Infor Presents Itself as a Large Software Startup

Infor described this year’s Inforum user group meeting as a coming-out party for a large startup company. Such a debut was necessary because Infor had been operating in something of a stealth mode for the past three years: a limited marketing presence, no unified message and a weak, sometimes inconsistent brand identity. It also needed to formally introduce Infor to customers of Lawson, the ERP supplier it acquired last year. The “startup” designation is meant to signal that Infor has been able to render a decade-long consolidation of dozens of smaller companies into one cohesive entity.

I think the current management team has put Infor – particularly the pre-Lawson portion of the portfolio – solidly on the road to viability. This has been no small feat. It’s hard to amalgamate a mix of smaller applications software companies, none with substantial market share. Unlike bringing together a more homogenous set of businesses (say, metal fastener distributors), achieving operating efficiencies has required from Infor a clever dose of pragmatic technology, notably its ION middleware. Infor has had to create a software architecture that makes it easier for both the company and its users to maintain its applications. As well, ION makes it feasible for users of software to upgrade it or migrate to other portfolio applications and to add complementary applications without difficulty.

One of Infor management’s more important objectives for the conference was to get across to users its new strategy, which I covered in an earlier blog. The keynotes on the first day provided the long version of what I expect will be the company’s core message over the next year or so. To persuade its installed base to stay with it, Infor is promising they can keep what they have for as long as they want. Moreover, it will make it easier and less expensive for them to get a broader set of capabilities, such as analytics, performance management, social business applications and cloud-based applications designed to meet their specific needs from Infor rather than going to another vendor. None of these products breaks new ground; all are necessary for the company to remain competitive. For new customers, Infor is offering the promise of faster time to value and potentially lower implementation costs in its targeted verticals. I think this is the right message, but it will require frequent repetition and an aggressive marketing effort supported by a solid roster of willing customer references.

Serious challenges remain for Infor in the business environment and in executing the strategy. After a decade of modest, incremental improvements, the overall pace of technology change is accelerating. The software consolidators of the past decade benefited from limited technological evolution as they tried to stitch together their acquisitions. The slowdown extended the useful lives of enterprise applications, especially record-keeping systems such as ERP. Vendors have been able to keep customers paying software maintenance and had time to integrate the pieces of their portfolios. Now this is changing. For example, companies see that cloud computing can be a better choice for deploying software than doing it on-premises, whether functionally, economically or both. Increasing numbers of people are working with mobile devices, larger sets of data and more sophisticated analytics. Customers’ expectations of how to interact with systems are starting to change as vendors tout the “consumerization” of their business software offerings to make them more like the apps available on mobile devices and more appealing to the social media generation of business users. Infor is responding to each of these, including creating positions for Senior Vice Presidents of Cloud and Speed to promote rapid product development and innovation.

In addition, while Infor is now the third-largest enterprise software company, it is competing with a roster of cash-rich titans (notably IBM, Microsoft, Oracle and SAP). Infor’s recent recapitalization put it on stronger financial footing, but it is still highly leveraged. To the extent that it is successful in generating incremental revenue, it will be able to get cash to pay down its debt. Solid revenue growth also would give it the opportunity to raise equity in the public market and de-lever its balance sheet even faster. The downside to this virtuous circle, however, is that to the extent that Infor is unable to generate “escape velocity” revenue growth, it will crimp its competitiveness because of the need to service the debt. For this reason, how well the organization executes is very important.

In my opinion, Infor faces at least four substantial execution challenges in achieving its objectives. The first is to build broad awareness of the benefits of Infor’s approach and the value of its software. One of Infor’s key strengths is its installed base of midsize companies.  These buyers want software that doesn’t require much customization and implementation effort because they have small IT staffs and limited budgets to buy, implement and maintain the software. Infor’s “micro-vertical” applications provide deep functionality built for specific types of businesses. For instance, this means not just the food and beverage vertical but milk producers, brewers or bakers, each with its own business-specific capabilities, units of measure and workflows built into the software.

A second challenge is to identify, define and refine a set of core sales offers that promote cross-sells or up-sells with the most revenue-generating potential. Infor offers a lot of options, but there are endless permutations of what customers can do using ION and individual pieces of Infor’s portfolio. To accelerate clarity of what’s possible and promote sales execution, I think Infor needs to define offers for the needs of specific sets of users. The new mobile and cloud applications utilizing ION are certain to be attention-getters and likely to be among the most quickly adopted, but I don’t expect them to be big earners.

A third challenge in this chain is that sales execution. Whether it’s inside or outside sales, in each of its traditional areas (ERP, analytics and other software categories across multiple micro-verticals) Infor is now offering a broader, more complex array of purchase offers than before. Training sales people to be able to understand customer requirements and communicate value propositions among all the options will not be easy. Simplifying this with a short menu of predefined offers can make it easier for the sales organization, but it’s just a start.

The fourth issue is demand, which is a function of buyers’ software budgets. Of course, the better Infor is able to articulate and demonstrate the value of its solutions, the easier it will be to close business. Moreover, the company is expanding its presence in rapidly growing countries such as Brazil and China. Yet however compelling Infor’s value proposition may be, other capital or operating budget priorities and spending constraints are likely to be a limiting factor, especially in its core market of midsize companies. This factor to some extent may be beyond Infor’s ability to change.

Infor’s attempt to rationalize and overhaul a sizable portion of the U.S. software business has been a big bet. I’m encouraged by what I saw and heard at Inforum. The real test is whether it will be able to sustain double-digit license revenue growth and its retention rate of existing clients in the mid-90 percent range over the next six to eight quarters. That’s a challenge for any large startup.

