Infor’s Future in the Enterprise Looks Cloudy and Bright

Like other enterprise application companies, Infor built itself up through a slew of acquisitions that it has worked hard to unify. And, like other traditional software providers, Infor these days is working hard to move its customers to the cloud.

But the similarities end there, according to Infor CEO Charles Phillips. Phillips, who formerly served as Oracle’s co-president, says Infor has architected a cleaner, more modern integration framework for its apps that will pay big dividends for customers. He claims Infor has also crafted a future-proof cloud strategy that sets it apart not only from the Oracles and SAPs of the world but “cloud 1.0” SaaS companies as well. Add to that mix the company’s focus on serving a wide array of industry microsegments without the

need for expensive integration work, and its deep commitment to improving the usability of its applications via its own in-house design agency, and you’ve got a winner, per Phillips.

Tech Titans Talk: The IDG Enterprise Interview Series

In this installment of the IDG CEO Interview Series, Phillips spoke with Chief Content Officer John Gallant about the state of Infor’s cloud migration, the competitive landscape and why the company prefers talking to line-of-business (LOB) executives before selling to the CIO. (Hint: LOB isn’t trying to protect the past.) He also discusses Infor’s big data/analytics strategy and shares his views on where cloud pricing will go.

CIO.com: I’ll begin with the most basic question any software company faces: If I’m not an Infor customer today, why should I become one?

Charles Phillips: Good question. We are building business applications in a way that’s highly tailored by industry. That’s important because the reason we have a $350 billion systems integrations industry is that applications are fairly generic and they need to be customized by industry.

The applications companies are organized by geography but the systems integrators are organized by industry. We do that out of the box so that has lots of benefits in terms of time and value. If you’re going to run an application in the cloud you can’t have it highly customized, you need those industry features as part of the core product.

We understand our customer’s businesses better because we are industry people and we hire people out of industry — manufacturing, public sector, healthcare — and they drive those businesses.

The last-mile features that people value, that perhaps the vendors view as nuances, they are actually mission-critical for customers. We say the last mile is the first mile and that’s what’s important. That last mile stuff, we start there. What do you need to run this manufacturing plant? How does this hospital operate? How do you get patients in the hospital? How do you discharge them? The administrative systems, the financials and all the other things, we have that too but they’re not as critical as the core processes that generate revenue for a company. We tend to do better if it’s a line of business decision maker who has to make stuff happen.

That’s point number 1.

Point 2: I think we have a huge advantage for companies that want to consider running their business in the cloud. Since we came later and had a chance to rethink the current state of the industry, we decided not to build any data centers. We went exclusively Amazon. We decided we didn’t need proprietary infrastructure, so we use open-source databases or Linux Postgres.

Our cost structure for running in the cloud is much different, much more scalable. We can be in 45 points of presence where Amazon is all over the world and that helps us. I think we have a fundamental advantage going into the cloud because a lot of the companies we compete with sell infrastructure for a living and you don’t get to sell that in the cloud for the most part. You can only sell that on-premise so they’re conflicted. We aren’t.

We have the ability to help customers experiment with next-generation infrastructure, whether it’s Hadoop, Redshift, MongoDB, all these new things that are coming. They are all advantages for us, not threats. We’re not in those businesses so we use all that.

The third thing we do differently is we have an enormous focus on user experience. We think the next generation of users will demand something different than how business applications have historically been designed. We made a huge investment to acquire that expertise. We formed a separate company, a company within a company, to focus on that — it’s beyond just making the screen look better or prettier or changing icons. [The company is Hook & Loop, Infor’s internal creative design agency.] It’s rethinking the user experience and the process itself and having fresh eyes.

People will first go out and watch how a customer works and ask them what they’re trying to achieve. That whole process [involves] having people who are used to attracting people to their content. People who come out of media industries are used to having to compete for your eyeballs and that’s the mindset we approach. We want it to be fun to use and exciting, so you’ll want to use it. It’s complicated to get working, to find the right people, but New York is a good place to find them. It’s complicated to get them working with the industry people. You want some people to do the back-end process and understand that while other people will do user experience. But, we’ve figured that process out.

