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The a16z Show
Workday’s Last Workday? AI and the Future of Enterprise Software
00:29:13
Elena Burger speaks with Joe Schmidt, partner on the enterprise team at a16z, about the future of enterprise software in the age of AI. Using Workday as a case study, they discuss why many of today’s most important enterprise systems feel broken, how platform shifts reshape entire categories, and what an AI-native replacement might look like. The conversation covers the limits of legacy SaaS, why “AI revenue” may be overstated, and how agents could fundamentally change how companies manage workflows, permissions, and internal systems. They also explore why even the most defensible software businesses may now be vulnerable to replatforming.
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- [00:01]
A
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.
- [00:36]
B
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.
- [01:23]
C
Hello everyone and welcome to Monitoring the situation. I am here with Joe Schmidt the fourth. Joe is a.
- [01:33]
A
Thank you for making that delineation.
- [01:34]
C
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 writing so many obituaries lately? Me so many eulogies lately. And what have these eulogies been for?
- [01:58]
A
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 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, 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, basically these markets end up moving into a different type of innovation which ends up being point solutions that are built on top of some kind of core backend system. And the reason for that is if you think about what these systems are actually doing, and if you take Workday, obviously it codifies kind of your HR business processes and a bunch of business logic internal to your company inside of one relational database. And there's a bunch of really complex stuff that happens there, but the actual experience of that, an actual employee or an HR administrator or someone in IT experiences, is fundamentally the same 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, 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'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 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, in, 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 replatforming. And that's why you see obviously what's happening in the, in the, in the stock markets happening today, because a lot of investors are talking about that and are worried about that, and a lot of, and a lot of incumbents are too. So that's why we're writing these pieces. And that's the opportunity.
- [04:45]
C
Yeah, so, so the SaaS products of Yor can't 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, either pivot and you know, adopt AI or get out competed by, you know, the insurgents who are. So with that in mind, I feel like we should pull up your piece and you know, chat through it.
- [05:15]
A
Yeah.
- [05:15]
C
So let's, let's just get into it and you can. This is a, it's called Workday's Last Workday. We published it on a 16Z 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 opening sentence lot. 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?
- [05:55]
A
Yeah, I mean I think maybe it's, it goes back to what I just talked about in terms of like when, when and how these were built and maybe who these were built for. And I, I think, you know, I'm sure some people that are, are watching this have interacted with Workday in their, in their, in their day to day and maybe some people are, you know, workday professionals, whether it's consultants or, or, 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, a better version of you know, kind of the PeopleSoft, 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, it had at the time. And, 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 Andreessen Norweitz. 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, yeah, it's just not built for that. And I think that 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've never met anyone that likes it.
- [07:41]
C
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 use? So 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.
- [08:18]
A
Yeah, I mean, the obvious answer to the platform shift we're seeing now is, 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. It was a crazy kind of hostile takeover of PeopleSoft. There's Larry Ellison, these amazing entrepreneurs, and Dave Duffield and the Neil, I'm going to screw up his last name, Bushri. But you see them come back and say, hey, we see this shift, 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. 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. So that's really what they wrote. And obviously there's the architectural gap and then there's this other kind of backdrop that basically every Leading enterprise software company of today, rode, which was the shift from hey, we're going to spend a bunch of money on Capex and have a bunch of servers in some back office to hey, we want something that's multi tenant and kind of shifting that into OPEX spend. 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. You know, feature parity, hr, HRS 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 an AI data piece of software, it can do things today that the past versions of this couldn't do. And 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 profile of it has to be different. It has to allow you to save a bunch of money, grow, have a better employee or customer experience in 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 here and I think we're going to see it in, in hr. And so that's, that's the opportunity.
- [10:45]
C
Yeah, and just to maybe straw man the critics for a second because you do, you do talk a little bit about, you know, okay, we have, we have like gusto and we have, here, let me just find, find this, this bit right here. So like what would you say, what would you say to these guys who are kind of like, well, we have Deal and you know, we have, we've got, so we have all these other startups that are kind of, you know, in this space already. Like, like what is.
- [11:11]
A
So I think there's two ways to answer that question. One, there's the people that are going kind of after core HR and core payroll today and then there's kind of the orthogonal or adjacent opportunities. Like obviously Andreessen 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 play right. So I think that that's just a separate kind of category in of itself. And I think maybe 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 that 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. We see that across many different categories. Like we have businesses in our portfolio that are doing that for erp. Like really 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 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, you know, gross dollar retentions are what they are. Like they're the gold standards for a reason.