Regards,

Robert Kugel – SVP Research

Splunk: Big Data Machine for Operational Intelligence

Splunk recently entered the financial markets as a publicly traded company (NASDAQ: SPLK) and also entered a new phase in its corporate growth. Splunk combines the power of search and discovery with analytics on data generated by IT systems, that they call machine data, and provide insight for a new generation of operational intelligence that helps everyone in IT including the CIO determine the efficiency of its systems that support business. The company has built a platform that can index data on a large scale (“big data”) for rapid analysis and search. They also through its analytics provide the ability to perform visual and data discovery which is critical to reduce the time to determining unknown issues in existing IT systems. This helps IT staff ascertain not just the performance but the efficiency of systems that operate on a 24-by-7 basis. Splunk’s software operates in real time, surpassing the traditional methods of applying business intelligence against a data warehouse – a practice that’s ineffective for use in IT, where time is not the CIO’s friend when it comes to understanding issues or opportunities for improvement. Splunk has grown rapidly, partly because it’s simple to download and try, and then to license for use in production. It has more than 3,300 licensed customers in 75 countries. The management team is led by CEO Godfrey Sullivan, who has experience and a track record at companies such as Hyperion.

Where is Splunk finding its opportunity? IT organizations have been like the cobbler’s children who have no shoes. While they deliver applications and technology to business, IT departments seldom have time to analyze and optimize their own processes, systems, applications and projects. While this might sound counterintuitive, it is true. Almost seven years ago, I started investigating whether performance management being applied elsewhere in a business was occurring in IT. I discovered that CIOs lack critical tools to define goals and track the performance of their people and machines. Our IT Performance Management benchmark research identified lack of resources, budget and awareness as major contributing factors to this situation. It also showed that organizations that deploying appropriate tools were increasing IT effectiveness and supporting the needs of business more efficiently. Machine data or files were the top data source within 43 percent of IT organizations, and balancing loads between networks and servers, doing root cause analysis and doing impact analysis were key tasks in at least 52 percent of them. Splunk, which addresses this niche, has had significant growth over the last three years even though economic conditions have been shaky.

Last year we came out with new benchmark research on IT Analytics that investigated analytics related to IT organizations managing systems that support business. This research found that only 15 percent of IT organizations are at the highest level of maturity in IT analytics in the key categories of people, process, information and technology; the bulk of organizations are still struggling to function effectively. Interestingly, 91 percent of IT organizations want their analytics to be simpler – understandably so, as 79 percent are using spreadsheets universally or regularly and more than half are dissatisfied with their existing technology. The top issues with current efforts are that information is not readily actionable (for 46%) and not adaptable or flexible to change (44%); many organizations have reports or files but can’t assess and act on the data. Splunk also addresses that need of more than half (52%) that are not able to easily get the data they need for IT analytics. Considering that IT spends more than two-thirds of its time in the analytics process in data-related tasks as opposed to actual analysis, Splunk’s ability to get to machine data and index it for search and analysis is a welcome sign. Usability was identified as the top-ranked evaluation criteria, followed by the need to search and navigate machine data, which is exactly what Splunk offers.

Our analysis of Splunk’s latest release of software, version 4.3, found a series of advancements, including supporting access from tablets such as Apple’s iPad, support for data in cloud-based applications and the ability to operate in VMware environments, making it easier to deploy Splunk in the cloud. This version expands the enterprise scale of the platform, supporting more concurrent users and faster search. Users can preview machine data then start indexing against it for further discovery and analytics. These are all critical tasks as Splunk becomes a platform for harvesting machine data for search and discovery across the IT organization. Splunk must continue to expand its footprint with more collaborative capabilities to help IT understand issues and opportunities where analytics on the machine data are the starting point for dialogue and action. Introducing more collaborative capabilities and the ability to correlate data toward actions and notifications will help Splunk further differentiate its technology.

Since our analysis, Splunk has continued to support new machine data environments, including Hadoop. It can run MapReduce queries against data in Hadoop and then bring the data into Splunk for analysis. Our benchmark research into Hadoop and Information Management found that users of Hadoop are most often focused on integrating machine data from application and Web logs with the events and network monitoring data that Splunk is designed to address. Hadoop users need to analyze data much faster than others, with 77 percent of organizations indicating they need analysis within a day and 25 percent within an hour. One challenge for organizations using Hadoop is staffing and training; Splunk addresses those obstacles with a tool that is easier to use than creating custom programs, and it provides real-time and integration features, each sought by two-thirds of organizations. The growth of Hadoop comes from the need to address big data needs but also the simple access to download the software and then use it which is also what Splunk does with its download to use its software.

Splunk has a promising opportunity in the market, considering the size of IT spending on technology every year and the legacy of applications and systems that must be optimized for business use. Also, as IT organizations continue to advance their IT security and compliance and increase their use of cloud computing, the need not just to monitor but to analyze and act on issues and opportunities grows larger. Our last benchmark research on Operational Intelligence in IT found that IT has prioritized to manage IT performance through metrics in 71 percent of organizations, and more than half (58%) plan to improve their IT organization’s responsiveness. The research found more than half of organizations have at least 11 information sources to routinely interact with, which is part of why Splunk fits these needs on machine data. Splunk has little competition, with IT management software vendors like Computer Associates, Hewlett-Packard, IBM and Oracle providing little innovation or capabilities to address operational intelligence needs through discovery and analysis of machine data in IT. Eventually they or others will realize their shortcomings, but at that point I would expect to see Splunk be significantly larger with an expanded portfolio of capabilities for meeting a CIO’s need to truly become an information officer of his own IT organization.

Regards,

Mark Smith – CEO & Chief Research Officer