Lastly, we have established a science lab to build what we call science apps. We hired some professors out of MIT. They’re about a mile from Cambridge and they brought an entire team with deep experience in optimization, all sorts of algorithms they’ve figured out over time. It’s a highly selective group. They are looking at different use cases among the customers’ big data problems and figuring out cloud-based services we can build around them, whether it’s inventory optimization or care-path optimization in a hospital or spare parts, you name it. These are complex problems that you can solve better and differently because so much more data is available, especially on our architecture. We’ve hired a team that does nothing but understand that class of problems.

All those are things we are doing that are somewhat different. One intangible is that we are big enough to do all those things and have scale, but small enough to still be entrepreneurs and co-design products with customers and be responsive. I think we’re at that right size where we can do both.

CIO.com: What is it that traditional competitors, the Oracles and SAPs of the world, don’t get about enterprise software today that you do?

Phillips: I would say the importance of the micro-verticals; that they’re not nuanced features, those are things that really make companies. They are competitive differentiators that are mission-critical for those customers. We spent a lot of time listening to figure out what those are. They do these big, broad industry sectors, the 20 or 30 they focus on. [But] we can address what are very small markets to them. There are thousands of micro-verticals – there are 2,000 of them tracked by the Commerce Department.

Because of our size, we have scale, but a micro-vertical with 800 customers is big enough for us to focus on. They just need bigger numbers. They can’t do that. They’re not interested.

Secondly, we all say cloud. But they have a vertically integrated strategy — they want to build everything from the application to the infrastructure to the data center. Not many industries withstand vertical integration over time once it gets disaggregated. We’ve already recognized that and we’ll have a permanent advantage until they do something about it. But it’s hard for them to do it because the economic model doesn’t work as well for them.

Thirdly, we believe the monolithic suite is dying. It’s been dismembered as more alternatives pop up from best-of-breed vendors. But, too, they’ve all made lots of acquisitions so there is no single suite anymore. They all have different products and 80 or 90 acquisitions, different data models, different languages — there’s no one suite. They still sell it like that. But everything they do requires a lot of integration now.

The ability to integrate dissimilar applications to make it behave like a suite is a special expertise we have because we had to learn how to do that. Later, we rethought integration. We don’t do point-to-point. We don’t do service-based integrations the way they do. That’s difficult. That breaks a lot. We do everything ‘publish and subscribe’ with XML.

Any application can change and it doesn’t affect any other applications because we’re just publishing XML that anyone can subscribe to. That loosely coupled architecture allows you to upgrade any component without breaking other ones, which is the way the Internet works. That’s unique to us. We don’t have the point-to-point integration the way they do.

CIO.com: Let’s talk about the point you raised regarding competitors’ vertically integrated stack approach in the cloud. You’ve made the commitment to Amazon Web Services to host your cloud apps. Are there risks to that approach? Are any of your customers, particularly your bigger enterprise customers, concerned about that and moving workloads like ERP into the Amazon Cloud?

Phillips: Our customers are thrilled with the idea. We get a lot of criticism or comments from either competitors or sometimes industry pundits. But our customers are already using Amazon. They’re quite comfortable with it and they think it’s actually a better solution than us building our own data center. They know what the Amazon Data Center is.

They have other applications running there. They are comfortable with the security. Amazon has proven themselves to those customers. They tell me all the time: That’s what I would do if I were running a software company. I wouldn’t try to compete with Amazon.

The industry is pretty competitive, the fact that Google and Microsoft and all those guys are out there is great for us. We like competition. Let them compete, prices come down.

Amazon has called us over a dozen times to advise us how to lower our charges from Amazon. They tell us changes to make in our applications. No other supplier I’ve ever had in 30 years has done that. Part of their culture and business model is to continuously be the low-cost provider and look for ways to do that. We are confident. We have a great relationship with them that turns in place so that’s not really a risk. It’s a perceived risk but it’s not a real one.

CIO.com: Let’s talk about the other set of cloud competitors, the pure-plays. If I’m a customer, why not go with someone who was born in the cloud rather than someone who is bringing their company into the cloud? You may be approaching that differently than the traditional SAPs and Oracles of the world, but why would a company go with you rather than a cloud pure-play?

Phillips: Technology comes in generations no matter what category you’re talking about. I would call those cloud 1.0 companies who are essentially vertically integrated and if you were starting a company today, you wouldn’t go out and build a data center.

