Infor’s Most Urgent Initiative

After more than a decade of acquisitions, Infor is now the world’s third-largest enterprise software vendor, following SAP and Oracle. In the past, it’s been easy to characterize Infor as a roll-up of older ERP products and point solutions. But that view is no longer fair.

Beyond Acquisitions to Innovation

Under the leadership of CEO Charles Phillips and his mostly-new team of senior executives, Infor is now moving beyond acquiring other products to innovation on several fronts:

• Hook & Loop: an in-house design agency, which has brought a fresh modern user interface across all of Infor’s products, embracing mobile devices as well as desktops. With Hook & Loop, Infor can now also provide design services to its clients, an unusual competency among enterprise software providers.
   
• Infor ION: a light-weight middleware capability, which allows quick integration between Infor’s many products as well as third party solutions.
   
• Ming.le™, a comprehensive solution for social business, process improvement, and analytics.
   
• Deep vertical functionality, covering dozens of industries, sub-industries, and micro-verticals. For example, where some vendors might list “Food and Beverage” as a vertical, Infor makes a distinction between “Beverage,” “Bakeries,” and “Confectionery.”
   
• CloudSuite: Industry-specific suites of Infor products pre-integrated and deployed as cloud services,  comprising five industries today with more on the way. It also includes the newly-announced Cloudsuite Corporate, which covers horizontal applications such as finance, human capital management, and purchasing.
   
• Data Science Lab: a newly formed group, which will develop advanced analytics capabilities across Infor’s product suite as well as offer data analytics services to Infor customers, which might otherwise be out of their reach. The group is based near MIT and includes data scientists, mathematicians, economists and other analytical skills that are beyond the reach of many Infor customers.

These strategic initiatives go beyond market messaging. In fact, until now, Infor has been deliberately muted in its market communications on these innovations, waiting until it had substantive product and capabilities to deliver. Expect to hear more from Infor in its public messaging on these innovations. 

But Infor is Losing Customers

Nevertheless, while Infor is newly invigorated around innovation, the majority of its customers are stuck in the past. Many of Infor’s products were originally developed over 20 or even 30 years ago, and it is safe to say that a good percentage of the customers of those products have not upgraded them since Infor acquired them.

The first and obvious risk to Infor is that such customers may be lost to competitors. Infor does not publish attrition numbers, but some simple arithmetic shows that Infor has actually lost customers over the past four years.

Here’s the calculation. When Charles Phillips was named as CEO in October 2010, Infor indicated that it had over 70,000 customers. At this year’s Inforum, exactly four years later, Infor gives its customer count as 73,000. However, during these four years, Infor has made a number of acquisitions. The largest of these was Lawson Software, which Infor acquired in 2011. At that time, Infor said that Lawson had more than 4,500 customers and that 9% of Lawson’s active customers were also users of use Infor products. That would be a net addition of approximately 4,100 customers. 

So, if we add the 4,100 customers from Lawson to the 70,000 customers Infor claimed in 2010, we come up with 74,100, which is 1,100 more than the 73,000 customers that Infor now claims. The loss of customers is undoubtedly greater, as Infor has done four smaller acquisitions since 2010, apart from Lawson. Bottom line: Infor’s new customer wins are not even keeping pace with existing customer attrition.

Two recent examples from my consulting business, Strativa, illustrate the problem.

• An aerospace and defense manufacturer contacted us last year about doing a new ERP selection. This customer is running an older version of an Infor product that was installed in the early 1990s. The company customized that product with changes to deal with the Y2K century-dating problem, and it has not upgraded since. The company may consider a migration to the current version of their Infor system, but it also wants to look at other alternatives.
   
• We recently completed an ERP selection for another company, a mid-sized manufacturer, which is running an older version of another Infor product, again, highly modified. Although we short listed Infor products for consideration, there were few advocates among users to continue with Infor. This client has tentatively decided in favor of Microsoft Dynamics and has started a proof-of-concept as the next step.

In briefings with other vendors, nearly every one of them lists Infor’s customer base as a target for new business. In fact, Phillips noted during his recent keynote at Infor's user conference that NetSuite had sent people into the audience to recruit Infor customers. (What’s good for the goose, is good for the gander. Infor apparently had gotten wind of NetSuite’s tactic and had inserted a slide with a special offer for NetSuite customers to migrate to Infor.)

Personally, I think NetSuite's guerilla marketing tactics are more for show than for real prospecting. If NetSuite wants to target Infor customers, the best targets are not the 6,000 attendees at its user conference. Conference attendees represent those customers who are actively engaged with Infor. They are those who are either on current versions or considering to get there—or they are new prospects altogether. The Infor customers that competitors should be targeting are those who stayed home.

Customers Unable to Benefit from Infor’s New Stuff

There is a second problem with so many Infor customers being on older versions, and that is that they are in no position to take advantage of all of Infor’s new innovations. Because they are on older versions, they cannot get Infor’s new user interface, they cannot take advantage of ION for integration, their users cannot collaborate with the capabilities of Ming.le™, and they cannot benefit from the deep industry functionality that Infor has been adding to its products over the past several years.

From Infor’s perspective, these are lost opportunities to up-sell and cross-sell additional Infor products to these customers. From the customer’s perspective, there is diminished value from their past investments in Infor products, making them question why they are paying maintenance. This again opens them to abandoning ship for competing products.

