Bigger company buys smaller company, again.

Workday acquires Sana.

Needle not moving.

This isn’t revolutionary. It isn’t massive. It doesn’t change any games. No needles are being moved. It doesn’t mean a rethink of HR tech as you know it.

It is smart.

A lot of what I said last week about SAP / SmartRecruiters and Workday /Paradox applies here.

These are wise, sensible, logical, incremental and prudent moves. There’s no financial gymnastics or massive strategy shifts, it’s exactly what well-endowed incumbent vendors ought to do.

It fills some obvious functional gaps and might well accelerate platform development. It’s a sensible use of a small bite of Workday’s cash pile. The valuation implies a premium for Sana’s AI-native capabilities, but I don’t think they have overpaid (I don’t have details, so I’m guessing a bit). It’s not the first Scandinavian acquisition Workday has done (I think Peakon was).

There are two elements here

Firstly, Sana has built some pretty neat learning capabilities that exploit AI, it has grown really well over the last few years. Workday’s learning management capabilities have never been any more than barely adequate, so Sana will give the Workday field something to pitch to the learning buying centre for the first time in a decade.

I don’t think that alone justifies the valuation, but Sana, unusually, has made a successful second product.

Sana has some agentic workflow capabilities. Very much of the moment. And despite talking about AI longer than almost any of the suite vendors, Workday doesn’t have a whole lot of home grown AI development in production, at least that I can tell.

Enterprise software generally has a front end problem, user experience is still rooted in the design paradigm of the 1980s. Efforts to replace these with a chat alternative have been underwhelming to date. Turns out talking to your ERP isn’t easy (Taciturn APIs, rambling bots and more).

Sana might be an impetus for shifting this. The upside here is larger than the learning systems boost, but it will more challenging technically, culturally and politically to scale this. I’m not sure yet whether this has the potential to be a new front door, or merely a cat flap. Let’s see.

Back in the day

A while back Workday positioned brilliantly against the incumbent vendors, especially SAP, with its Power of One message. Calling SAP and others Frankensoft. At the time I preferred to call SAP’s acquisition strategy the 6 Million Dollar man 2.0, but that didn’t catch on.

“Steve Austin, astronaut. A man barely alive. Gentlemen, we can rebuild him. We have the technology. We have the capability. We can make him better than he was before. Better... stronger... faster". *

Today, Workday is no longer the insurgent. To most of us outside, this has been obvious for about a decade. It has taken Workday a little longer to realise that it is actually an incumbent. It makes far more revenue from selling new stuff to existing customers than it does selling to new customers. So it needs more new things to sell to existing customers.

Workday’s mid-term success will depend more on what it buys and how it manages post merger integration than what it can build “natively”. This is not a new script. The new management team at Workday has deep acquisition chops, earned at SAP and Google. Rob Enslin was on the SAP board when it went through a major wave of acquisitions under Bill McDermott’s leadership. This is not his first rodeo.

Juggling 3 acquisitions with a few weeks of each other tells us that Workday has seriously upped their M&A and PMI capabilities. Workday Ventures was an investor in Sana, illustrating that when done well, corporate venture has strategic relevance.

The billion dollar size company is probably an M&A sweet spot. It is big enough to have something that the sales machine can scale, but not so big that it is massive risk and effort to merge.

There will be more of this. All the bigger vendors are sitting on piles of cash and ageing products, with investors demanding an AI narrative beyond slideware and there are now plenty of target vendors who have proven niche AI capabilities. The mid term success of the incumbents will rest on how good they are buying and integrating companies. Retaining top talent, resolving product and political overlaps, figuring what to new components to scale, what old bits to depreciate, communicating coherently to customers and more.

Advice to customers

Don’t be surprised by your incumbent vendors doing acquisitions, expect and plan for them. Incumbents are going to be doing a bunch of these over the next few years. Some will be functional uplifts, others will be more platform focused in nature. Rather than seeing an acquisition as an anomaly, consider them business as usual. Ignore the pundit hype. Most acquisitions don’t fundamentally reshape markets or herald a revolution, they fill a gap, or marginally accelerate a development. As a simple rule of thumb: when a vendor spends 2% of its valuation on an acquisition, you can expect about 2% of the product to be disrupted, of course there will be exceptions.

It is not a revolution, it’s business as usual. The revolution will be something very different.

Congratulations to the Sana team

This is an excellent outcome for you and your investors. It shows yet again that HR tech and AI innovation isn’t a just a Silicon Valley thing. We believe founders can build billion dollar HR tech businesses anywhere. Thanks for validating that.

Finally

I probably need to stop playing mildly curmudgeonly pundit and get back to investing. Lots happening. I’ll be at Unleash if you want to chat.

As I almost always do, I’ll leave you with a song. This is a brilliant cover of REM’s End of World by Sharon Van Etten. From the BBC Proms in 2018.

*the six million dollar man hasn’t aged well.