Infor powers Amazon global logistics, continues SaaS progress

In a major coup for its GT Nexus division, enterprise software giant Infor says it has inked a deal with Amazon that will see the ecommerce giant running its transportation and logistics in part on the GT Nexus platform.

Describing the contract as a "strategic partnership" during a call with analysts yesterday to discuss its latest quarterly financials, Infor CEO Charles Phillips says:

Amazon is basically getting into the fulfillment logistics business. They will be a logistics company over time.

To do that, we have some products that are relevant. We are about to finish building a next-generation transportation management system. We have a whole fulfilment network in GT Nexus.

We competed with some fairly large companies there and they selected us.

While the full extent of Amazon's plans are not public, reports began to emerge a year ago of its ambition to build a global shipping and logistics operation. Bloomberg News revealed proposals outlined three years previously in an internal company document:

... an aggressive global expansion of the company’s Fulfillment By Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company’s website. The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London.

The GT Nexus platform, which is a leading player in the management of global trade logistics, is a good fit for this ambition. It already connects into an extensive global network of shipping and freight companies, factories and logistics operators. While it's not known at present whether the contract with Amazon relates to this global network or will be limited to management of Amazon's own in-house logistics resources, Phillips' comments seem to suggest the partnership has a broad scope.

Infor already partners with Amazon Web Services, which provides the software company's core cloud infrastructure. Phillips says its operations had not been affected by this week's S3 outage, which caused a significant number of well-known online services to go offline for several hours on Tuesday. This was because Infor spreads its operations across different sections of AWS, known as availability zones, to avoid exposure to a single point of failure. But it would be unrealistic to expect 100% uptime all the time, he cautions:

There's going to be failures on any SaaS platform.

Transition to multi-tenant SaaS

In addition to noting the Amazon contract, Phillips highlighted other deals, including an "eight-figure" contract with Hertz and a $5 million contract in the aerospace and defense sector. There had also been one customer loss that impacted SaaS revenue growth, when Dick's Sporting Goods had acquired golf retailer Golfsmith from bankruptcy and canceled its Infor contract, signed in the prior quarter.

The positive story includes 170 competitive wins against SAP and Oracle. Along with the continuing progress of customers migrating from on-premise licenses to SaaS, that fueled growth of 30.9% in Q3 SaaS pro forma revenues compared to the same quarter last year, adjusted for currency movements. SaaS accounted for a little above 55% of total software license revenues in the quarter. With perpetual license revenue declining 4.9%, while consulting and support revenues grew slightly, the total pro forma revenue for the quarter was $719.4 million, up 6.2% on the year-ago quarter (the full figures, including GAAP, are available on the Infor website).

The company hopes to reach a major milestone this year when it completes the transition of all its core products to a multi-tenant cloud architecture, hosted on AWS. The "last big one" is Infor M3, says Phillips, an ERP product that's popular in manufacturing and distribution. He says the company hopes to introduce a multi-tenant version by the end of the fiscal year, which should further accelerate the transition to SaaS:

That's the big one that could move the needle.

Moving from single-tenant

One needle that's moving more slowly than planned is the migration of customers who've moved to a single-tenant SaaS instance, but have not yet taken the onward step to multi-tenant SaaS. Infor has a 'Lift and Shift' initiative to support customers making the move to the cloud, and it seems the 'lift' part to a SaaS version of an existing system has proven easier to complete than the subsequent 'shift' to an all-new multi-tenant system. CFO Kevin Samuelson, admits:

We're a bit behind in taking those customers and migrating them from single tenant to the multi-tenant versions of those products.

A contributing factor has been the sheer extent of Infor's product catalog, as well as some industries being slower to make the move than others, adds Phillips:

We just have a lot of products and it depends on the vertical. We're through the bulk of the product line.

Samuelson says the shift will likely complete over the next six to eight quarters, at which point margins are expected to be "north of 70%" because of the lower costs of running multi-tenant. Phillips explains:

There's a huge difference in costs if we can run each customer on a shared version of the application ...

A lot of it depends on how quickly we can move the customers, but the faster we get that done the faster we'll see margin improvement.

Once Infor has completed the current round of a little under $120 million in annual cost savings under the terms of its recent funding deals including from Koch Industries, the emphasis will be wholly on revenue growth, says Phillips. The $2 billion Koch investment, which completed last month, is intended to fuel both organic growth and acquisitions.

The Koch investment has helped raise awareness of Infor as a significant enterprise software player, says Phillips.

The Koch investment, a lot of people were interested in that. They didn't expect a company in the industrial business to invest in a technology company of this size.

My take

Being chosen to help out Amazon run its logistics operations is a real feather in the cap for Infor — even though some of its retail customers may wonder what exactly the vendor is going to be helping Amazon achieve. But with the likes of Whole Foods Market and DSW teaming up with Infor to help co-develop its retail management applications even though they're AWS hosted, this may prove another element of 'co-opetition' they can live with. It's even possible (although let's be clear, I'm in the realms of complete speculation here) that Infor sees the potential to build Amazon logistics as a back-end service into its retail offerings at some point in the future.

Meanwhile, the transition to SaaS — and more pointedly, multi-tenant SaaS — continues apace. I can't I'm surprised that Infor has found it tougher going to get its customers to make that further 'shift' to multi-tenancy — the change management obstacles take some surmounting.

But if the company can indeed get not only its entire product set but also the vast bulk of its customer base into multi-tenancy within the next two years, it will have achieved a remarkable transformation from the company that Phillips and his colleagues inherited when they first took charge in December 2010. It will be an achievement that competitors including Microsoft, Oracle and SAP may envy but are nowhere near emulating.

Updated: An earlier version of this post misspelled Kevin Samuelson's last name as Sanderson.