All the cloud 2.0 companies are doing exactly what we’re doing. I think the 2.0 companies have an enormous advantage in terms of geography. We can deploy anywhere. You can’t do that if you have one data center in the U.S. The cost structure, the amount of services that Amazon has built — it’s not just ping, power and pipe, they have software-related services that you can take advantage of if you change your application, which we’ve done.

All these APIs for things like autoscaling and load balancing make the application much more resilient, cheaper to run, because I can give capacity back automatically when I’m not using it. Those things don’t exist on 1.0 platforms. There are a lot more services that have been hardened and matured that they will never build. They don’t have the resources or time to do that.

CIO.com: And by 1.0 companies, you mean companies like, say, a Salesforce.com?

Phillips: Well, I won’t start naming people in categories but certainly people who started building data centers in the 90s. Probably some things have changed since then.         

We are taking advantage of what exists today and it’s much different than what was available then.

Back then, you built the data center, put all your applications on top of probably an Oracle database, and used a lot of stored procedures. There were some proprietary scripting language and that’s how companies built cloud back then. You can use standard languages today. You can integrate to on-premise easily using XML. You can use PostgreSQL on Linux. You can use Amazon’s enormous infrastructure. There are new things, new services available, not tied to any of that old infrastructure.

CIO.com: One more question on the competitive landscape. Who do you consider to be your primary competitor?

Phillips: Because we are so vertically focused, we have different sets of competitors by verticals.

There’s no one that is in all of them. A big company like SAP, they’re nothing in healthcare where we’re very strong. It depends on the vertical but it’s the typical ones you’d think. All of them we see in some places but there’s no one across all of them.

CIO.com: Where do you stand in migrating your legacy customers to the cloud? Is there a goal in place, a stated goal and where do you stand in achieving that goal?

Phillips: We have 25 million subscribers running in the cloud today, individual people logging in to our applications. Our cloud bookings were up 400 percent this latest quarter.

CIO.com: What kind of a base is that on? The 400 percent sounds great but I have to ask you that question.

Phillips: Obviously, it’s a smaller base than the perpetual [license customers] but I expect us to cross over half of our business sometime in the next 24-36 months. People are converting by the day and it’s going faster than we thought.

When we first announced the option for customers to upgrade to cloud, we said for $55,000 we’ll move your data from whatever you’re on now to the new application but without any customization. That was the offer.

Within two weeks we had 500 people in the pipeline and it’s grown since then. The actual total subscriptions business was up about 60 percent. The total business is profitable, so we’re not doing this by losing money.

We have over $800 million in EBITDA over the last 12 months. So we’re doing it at the pace that makes sense. We could go faster if we were to do what Workday was doing but we can’t. They had to lose $400 million. We can’t do that. The base is moving. Most of them still have yet to move. We’re not at the halfway point yet but I expect us to be there in the next two to three years.

CIO.com: When you say half of the business, you mean half revenue-wise?

Phillips: Half revenue-wise. If half of the base moved it would take two to three years, but revenue-wise it may be happening more quickly. It depends on how big these cloud deals are.

CIO.com: Is there any consistency in the kinds of customers that are most eager to do this and least eager to do this?

Phillips: Initially we assumed it was going to be mid-market customers and that certain industries would not be able to do it. We were told three years ago aerospace and defense and public sector healthcare, security was too big an issue. That’s completely changed now. We have those customers coming to us. We’re kind of remodeling all this as we’re speaking because it’s changing.

Cloud started with first the custom apps because customers needed extra capacity and they could put those [out there] at low risk.   Then they started doing edge apps, some HCM, some CRM. But the core mission-critical stuff I’ve been talking about, that wasn’t available or even remotely considered. We’re the first ones to say we’ll do the core mission-critical stuff multi-tenant. We can do the full suite for your industry. There’s a CloudSuite for each industry.

Many customers say it’s not been interesting just to move one pillar or one component. I still have to integrate it back on premise and 80 percent of my problem is still over here. If you can do the entire suite, including the mission-critical functions, then you get larger deals. We can unlock the base for them to move and that’s what’s starting to happen.

CIO.com: Is there a tipping point? Is there something that happens with their businesses? Is it around data center upgrades or renewal of licenses?