- [12:33]
C
Should be. Should be. Should we look at this?
- [12:35]
A
Yeah, we can look at them.
- [12:35]
C
I mean, look at this beautiful chart for a second.
- [12:37]
A
Yeah, it's an amazing business. And, and so what I think the opportunity is now is you can go after these people and go head to head instead of Greenfield, it's Brownfield and say, hey, every, you, you have been a hostage to workday, right? Like you have been a hostage here and we will free, you know, you can be freed with whatever new piece of software if someone can build this in the, in the right way and form and fashion. So that's the opportunity. And I think that what we're going to see is enterprises now have the kinetic kind of energy buildup 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 going to be a lot of people who listen to this or read my posts and say, hey, you're full of hot air. Like, you know, you clearly haven't thought about this or talked to anyone. The reality is I talked to like a Bunch of Fortune 500 and also private companies that like use Workday 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 Workday. No employee likes interacting with Workday. No one wants to go into this portal. And so if you, if you can go out there and solve these problems, there's a huge pie to go after.
- [13:49]
C
So before, before we get, like, super granular about what these problems are and what the opportunity space is like, I feel like we should talk about what Workday is doing right now. Because like, like, it's not like they've been sitting on their asses. Yeah, their AI ARR has hit like $400 million in yearly run rate. It's growing triple digits year on year. Like, like they're, 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?
- [14:23]
A
Yeah. So first, like, I. I wrote this piece to be balanced because I do think, like, again, I said it. Workday is one of my favorite software stories ever. I think the business is unbelievably defensible. Until 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 had to convince myself that it was possible. And I think what I'm seeing are the early signs of cracks. And so one of my favorite parts of this, and this is not just specific to Workday, 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 talk to professionals about the Flex Credits, 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 workday extend 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 workday instances and workday 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 Ruth's Chris and celebrate. Like, you know, nothing like a butter cake and procurement innovation to, to make it work.
- [15:59]
C
Yeah, yeah. I. And, 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 pieces, what an AI Native workday should look like.
- [16:14]
A
Yeah.
- [16:16]
C
Should we. Should we just kind of talk through a couple of these categories and kind of what, what you've seen, what you've heard, the kind of founders that you're talking to, also the kind of demands that you're hearing from Fortune 5000 and just kind of like, what does this look like?
- [16:32]
A
Yeah, I think like I write this because I think that these are the 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 or AI native are doing today, I think you can deploy a system like this in, 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, I thought a lot about like what to call this, but if you talk to an hr, you know, you know, administrator, there's so many like random things that they have to do to make workday 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 on a G sheet. It could be spinning up a new business unit like, and 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 that 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 are 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. And I see workday doing this too. So I think that like, people are going to stay inside the work, you know, the tools that they're using or like there's going to be an AI native version of this and you can just actually allow agents to do work for you. I think the open piece is critical. Security is like paramount and permissioning is really critical. And then the compliance piece is like 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 ensure that like my platform is like enterprise 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 great entrepreneur is going to have to figure out how to like, generate that kinetic energy and that like, urgency for the buyer with whatever that that initial tool is.
- [19:43]
C
Yeah. Um, and then let's, let's just talk about the end of the piece a little bit. So, 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, I would love to just hear, hear you talk a little bit more about that and Here. Here. Yeah, 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, and kind of. Can you help sketch out what that looks like?
- [20:23]
A
Yeah, I mean, I think that like, as you have more Agents doing work on behalf of humans, like, understanding their roles and 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 corpuses 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, 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. That could also mean like, hey, all these other third party tools that we're adopting, not just building, also need access to this information and they need it in a clean and cohesive way that's kind of AI native. And so I think that's going to be another driver. And I think we're seeing this already in itsm, which is tightly related to hr. And so I think again, we're seeing the cracks in the most defensible, you know, businesses in the world. And, and it's a really exciting time. And, and the race is on. Like, this is why workday brought aneel back. Like, this is why they, you know, done two 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, to, to find this off, because it's a race and the prize is huge.
- [21:52]
C
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, um. 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.
- [22:49]
A
I think so. I mean, you know, I like 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, at least in terms of trying new things or adoption cycles. And so I think that maybe it'll be like the beacon of AI is actually finally reaching more mass kind of takeoff.
- [23:19]
C
Um.
- [23:20]
A
Cause I like that. That, to me feels like part of, like, where we are right now. It's like if I had a map of the kind of United States and like, you know, there's, 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 transform, like, business processes. And they're excited by it. And I think the rest of. 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 I think as that happens, we're going to see HR start to swing, and that will be when we really start to see takeoff. So that maybe is a different way of saying the same thing you just said.
