Infor President talks $2bn Koch investment, Oracle/NetSuite deal and Brexit

Earlier this week it was announced that Infor was receiving a $2 billion investment from Koch Industries, a conglomerate that largely has its founding in manufacturing business. The stake marks a turning point for Infor, a company that has been on a multi-year journey to becoming cloud-first.

A new executive team joined the company in December 2010, including CEO Charles Phillips and President Stephan Scholl, tasked with the difficult challenge of turning around an ageing on-premise enterprise apps company, into an innovative, industry-focused leader in cloud solutions.

The Infor we know today is very different to the Infor we knew back then. With the benefit of being privately owned, Infor has been able to plough billions of dollars into completely redesigning and re-architecting its industry specific applications for the cloud - with a focus on its ION middleware to ensure ease of integration and all being build to its 10x design standards (see more here).

Without the worry of scaring public investors, Infor has been able to move hard and fast into the cloud. And the change has been noticeable. Four or five years ago I went to an Infor event in Denver, where the customers were lacking in enthusiasm and the event itself felt small.

Earlier this year I attended the same event, this time in New York, and it felt huge. On stage were the likes of Whole Foods, Travis Perkins and Bank of America - all migrating to the cloud - and all singing the praises of Infor.

At that event in July, Infor said that 50% of its bookings were in the cloud. That number has jumped to 65%+ already, I was told this week.

Given this background, it’s easier to understand why the Koch stake in Infor feels significant. It marks a sign of confidence in the strategy to date and raises the question - where to next?

I got the chance to sit down with Infor President Stephan Scholl this week in London, to probe a bit into what the company plans to do with the money and how it’s going to be used to cement its place as an industry leader in cloud.

Scholl said that the investment from Koch will allow Infor to learn from the Koch family businesses. He said:

When we arrived in December 2010, we went on an incredible journey on product innovation. We spent about $2.5 billion buying and building a new product portfolio. That gets us to today. We’ve hired about 5,000 new people. We have the platform in place.

And so now you attach yourself to $115bn+ conglomerate and industrial titan like the Koch brothers - when you think about digital disruption and what’s happening with cloud, and how that whole manufacturing space is under attack, who better to be attached to than the Koch family?

One part of it is about innovation and co-innovation and working with them. Look at what GE is trying to do, they added the word ‘digital’ to an industrial company. Koch is no different, Siemens is no different. All the major conglomerates are looking at this new world.

Every organisation of that size and scale sees technology as an enabler to transform and build a one-to-one relationship between a manufacturer and a business customer. They want to drive a huge technology transformation, but who better than to have us as a team?

Secondly, Scholl said that the other important part of the deal was simply the “dry powder” - the money - which will allow Infor to make acquisitions. Scholl said that if Infor wants to grow from $3 billion to $5 billion in the next five years, as well as organic growth, it will need to look at acquisitions. He added:

You’re part of one of the biggest industrialists in the world, so if you need $1 billion or $2 billion, or more, to make big acquisitions, we have that available to us through the Koch equity group.

It would be rounding out certain industries. Look at healthcare right, we are dominant in healthcare. But dominant in what? We are dominant in the back-office, HR, CRM. But if you look at the industry, from a spend point of you, they have revenue and clinical systems. So getting into that revenue management cycle within healthcare. Getting into new areas like that is one example.

Maybe another example is getting into new industries. Oracle is making a mess of it with JD Edwards and trying to migrate all those things over to Fusion. So you’ve got all those construction companies all over the world saying ‘we need a new platform’.

Cloud success

Infor’s cloud strategy is closely tied to Amazon Web Services, which it uses as its hosting provider. Instead of building its own data centres, Infor decided a few years ago that it could go much more quickly with AWS, whilst also taking advantage of low costs and Amazon’s innovation. This was somewhat controversial at the time, given that most cloud providers choose to build out their own infrastructure.

However, in my experience, Infor customers prefer that it uses AWS - as they perceive it as the leader in cloud. When you just look at the cost benefits, Scholl said:

You’ve seen the carnage with IBM and Oracle and all these infrastructure players, how much they’re charging for databases and servers. We use AWS and we’ve got a pricing arrangement. They called us last week - god’s honest truth - and it’s been our 52nd price decline for us. Who does that? I would love to name one Oracle or SAP customer that has had their prices reduced like that.