Phillips: This discussion with customers started around upgrades. It’s the predictability of upgrading. In other words, we have to budget for upgrades. If you come up with something new and I didn’t budget for it then I have to wait. I don’t want to have to worry about upgrades. Our user groups came to us and said: Why don’t you just charge us more in maintenance and you do all the upgrades? We can budget for that and we’ll know that it’s going to be taken care of.

I don’t mind paying extra in some years when there’s no upgrade but I don’t want to have to go beg for money in year two that I didn’t anticipate. If we’re going to do that and you’re asking me to run some of this remotely and do the upgrade for you, why don’t we just put it in the cloud. That’s how the strategy evolved. We wanted to get there but we needed them to get there on their own a little bit. So it was the upgrade conversation that got most customers onto this.

CIO.com: You’re making a big push for ERP in the cloud. Are your customers ready for that, particularly the larger enterprises for which that is the core application?

Phillips: More so than ever before, for two reasons. One, a lot of important things they are doing have already moved to the cloud, like SEC reporting. That’s done by a cloud company. That’s pretty important.

The second thing is geographic expansion, as companies move from Point A to Point B and they want to go into China, Asia, whatever. They don’t want to take the bloat that they have at headquarters that took them 10 years to put in and it’s still not working. They don’t have time. They opened an office or made an acquisition in Beijing — they need something in four months. That’s when we get called.

We already had the features. We already know how to do this where you don’t have to customize anything and get up and running in the cloud quickly. Done. So we get a lot of M&A transactions for people who are in a hurry.

CIO.com: I started covering the mainframe software industry in 1983 with Computerworld. Both of us have seen a lot of software industry shifts and I want to talk about how you see the industry shifting around cloud. We’ve seen this pattern, whether it’s mainframe software or PC software or in the client server world, of people starting off focusing on a particular application and then building out these suites. For the most part, you go beyond best of breed to becoming a suite builder or you’re gone.

How do you expect to see this take shape in the cloud? Also, given that cloud is a very price competitive world – the Amazons, the Microsofts, the Googles will be competing on price – do you expect this to be a very brutally price-competitive software market?

Phillips: We all have to do more, honestly offer a lot of value and more value each year so that won’t go away. But I think the pricing has actually been more transparent and predictable in the cloud. We are much more likely to publish pricing in the cloud and it’s usually simpler, subscription-based per user and that’s a lot of what customers want.

It’s no surprise they want predictability in pricing. The fact is, there are infrastructure costs, which kind of puts a floor on what people can do. If you’re selling pure software, the marginal costs are zero. That’s not the case in cloud. There are marginal costs for each customer that you can calculate and customers understand that so their expectations are a little bit different.

I won’t say pricing is cheaper but it’s more certainly cheaper relative to what you can run for yourself. When we engage with customers on this topic they may not fully understand their costs because they haven’t looked at it that way.

They may look at the maintenance cost on the software. But not, for instance consider: What about the database? What about the maintenance cost on the server, the electricity, the facilities, the people running it? Those are usually in different budgets. We’re good at going in and finding out what it really costs, doing a value assessment. This is what you’re spending and we can do it for this and you have upgrades forever if we do it. When you approach it that way they’re still saving a lot of money and they get a better experience.

CIO.com: In terms of what you expect to see in the cloud industry over the next five years, there a lot of people crowding into this space and trying to win the hearts and minds of customers. Do you expect to see a lot more in the way of acquisitions? Do you expect to see some of the winnowing out of people that started out originally in cloud as a single app and just can’t make it because they don’t offer the suite? How do you expect this to shake out?

Phillips: It will be easier for a small cloud applications company to survive, standalone, than it was on-premise because they can reach a global market more quickly. The service can be deployed in multiple places and you can scale it from anywhere.

CIO.com: So you can be a boutique company in the cloud?

Phillips: And still run applications for someone who is in Germany or wherever without having as many consultants on the ground doing everything. It’s easier to deploy. That should mean you can survive a little longer as a stand-alone company.

What will drive it is just the experience customers would have. I want to automate the full process, how can I integrate you in the cloud to that guy in the cloud? Things that are logically integrated, they tend to aggregate and turn out to be within one company, the whole quote-to-order process, all that.

CIO.com: Can you talk a little bit about what drives your acquisition strategy? Is it around bringing cloud expertise into the company or is there something else driving it?

