blended average ARR per customer grew 2x in 2019.

Small firms and startups can often show such large year-over-year growth because they are calculating these stats over a smaller base. In AllyO’s case, they already have scheduled 300K interviews and 75 million messages to job seekers. AllyO has success with Fortune 500 firms (e.g., Staples), several retailers and grocery chains.  The company now has approximately 200 full-time employees.

See also Jon Reed’s piece on AllyO customer Anixter.

The Ultimate Marriage? Yes, the big HR news of February might be the Ultimate Software/Kronos merger. I already did a full piece on it (click here)

Second Marriage in a Month? Not to be outdone, HR technology firm Cornerstone OnDemand acquired Saba. I did a full piece on that one, too (click here).

Final thoughts

Next month will undoubtedly contain discussions on coronavirus and tech. While I hope we start to get good news soon, we all need to take precautions and be prudent. Take care everyone…

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