Catching Fire in the Cloud: Infor Takes on Customer Stasis, Workday, and Salesforce.com

It’s year four in the Charles Phillips era at Infor, and the more things change the more they remain the same. The changes are impressive – new functionality across a wide swath of its legacy product lines, a new release of Infor XI, its next generation suite, a focus on industry-specific clouds that is such a good idea that I expect it will attract copycats from all over the market, a dedicated data science consulting team, new capabilities for defining and delivering best practices in implementations – it’s a long list, and it all looks good.

But the part that remains the same is the fundamental dilemma that has bedeviled Infor since Phillips rescued the company from the ignominy of being a roll-up of orphaned brands and customers milked for their maintenance dollars: How does Infor get the core of its customer base – companies that almost made a virtue out of lagging behind the market and accepting their roles as cash cows for a maintenance revenue play – to move forward in a timely fashion and make good on the vision Phillips and his team have laid out?

There’s definitely hope, as evidenced by a show of hands during a panel I participated in at the Executive Forum held during the company’s Inforum user conference in New Orleans last week. When asked how many of the audience’s companies were already in the cloud, pretty much every hand went up, much to my surprise and that of my fellow panelists. And yet, when that old, tired question about “how secure is my data in the cloud” was asked later in the day, it was clear that hope had a long way to go before it became truly fungible. (The answer, BTW, is that three of the bigger hacks in a long list of recent security breaches – Chase, Target, and Home Depot – were all against on premise systems. On-premise is, most of us agree, much more vulnerable than the cloud.)

Infor by the numbers reflects the essence of this dilemma: the company is 73,000 customers strong, many of them denizens of a collection of forgotten brands that seem to make up the bulk of the ERP Graveyard website. It’s a prospect list that the entire enterprise software market is drooling for, but only Infor has the majority of them on speed dial.

But do they answer with upgrade orders when Infor calls? Not enough to date. Infor’s first shot at a next generation suite, Infor X, only has 2600 customers today, or about 3.5 percent of the customer base, two years into the vision. ION, the company’s well-designed, loosely-coupled middleware solution (the polar opposite of Oracle’s messy, expensive, and overly complex Fusion Middleware) has 2000 customers. Its context-aware collaboration offering, Infor Ming.le, has 400 customers. The overall cloud vision, however stellar, has 40 applications in the cloud but only 2600 customers (it’s tempting to say the numbers average to 65 customers per application, but I’m assuming that a simple mean isn’t the right way to look at it – most customers probably run several cloud apps from Info.)

But to say this is the story of market failure is to misunderstand the dynamic at play. The 70,000 customers that haven’t upgraded frankly can no longer continue that path with impunity. They have a job to do, and they need to do it soon: the Infor customer base simply has to sign on for a whole slew of upgrades in the very near future, and, unless they’re missing a few brain cells, they’ll be doing the lion’s share of those upgrades in the cloud. This decision isn’t optional: there’s just too many market and business dynamics at play to make it possible for these companies to continue to use 20^th century technology and business processes in the 21^st century. And if you’re bothering to upgrade, you’re going to go where the innovation is, and that’s the cloud.

Infor’s trick is to play the game as patiently as possible, all the while laying the groundwork for being the very best of a large contingent of suitors waiting to take these 70,000 customers to the ball. This is where Infor has a distinct advantages as a privately-held company. The kind of patience Infor needs is not one of the virtues that characterize Wall Street – au contraire. If Infor had to show results on the quarterly cadence that the Street demands, it would be in trouble, big time. Not because it’s not generating revenue ($745 million in the fiscal year ending last July, up 6% from last year) but because its maintenance revenue isn’t bubbly enough for an investor community that is smoking cloud crack like it’s, well, real crack.

Ironically, Infor would also be a helluva a good buy if the tunnel-vision of the Street were to drive the stock price into the basement, because I’m pretty bullish about Infor’s chances of landing a large chunk of the upgrades its customer base will need sooner rather than later. The Industry Cloud vision is the latest of a number of strategic moves that make Infor look like a good choice: the company has laid out a vision of 13 verticals – ironically, these are the super-verticals that Infor tends to dismiss in favor of supporting a multiplicity of micro-verticals – that will have their own cloud and their own portfolio of cloud capabilities specific to their industry. It’s a pretty obvious list, gleaned from the dozens of customer bases the company inherited over the years: automotive, healthcare, aerospace and defense, HCM, public sector, industrial, distribution, food and beverage, hospitality, fashion, equipment dealers and service, and as well as two more generic offerings, corporate and business.