Phillips: We already have the cloud expertise. We have 25 million subscribers in the cloud already and are very reliable, never had any issues in that area. We have a whole separate division called Infor Labs. They do nothing but run cloud applications, test all the integrations. They’re our internal certification body and cloud ops team and our DevOps. That’s separate from development. We’ve had people who only do that for a living for a long time.

What we’re looking for is industry expertise, someone who’s solved a unique micro-vertical problem, customers validate it and it’s a hard problem and one that people are willing to pay for and that adds value to that particular micro-vertical. That’s important. That’s hard to replicate. It’s very hard to duplicate somebody’s 20 years of experience in working in manufacturing in a beverage company who knows how formula management works and how they brew beer. That’s hard to extract out and automate. If we see a way of getting that in a new micro-vertical that’s reasonably large, at least large enough for us, that’s what we like.

CIO.com: That is a great segue to my next question. The micro-vertical strategy is great but doesn’t it create a big challenge for you, which is to know a lot about a lot of different industries. How do you do that? How do you keep up with that effort?

Phillips: That’s an important part of our DNA and something that’s mission-critical for us as a company.

Unlike all of our competitors who are organized by geography, we’re organized by industry and micro-verticals. We have people focused on that segment. If you’re a healthcare customer you think all we do is healthcare software because that’s what you see all the time. We have doctors and chief nursing officers on our staff, chief medical officers on staff. We go in and sound like we’re hospital people.

That is core to the DNA and we keep setting these business units up by micro-vertical to do exactly that and hire people who want to do that.

CIO.com: But isn’t it a disadvantage that you have to absorb the cost that customers normally would be paying to integrators and other people to customize the big standard package?

Phillips: That’s exactly right. We take that cost on instead of you paying a premium to build that for you.

We want to know what those nuances are. We want to put it in the product and support it. We get paid back after we get the first few customers by going to the next 50 customers and saying you don’t have to customize.

Our cost of implementation is a lot lower because you don’t have to build that yourself. But it’s a cost we take on. It’s our core strategy and we have to make it up in other ways by getting efficient on the back end.

So all the infrastructure for our application, even though the apps may be different by industry, share components. We have one integration platform, one workflow platform, analytics, mobility, all of the things that aren’t industry-specific, the infrastructure gets built once and the shared services organization gets some scale from there. The nuances by industry have to be unique and that’s the cost of doing business.

CIO.com: Is there also a strategy around creating a platform where other companies or customers can build specific industry applications or expertise, like a force.com type of environment?

Phillips: We have a platform called Mongoose. Mongoose is a framework and we build a lot of our applications in it. We have a cloud version of that that customers can build to and partners can build applications on it as well.

We’ve had multiple partners extend our applications by using the same platform. In fact, two of our acquisitions were partners that built some cool micro-vertical functionality on the same platform. We started reselling it, learned about it, integrated to it, knew it well.

So, those are low-risk acquisitions. They’ve already figured out the market vertical. It’s on our platform. We encourage partners to extend our apps and find their own micro-verticals and if we like that micro-vertical we can buy it.

CIO.com: You talked about line of business before. Talk about that transition. How often do you talk to IT vs. line of business folks?

Phillips: We normally start out with the line of business. We tend to do better if the line-of-business person is involved in the decision making because they care about the industry features and they have to run a business while IT is more brand-driven, what they’ve installed before. The line-of-business people actually don’t care about which brand you installed at your last company.

CIO.com: They don’t have to deal with it.

Phillips: Exactly. They really don’t care. They just want it to work. Also, end users love the way our software looks because of the design aspect that we focus on. They get excited about it. It’s a way to ease change management: if they get excited about using it, they want to do it instead of you forcing it on them.

And, because of all these new concepts we’re bringing to market, we tend to do very well for emerging CIOs. I would say for CIOs under 45, we do very well because they don’t associate us with whatever decision was made 15 years ago for SAP. They’re kind of tired of that and they’re more open-minded and looking for something new. So we’re doing very well with the young CIO.

CIO.com: Can you talk about your big data and analytics strategy, what kinds of capabilities you’re bringing to bear for customers?

Phillips: First of all, our entire architecture lends itself to big data because the way we integrate is by publishing full XML documents for every event in our applications. We don’t do point-to-point integration calling an API in another application. We publish an entire sales order, for example, send every single field in an XML document and any application that needs that can consume it. It’s publish and subscribe. That’s a big data architecture by definition.

