Molding the Future

In the world of enterprise software, there are but a handful of “rock star” analysts who cover the industry well, say provocative things about tech vendors, and somehow manage to speak their minds without offending all of the warring factions in the software marketplace.

For the better part of several decades, Bruce Richardson was one of those star analysts. At AMR Research he had the prominence, impact and consistency of, say, the Rolling Stones. He was an AMR lifer. “I had no interest in leaving,” he says. But when Gartner acquired AMR in December 2009 for $64 million, Richardson’s days were numbered. In short, he says, he didn’t fit the Gartner mold.

Richardson soon announced a new job at ERP vendor Infor, as its chief strategy officer—a curious choice to some who knew him. His arrival has been a significant piece of Infor’s re-branding efforts to become a much more visible player in the business software marketspace. Infor is perhaps known more for its acquisitive nature rather than its core software. At approximately $2 billion in annual revenues and with 70,000 customers, Infor sits atop the pack of ERP vendors looking up at SAP and Oracle.

Richardson spoke to us about his new gig, ERP mergers and acquisitions, and what Infor customers think about cloud computing.

Q: So what does a chief strategy officer of a business software vendor actually do?

On my second day, [Chairman and CEO] Jim [Schaper] came into my office with a list of five things to work on: 1. A new product that we’re going to introduce at the end of year-a

whole new set of financials. 2. Defining the cloud strategy, what we’ll be announcing in June. 3. Our user experience and how we are updating it. 4. Work on some acquisitions. 5. If we should rule out a potential acquisition that he was questioning at the time.

One thing most surprising about working inside the software industry rather than covering it from the outside is the amount of companies that are potentially in play… Another is the amount of SaaS companies that are also for sale. You think of that as the golden part of the market: Everyone’s moving to SaaS or the cloud. What you forget is that a lot of those companies were started in 2000 to 2001, and the [venture] funding is at the end of its expected life. The investors are looking for liquidity. I’ve gotten a little smarter about things like that.

Q: What specific things would Infor look for in a potential acquiree today?

In the past, most of what we looked for has not been to fill product gaps. We’re kind of like Staples: “Yeah, we got that.” We tend to look at things on whether it can be accretive and whether we can grow it to become part of our product mix.

That said, we are very interested in the cloud space and what can become complimentary. We don’t really have a full CRM suite, so we are interested in that space. There are opportunities in the supply chain market. We see the PLM market as red hot. And social networking: We haven’t announced much about what we are doing, but that’s something that we watch very closely.

Q: Have you discovered any kind of customer trends that you didn’t really see before you joined Infor?

A: We are going to see some churn in the ERP space, when [companies] move from systems they bought in the 1990s. I’m pretty optimistic that 2010 and 2011 are going to be great years for ERP when people finally say: “We’ve been running this old system, and I need something that’s going to make me a lot more competitive.” That’s why we’ve been investing in cloud as a deployment, mobility as an option as well. And improving the whole user experience.

We’re spending a lot of time on how we cut down the cost of upgrade and the time to do that: How do we make stuff easier to use? How do we increase [user] penetration inside companies? For instance, in the old days when you sold an ERP system, probably between 10% to 20% of the organization actually had a reason to touch it. With some of the new tools we’re working on, I think that number can get much higher, like 30% to 40%.

Q: Cloud computing is hot. What are Infor’s plans for it going forward?

A:The enterprise applications space-and financials and ERP, in general-is probably the last sector that will go to the cloud. Yeah, I know little companies like Plex and NetSuite are all SaaS or cloud now. But I think that’s hard sledding. [Customers] just don’t want to give that [control] up.

Clearly in the CRM and HCM spaces it’s a no brainer: Why offer anything on premise?… We’re looking at [our strategy] as the Burger King approach: You want it on cloud, you want it on appliance, you want it on premise, you want us to run it for you, you want it hosted-have it your way. Most of [the strategy] is in anticipation of future demand versus what customers are saying now.

Q: So you’re saying a “cloud computing” option is not a deal-maker or deal-breaker right now?

A: It’s sort of like five or 10 years ago when people would ask: What is your open source strategy? Well, we don’t have one because there is no customer demand. The same is true for cloud, except for certain applications like HCM and sales-force automation, as I said.

It’s important to have a cloud roadmap because people know that, maybe at some point, they might want to do it. We are going to see ERP in the cloud, but it’s going to be a private cloud: a modern version of hosting for customers who say, “You can get this up faster than we can; you can worry about whether or not I bought enough CPU power upfront or enough storage.” Things like that.

Q: On-premise vendors struggle with how to make money with and charge for cloud computing. Will that affect Infor’s business model?

A: One thing about cloud is that it opens up a new way of thinking about apps. One is, of course: Opex vs. Capex. But it’s different in the on-premise business and the hosted business in terms of how you get billed by the cloud provider.

The challenge, then, is figuring out how you bill that back to an ERP customer. Because, depending on who you talk to, there are charges for bandwidth, processing power, storage, connectivity and in some cases there is a fifth or sixth charge. Figuring out how you charge someone for that-you know: at home, you’re used to the fact that your water bill isn’t the same every month. But I’m thinking that in the business world, you’d like to know that your ERP or CRM bill is pretty much the same charge. So we’re looking at a variety of issues like that.

Q: What about buying a company that has figured it out?

A: It wasn’t that long ago we talked to a SaaS company that wanted to get acquired. I said: “What’s an average deal like?” They said: “The initial implementation is nine or 10 seats.” And then I said: “So how does that grow over a two-, three- or five-year period?” And they said: “We usually add one seat a year.” You can imagine what the sales costs were trying to get the initial nine-seat deal, and the most updates you’re going to get is one seat a year! You’re never going to recover your sales costs. The type of application they sell was not going to be sold through telemarketing: I bet there were lots of demos done and all sorts of onsite visits to demo the software to the customer.

You have to pick an area you see potential for growth-either that or you’re so successful that people say “I need to have that product and there’s incredible demand.” Outside of maybe sales-force automation, you’re not going to

Q: Tell me why Flex (Infor’s new upgrade and application-exchange program started in 2009) is so important for the company?

A: Even in low-end customer base, there’s not a lot of first-time ERP implementations going on. So most of the market is coming in via upgrades and takeaways. What we’ll use Flex for is the cannibalization of our base. To say: “You’re running on an older platform, and it’s kind of in maintenance mode. We’ve got a new set of applications we want you to look at that are much more intuitive and provide much functionality. And it will cost you less to own and operate.” It’s going to be a tool for us to go after our own base.

In a sense, we’re sweetening it so that we can get the customer on the current release because we’re not Oracle or SAP: We can’t twist or break your arm and say: “If you don’t migrate to the latest release, we’re going to start dinging you an extra 2 percent a year because we have to support your old release.”

We want you to stay on maintenance, obviously. And we want you to move to new release. Therefore, it’s up to us to reduce the amount of professional services needed to go into an upgrade. Flex is going to incredibly important to us. It’s how we’ll keep the SAPs, Oracles, Lawsons and Epicors out of our base.