Workday’s stock has crashed about 12% since it reported earnings after the market closed on Tuesday.
Although Workday had a good quarter, beating Wall Street’s estimates for both revenue and profit, it warned investors that its spectacular growth was slowing a bit.
One problem appears to be that its biggest competitor, Oracle, has found a way to hit it with serious pricing pressure.
Oracle is offering such steep discounts to customers when competing for deals against Workday, that Oracle is willing to go into the red on these deals, Jefferies analyst John DiFucci tells Business Insider.
Oracle can throw in discounts on some of its many, many other products so that a customer thinking about moving to Workday could get quite a nice little welcome basket if it signed with Oracle instead.
DiFucci explained to investors in a research note:
We believe Oracle (and to a lesser degree, SAP) has been behaving irrationally in the market for almost a year. … Workday management noted that Oracle’s behaviour hasn’t changed over the last year, and while it was likely aggressive prior to this, we believe it became even more aggressive doing almost anything to win deals from Workday.
DiFucci also asked Workday CEO Aneel Bhusri about it during the quarterly conference call and Bhusri said in reply that Oracle has been a strong competitor.
“I’d say right now Oracle has their act together better than SAP. SAP seems to be in a bit of disarray,” Bhusri said.
Oracle CEO Mark Hurd explained that when it comes to Workday, particularly for US customers, there have been “some strong fights … we now win more than half the deals in the United States.”
There’s a good reason Oracle feels it must win against Workday at all costs.
Unlike most of its other cloud competitors, including Salesforce, Workday doesn’t use any of Oracle’s technology to run its cloud, not even Oracle’s world-class database (much less the high-end servers that Oracle sells to run its database).
Oracle co-founder and CTO Larry Ellison explained, “Every single cloud company of size, of the top 10, nine of them use our database in the cloud. Workday is the only one that doesn’t. … Workday kind of build their own little database.”
And there’s good reason that Workday has avoided all-things-Oracle like the plague. There’s a long history of bad blood between Oracle and the founders of Workday.
“There are some high-level people at Oracle that want to TOTO Workday.” – Jim Cramer
Workday was founded by David Duffield, the founder of PeopleSoft after he lost his company to Larry Ellison and Oracle years ago in one of the nastiest hostile take-overs in software history. (The battle got so heated that at one point Ellison even joked about shooting PeopleSoft’s then-CEO Craig Conway.)
So, every customer that leaps to Workday is a double loss for Oracle, both in the sale of the cloud contract, and the sale of the infrastructure that runs Workday’s cloud.
CNBC’s Jim Cramer offered some insight. “There’s a phrase that some at Oracle use called TOTO” Cramer told CNBC’s David Faber, which means Turn Off The Oxygen. “And there are some high-level people at Oracle that want to TOTO Workday.”
Oracle declined comment for this story. We’ve reached out to Workday and will update when we hear back.