The plan is that each of these vertical clouds would have the foundational functionality that most if not all companies in the vertical would want, micro-vertical capabilities notwithstanding. Thus, the healthcare vertical cloud is be based on a cloud version of Lawson and offer capabilities from HCM, PLM, asset management, performance management, a supplier exchange, project planning, and others. Likewise the aerospace and defense vertical cloud, based on LM, includes PLM, configuration management, budget planning, partner collaboration, SCM, planning, and a half-dozen more capabilities.

What I love about this vision – seven of these Cloud Suites are currently available, six more to come – is that it acknowledges the reality of a cloud-based future without putting a customer base, one that has already proven not to be the greatest consumers of new technology, into the position of stitching all this functionality together, on premise or in the cloud.

The worst thing a company looking to leapfrog out of a legacy technology base straight from ERP Graveyard could do is buy the dozen or so capabilities in Infor’s vertical clouds as individual cloud apps. I call this death-by-cloud-silo, and it’s a movie playing in all-cloud backoffices across the country. It’s guaranteed that a company that embarks on a cloud silo strategy – even a company that has regular upgrades in its DNA – will fall behind on maintaining the matrix of interfaces and middleware that would be needed to keep this mess on track. Especially in a cloud market where upgrades are delivered automatically at a rapid cadence: imagine keeping track of a dozen cloud apps as they upgrade several times a year at completely different times and cadences. Actually, don’t imagine it, it would make the old 20^th century silo problem look like a piece of cake.

Another reason I like this vision is it gives Infor a strong story to tell in competition with pure cloud competitors like Workday, and Salesforce.com – the latter being a former partner with which Infor parted ways over the complexity of integrating a broad set of functions from Infor’s ERP apps to Salesforce.com.

Infor starts strong in taking on Workday and SAP by focusing on the completeness of its new HCM cloud suite: with core HR, talent management, training and education, payroll, health and benefits, retirement, and other capabilities, Infor provides a vision for a suite that integrates a large number of components that otherwise would have to be synched in the cloud á la the death-by-cloud-silo scenario outlined above.

But the icing on the cake – and very much in line with my thinking that beating Workday is all about defining and delivering HCM and talent management as part of a vision of complex, integrated business processes — is Infor’s vertical cloud strategy. As noted above, HCM and talent should be part of a comprehensive, cloud-based offering that slots the HCM and talent into a more complex vision of business process. This is something Workday can’t deliver without trying to kludge non-Workday apps into the process flow and starting its customers down the cloud silo path. Ditto Salesforce.com: it’s going to hard to compete with a pre-integrated vertical cloud like the ones that Infor is bringing to market.

It’s this kind of thinking that is one of the reasons why I think Infor has a chance. Another is cultural – Phillips and his leadership team, as well the rest of the execs I’ve met over the years – clearly have the respect of the customers and partners, and they clearly understand that they can’t force their way into their customers’ wallets by the kind of strong-arm tactics that companies like Oracle deploy (here I’d like to mention that, as far as I can tell, Oracle, by suing the State of Oregon over its failed ACA implementation last month, became the first enterprise software vendor to pre-emptively sue a client for an implementation failure. That’s a first I would definitely think twice about if I were looking across the table at an Oracle rep.)

It’s safe to say that one of the reasons the core of Infor’s customer base hasn’t upgraded or migrated is that many companies in this collection of orphans and cast-offs have seen the ownership of their enterprise software systems change hands multiple times, eventually ending up the wards of a company — Infor’s predecessor — that favored sucking maintenance dollars over delivering innovation. I had a customer put it to me exactly this way at the Executive Forum – when I go to the cloud I want to make sure I won’t be orphaned again, he told. There are no guarantees, I replied, but there’s a strong likelihood that Infor’s going to be around until well after his retirement.

What’s of course problematic for those making decisions today is that a lot of what makes Infor look like a keeper is still a work in progress. But that too may play well for Infor – as long as the vision is both well-designed and credible, the laggards can continue to lag, knowing that they have an easy choice once they’re ready to make it. Heck, they waited this long, what’s a year or two difference going to make? Considering that there’s a big assessment that has to take place before the upgrade – a business blueprint for the post-legacy era – maybe it’s already time for these laggards to get started. By the time the assessment is over, chances are Infor will be fully baked. And then it’s off the races. The enterprise software market will be all the richer for Infor’s success.