You’re not calling an API and saying: Just send me the quantity. Every single time you get everything, which now makes sense because the networks are a lot faster, storage is cheaper, you don’t have to be that economical with an API call. That allows us to save a copy of that data in a central repository we call Business Vault and that’s where we do all of our analytics.

That separate repository can run on Amazon and Redshift, on a number of different platforms. Because we’re extracting all this data all the time we can take advantage of the latest techniques in data management, Hadoop, everything that is happening, we do that. Don’t worry about it. We’ll find the use cases, what’s appropriate.

We’re not trying to create our own database so we’ll use whatever is powerful and new and applicable, whether it’s MongoDB or Redshift and we do that in the cloud on Amazon with all that data coming, and we have tons of data.

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The second thing we did was form a science lab to build what we call science apps. We hired a team of professors out of MIT and they have deep experience in optimization algorithms. So whether it’s the care path optimization I talked about or spare parts, inventory optimization, they will apply that math to different classes of problems and once they see a big problem and solve it with one customer, we can turn that into a cloud service and use those same algorithms with other customers.

CIO.com: What about your services strategy? How do services play a role in the revenue stream and in your dealings with customers?

Phillips: We’ve had to expand our service capability because of our momentum — 7,000 new customers in the last two years. We’ve had to scramble a bit to expand our services capability. We’re hiring people as well because we want to take more responsibility for projects. It doesn’t mean we have to do everything on their project but we should be there just to make sure they go well.

Then we’ve attracted a lot of partners. We just announced a pretty strategic relationship with HCL with some joint projects and joint development — 100,000 people at HCL and we’re going to be their ERP partner because they missed the SAP and Oracle wave.

They were more an engineering company. We’re about to announce another one with Accenture here as well. People are seeing the momentum. They’re now going to build practices around us. We always had the regional guys but now the large guys are coming in and so that’s where we’re going now.

CIO.com: If you would crystallize that into a single sentence, the focus of the services is on what?

Phillips: Just fast execution of getting people up and running on their applications as quickly as possible. It usually has to do with data conversion from something else to us.

CIO.com: What’s the biggest thing on your to-do list as CEO? For you right now, what is the single most important thing you need to be focused on?

Phillips: Adoption. We’ve come up with so many new technologies that we’re ahead of where customers are and we’ve rolled it out faster than they could consume it. That’s why we had to turn to the services folks on that and get Accenture and HCL because we have so many customers in so many different countries we can’t get to them all.

So, we need help in educating what’s available now vs. five or 10 years ago. Most of them don’t know all this new stuff. We’ve had 400 new products in the last three years. We need an ecosystem to go out there and help everybody upgrade. That’s what we’re focusing on.

CIO.com: You mentioned the pundits and the press before. What do you hear and read about Infor that drives you crazy?

Phillips: I just think people don’t recognize the size customers we have. BAE [Systems], Siemens, Georgia Pacific and these large companies are rolling us out and they tend not to associate us with these global brands even though we’re running major, important things for them.

Secondly, because we’re private they don’t know the level of investment we’re making so it’s more just a lack of knowledge that comes with being private.

CIO.com: Is it a perception that you’re a mid-market company?

Phillips: Some of them think that, or they just don’t know exactly what we do. We’re just not visible to the press as much because we’re private. We have some obviously great customers in all these different industries.

There’s also the lack of understanding of how mission-critical the functions are that we’re doing. We’re not just hiring and HCM [human capital management]. That’s important but it’s not the same as making sure that you can ship product tomorrow or that the hospital is up and running and can admit a patient. The mission-critical aspect of this gets lost. It’s nuanced stuff, not as sexy as talking about Hadoop or something but that’s the real economy. We’re doing real stuff for people who make stuff, ship things and that gets kind of glossed over to talk about an HCM company or to talk about analytics.

CIO.com: Anything I didn’t ask about that you really want to make sure people know about Infor?

Phillips: I think our scale is important to know because we’re usually bigger than most people realize.

We’re about to cross $3 billion in revenue, 73,000 customers now, 13,000 employees and growing faster than virtually anybody else in the industry organically and without the marketing bit, just all on pure product innovation. If we get the little halo from marketing it will help with some of the analysts. There is only an upside to that.