OpenText CEO opens up on organic growth ambitions

SUMMARY:

At this week’s Enterprise World event in Toronto, the acquisition-hungry enterprise information management company showcased new offerings and areas of focus that may help it unlock new sales.

OpenText CEO
Barrenechea looks back and forward

At Enterprise Information Management (EIM) company OpenText, executives haven’t typically made a big song and dance about organic growth. Instead, they have prioritized growing the company through M&A and then squeezing new efficiencies out of acquired operations. A prime example is the company’s $1.6 billion purchase of Documentum from Dell EMC, which closed in January 2017.

But while M&A continues to be the leading growth driver for OpenText, opportunities for organic growth seem to be getting more attention at Canada’s largest software company, judging from announcements and discussions at the company’s Enterprise World 2018 event, being held this week in Toronto. And what does the company expect to be the three main sources of that growth? Cloud, AI and security.

For a start, there was CEO Mark Barrenechea’s announcement in his Tuesday keynote of two new strands to the company’s cloud strategy: first, the release of the company’s new hybrid cloud platform OT2; and second, the news that its flagship EIM platform, OpenText Release 16, will now run on cloud infrastructure provided by Amazon Web Services, Google and Microsoft Azure, in addition to the existing options of on-premise or on the OpenText cloud as a managed service. These new public-cloud options will be available for Release 16 implementations from the EP5 (Enhancement Pack 5) update onwards. This is due in November this year, said Barrenechea:

Our private cloud, managed services model has worked well for us; we have over 2,000 customers for this managed service. But some of the global 10,000 companies have made platform decisions based on standardizing on [public cloud providers], so I think this will open new markets for us.

The idea behind OT2, meanwhile, is to make it easier for developers to build new applications and services, offered on a software-as-a-service basis, that bring together information from both on-premise and cloud-based resources. The appdev platform brings together componentized applications, services (in areas such as security and analytics) and APIs [application programming interfaces] to integrate with, for example, Release 16 implementations.

Progress in AI

There was also an update on Magellan, the artificial intelligence (AI) platform that Open Text announced at last year’s event. One year on, Barrenechea reflected:

I think it’s been a really good first year. The first thing we have to do is win over our installed base, to win our market segment. Magellan isn’t meant to be a standalone AI tool to do anything, for anyone, in any environment. Our first goal is to unlock the value of the information that customers already have in our EIM tools.

Over the first year, one of the things we’ve learnt is integration – to keep integrating Magellan into our data. We’ve also learnt a lot about our data model and where it needs enhancement for AI. And every release gets stronger. We’ve done over 100 proof-of-concepts now and customers that have done POCs include [Australian bank] Westpac, [German transportation components manufacturer] Knorr-Bremse, Malaysia Airports and Ernest & Julio Gallo Winery.

This last project is of particular note, said Open Text’s EVP of engineering Muhi Majzoub, because of its scope. The winemaking company is applying AI not just to historical data relating to its e-commerce operations, in order to spot trends in preferences, but also data from IoT sensors sitting in its vineyards, measuring rainfall and temperature, to understand which irrigation schedules produce the best results and explore disease patterns.

Finally, there’s a bigger focus on security at OpenText, following the acquisitions of identity and access management company Covisint in July last year and endpoint security specialist Guidance Software in September. The thinking here is that, in a world where more devices, machines, even robots are connected, endpoints can be anywhere. With these two key acquisitions under its belt, Barrenchea feels that Open Text is in a better position to help its customers address emerging security concerns, as well as existing ones.

My take

That said, the hopes for organic growth expressed by Open Text executives remain fairly modest. In a recent third-quarter earnings call with financial analysts, Barrenechea talked of low, single-digit organic growth over the next three years. In other words, M&A remains king at Open Text, but there is clearly some hope – and drive – for other sources of revenue. As Barrenechea put it:

I describe our strategy as ‘total growth’. We intend to grow via acquisition, and acquisitions continue to be central to our strategy, we’re an acquisitive company. We’re a consolidator and we will continue to buy businesses. But total growth is also about organic growth and supporting our direct sales force and our partners to get wider account coverage and to go deeper into existing accounts.

Image credit - OpenText

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