- [24:01]
C
Yeah, yeah. When everybody gets their AI native HR tool. So I think for our final question. So the last piece you wrote was on Revit. Yes, the. Every. Every. Here, let's see if this is gonna. 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.
- [24:28]
A
People didn't like that. They were like, wait, there have been buildings built before 97. I'm like, I'm aware.
- [24:33]
C
Yeah. That 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, I didn't, I didn't trust anything. I didn't tr. Prior to that. But we, we had a reference to maybe one of the greatest album, one of the greatest songs on the greatest albums of all time. So once in a lifetime off of the album, Remain In Light by the Talking Heads. Great album. So I, I, we don't yet have a song for Workday. So what is, what is our workday song?
- [25:09]
A
I was very disappointed by this, by the way, because I'm now, you know, a kind of recurring theme in everything I've written has been like, some, you know, silly reference to a song or, or like a fun movie.
- [25:20]
C
Yeah.
- [25:21]
A
So I think that, like, I was, I was trying to come up with something, and I think maybe like Hotel California.
- [25:27]
C
Okay.
- [25:28]
A
You know, it's like you can, you can check out anytime you like, but you can never leave. Like, that's, that's been workdays.
- [25:34]
C
That's good. Yeah.
- [25:35]
A
So I think I, I, you know, it doesn't exactly work because obviously I think that, like, people are gonna start leaving, but, you know, that's my, obviously software for that.
- [25:46]
C
That's a, that's a good one. No, no, no, no, that's, that's good. I was, I was gonna, like, maybe, Maybe you're gonna do like a meta work song. Yeah, maybe like Work it by Missy Elliott.
- [25:57]
A
Oh, God. I could have gone with the work angle.
- [26:01]
C
So I, I was thinking I had won. I, I, I was thinking about it actually this morning. Have you, have you seen the Sopranos?
- [26:09]
A
Of course.
- [26:09]
C
You know, the opening theme song to the Sopranos. I feel like for some reason it's just like very, like, like very. Yeah, I feel like most like the Soprano. Like, I just feel like, you know, what was Tony Soprano at the end of the day, if not an HR guy?
- [26:26]
A
Yeah, I just, there's this one scene in the Sopranos where he's listening to Dirty Work by Steely Dan. Yeah, that actually, that could work.
- [26:34]
C
That could work.
- [26:35]
A
That's going to really work. I don't want to do your dirty work.
- [26:38]
C
Call Thomas Anderson. Tie in there because there was a needle drop in one battle after another of Dirty Work.
- [26:45]
A
I think maybe it is dirty work.
- [26:47]
C
It's dirty work. It has to be dirty.
- [26:49]
A
It's dirty Work. Yeah.
- [26:50]
C
Should we change the title?
- [26:52]
A
We might have to change.
- [26:53]
C
I feel like. Or the subtitle. We could change the subtitle to I don't want to do your dirty work.
- [26:57]
A
I don't want to do your. Can we, can we do that? Is that allowed? Someone called Denko. Get him on the horn.
- [27:02]
C
I can edit. I mean, look, look, I don't want. I could edit it right now.
- [27:07]
A
Yeah.
- [27:09]
C
Why not pull up the screen share again. Yeah, I, I could edit it.
- [27:12]
A
Yeah. I think we have to put that right below and you put it in, put it in.
- [27:16]
C
Like, I'll ask Danko before I go.
- [27:18]
A
Yeah.
- [27:19]
C
I don't want to get fired on stream, but.
- [27:22]
A
Yeah, well, that would be, that would
- [27:23]
C
be, that would be dramatic. That. And live stream it on workday.
- [27:30]
A
Yeah. Yeah, that's a situation. Yeah.
- [27:36]
C
Anyway, I think, I feel like, I feel like we've, we've really, we've given this the treatment. Everybody like and subscribe to A16C News. Everybody follow Joe Schmidt the Fourth.
- [27:49]
A
Yes.
- [27:50]
C
Is that, is that your. Yeah, it's Joe Smith.
- [27:53]
A
That's my handle. IV yeah, don't follow my dad or my son.
- [27:56]
C
Yeah, don't follow his dad or son.
- [27:59]
A
Yeah.
- [28:00]
C
And yeah, this was. This was a ton of fun. Let's do another soon. Let's write another obituary.
- [28:06]
A
It's a deal. More to come.
- [28:07]
C
Yeah. All right. Awesome.
- [28:09]
A
Thanks
- [28:12]
B
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