The $100M ARR Customer
Most SaaS companies dream of attaining the $100M ARR mark. The very fastest attain the goal in 6-7 years. Last week, Workday halted trading to announce it had signed Walmart as a customer. Brian White, research analyst at Drexel Hamilton investment bank, estimated this one customer could generate $100M-$200M per year for Workday in recurring revenue - a single customer.
I couldn’t validate that this is the largest contract ever signed by a SaaS company, but if it is not the largest, it is most certainly the top 5. Workday beat SAP for the business.
This monumental deal is a validation of SaaS products at the very largest scale both in terms of contract value but also the number of seats. There are not that many million subscriber businesses in existence. Intuit/QuickBooks Pro (about 5M). Adobe Creative Cloud (about 8M).
Walmart employs more than 2.3 million people. Assuming about half of those employees use Workday, the software surpasses the million subscriber mark easily.
The Workday/Walmart partnership also demonstrates scale of revenue shift possible in the upper reaches of the enterprise. A few years ago, we calculated there was $1.2 trillion worth of classical software market capitalization available to shift to SaaS. Like the melting arctic icecaps, this license revenue is calving, one customer at a time. SAP lost the bid.
After reading about it, I have lots of questions.
- Is it truly a SaaS contract or is it a license software that’s managed by Workday? For Walmart, a license software deal is better for taxes since they can depreciate the asset.
- How is the sales commission on a contract of this scale calculated? Is there a maximum amount paid to the team?
- How does a company manage a sales process like this? This almost certainly involved both CEOs spending time.
- How will the finance team aim to predict the future cash flows from the relationship? The finance team cannot have used it in their forecasts - a miss either way is a $100M swing.
- How should a professional service team be staffed and allocated to ensure customer success? How many people? How much time is required? What are the ultimate gross margins on the transaction?
The Workday/Walmart deal is a behemoth, and it likely broke many internal processes like sales commission calculation, hiring forecasting and revenue forecasting. how much or how many more deals of this size we will see, but the trend is inexorable. SaaS companies are winning monster accounts from incumbents.
The image above is $100M in $100 bills relative to the size of an average human.