Whilst some of the other leading enterprise apps companies have had an arguably difficult transition to the cloud - which has largely been carried out via acquisition - Infor now seems incredibly confident in its capabilities. Talking to Scholl, I didn’t feel like he was trying to convince me that Infor is a cloud company, which is sometimes the impression I get with some of the others. He was just talking plainly about customers and numbers. Scholl said:

It was a sweaty moment three years ago when we went to our board and said we are going to go all in on cloud. 30 months ago 4-5% of our business was in the cloud and it was largely our HR stuff. If you fast forward to today, 65% of our bookings are now in the cloud. And the revenue is just the gift that keeps giving. We are well over the half way mark of our licence business being from cloud. In 30 months.

In healthcare, 5% of our business was cloud-based, now it’s 70-75%. And 80% of our business in healthcare is existing customers (so they’re migrating away from on-premise).”

So now we are adding more feet on the street. I would argue that our two competitors did not see that element of mission critical, industry applications.

The second piece would be that they didn’t build industry applications. You still have to modify SAP, you have to modify Oracle. The minute you modify, it’s not a cloud-based solution. It’s just a glorified lipstick on the pig.

I did, however, also raise the $9.3 billion Oracle acquisition of NetSuite. Does this deal concern Infor at all? NetSuite has a strong play in similar industries to Infor (retail, manufacturing) and is now part of the largest enterprise apps company in the world. Scholl isn’t concerned in the slightest. He said:

You spent billions of dollars building Fusion, which was meant to have next generation financials. Then you go and spend $10 billion buying a 20 year old general ledger? They haven’t reinvented their product, it’s largely a financials low-market, mid-market product. They don’t do mission critical applications and it’s an old architecture.

They’re buying marketshare to go down market. Wasn’t the point of Fusion to get down to the mid-market? How are you going to position Fusion versus NetSuite? I’d look at that from the outside and say you’ve just validated what the market said, which was that Fusion was never built for cloud and can’t go down market.”

I was there when they made the Fusion decision. They will tell you today that it was architected for the cloud. But there was not one line of discussion that Fusion would ever solve for cloud. Oracle and SAP are caught flat footed because they never thought that customers would move mission critical applications to the cloud.

Ouch.

Brexit/Trump

Given the political events of recent months, both the shock results from the EU referendum and

the US election, it would be remiss to not ask the big cloud players what the impact could be on their business. Even though its very early days for knowing the medium to long-term impact of both Brexit and Trump as president, it’s fair to say that uncertainty has increased.

Is Infor concerned about either? Does it make its job more difficult in sales discussions? Scholl doesn’t think so. He believes that Brexit could form the basis for valuable discussions around data sovereignty and that any economic uncertainty could further benefit a move to the cloud. Scholl said:

If anything, I like a downturn. I was just in the Middle East last week and the oil crisis was the best thing to happen in the Middle East. Before, it was all ‘we don’t need anything, we will just spend our way through’. Whenever there is a crisis or some unknown, they’re looking for more choice and flexibility. Which is what we are going in with, we are going into UK companies and saying no matter what the answer is, no matter what the policy is, let’s build you a platform of technology, run it in the cloud, with the best AWS infrastructure on the planet.

If you want to run it in the UK, run it in the UK. If politicians make a lousy policy that disrupts your go-to-market and you want to shift all your data over to Frankfurt - done! We go in and talk about flexibility. We will leave the policies to the politicians, but we go in and say you need choice and flexibility.

If you have your own data centre and you’re stuck in the UK - what are you going to do? I think we are actually taking advantage of some of that uncertainty.

My take

I’ve said it before, but I’m consistently impressed by not only the Infor strategy, but also the executive team’s focus and commitment. They made tough decisions early and are now reaping the rewards. As I noted above, Scholl isn’t giving me a sales pitch or trying to convince me that Infor is succeeding in the cloud. He’s just confident about the success to date. The customer names and numbers suggest that’s true.

And although Infor’s total business is a fraction of the size of Oracle. If over half of its licence business is now coming from the cloud, that’s significant. Still a long road ahead, but the results thus far have been noteworthy.