Upgrading Customers Is the Critical Path to Success

If it is not apparent by now, getting customers to upgrade to current versions is absolutely essential to Infor’s success. Infor realizes this, and over two years ago it launched an initiative it calls UpgradeX.

The features of UpgradeX are aimed at making version upgrades a no-brainer for customers:

• Value engineering: Infor will analyze the customer’s existing deployment and quantify the business value of eliminating modifications and upgrading the applications.
   
  
• Version upgrades. The service will move the customer to the current versions of its Infor products, which can be a daunting project for customers that are behind many versions. Infor’s website doesn’t make it explicit, but I believe Infor will allow customers to switch to a more appropriate Infor product.
   
  
• Cloud deployment. Infor uses its cloud to bring up a sandbox version of the new system quickly for the customer to prototype and understand the new version. Infor then migrates and deploys the target solution as a cloud service, assuming day-to-day responsibility for operating the system.
   
• Bundled professional services. Infor provides all the consulting services required to accomplish the upgrade or migration. User training is provided online. The website does not make this clear, but I believe that Infor does all this as a fixed price contract.
   
• Ongoing upgrades and support. UpgradeX will not be a long-term solution if newly upgraded customers fall behind again on upgrades. The offering therefore includes services to keep customers current on new versions.

The UpgradeX program has recently been assigned to Lisa Pope, Senior VP of Infor CloudSuite, who appears to be a great pick for the job. She came within the last year to Infor from QAD, where she was VP of Strategic Accounts. Interestingly, QAD was earlier than most traditional ERP vendors in offering a cloud or hosted deployment option, beginning in 2007. According to my research, QAD’s ERP subscription revenue now is in the neighborhood of 10% of its total revenue, which puts it at the high end of what most traditional ERP vendors have been able to achieve to date. In her role at QAD, Lisa was instrumental in this transition. She will need to build on her past experience and move even more aggressively to accomplish an even greater transformation with Infor’s installed base.

Infor Customers Should Consider UpgradeX

Some Infor customers on older versions are determined to go with a different provider. When I speak with such customers, I encourage them to take a look at UpgradeX. In many cases, they are not familiar with the innovations Infor has introduced, and they do not understand that they may be able to get upgraded quicker than they think.

Even Infor customers who have gone off maintenance should consider UpgradeX. Vendors hate to lose customers. If there is a way to recapture a customer that has gone off maintenance, a vendor is likely to make an attractive deal to do so, especially if the customer is also looking at competing products.

It is often simpler to upgrade a system that users are familiar with than to migrate to a completely new system, which reduces implementation risk. Moreover, with Infor’s value engineering services, the opportunity to eliminate or reduce modifications can also lead to longer term savings, as the customer will no longer need to support those customizations.

One word of caution: I was not able to interview any UpgradeX customers during Infor’s user conference, so I’m not able to verify the results that Infor promises. In any event, UpgradeX so far has only touched a small percentage of Infor’s installed base. For Infor to really move the needle, UpgradeX needs to be rapidly scale up to thousands of customers, not the hundreds it has now. I don’t know of any vendor that has ever been able to make such a massive impact on its legacy customers, but Infor's UpgradeX program certainly has all the pieces in place to do so. For Infor’s sake and its customers, I hope it is successful.

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A Guide for Cloud ERP Buyers

ERP Customer Deployment and License Preferences

As we all know, a major transition in the ERP market is underway, from traditional sales of perpetual licenses deployed on-premises to subscription services deployed in the cloud. But not all buyers are ready to make the switch. Some prefer to stick with the traditional model, while others are going whole hog to the new model. Others still, are somewhere in the middle, sticking with a traditional vendor offering but having the system hosted by the vendor or a third-party partner.

Customer preferences are complicated by what is offered by their chosen vendor. When a new customer selects a cloud ERP vendor, such as NetSuite, Plex, or Rootstock, are they doing so because of the cloud subscription model, or in spite of it? Likewise, when a customer selects a traditional vendor with on-premises or hosted deployment, is it because they are opposed to the cloud model, or is it because the functionality of the traditional vendor was a better fit?

Acumatica as a Test Bed

As it turns out, there is one vendor’s experience that can help us answer these questions: Acumatica. Acumatica is a newer cloud ERP vendor, and it has some interesting characteristics that make it a good laboratory for testing customer preferences.

• It is a fairly new provider, founded in 2008, that built its product from the ground up as a multi-tenant cloud system. It now has about 1,000 customers--a good sized sample--in manufacturing, professional services, and a variety of other industries. Moreover, there is no legacy installed base to influence the numbers.
   
• The system is sold exclusively by partners, and—this is the key point—partners have flexibility in how they deploy the system. They can deploy it as a multi-tenant cloud system, with multiple customers on the same system instance, or they can deploy it in the customer’s data center or a hosting data center as a single tenant deployment.
   
• The licensing model is also flexible: customers can buy Acumatica as a subscription service, or they can buy it as a perpetual license.

The combination of deployment flexibility and licensing flexibility yield three main groups of customers that I’ll refer to as follows: 

1. Perpetual License Customers: these are customers choosing the traditional license model with on-premises deployment or hosting by a partner. (Acumatica refers to these as “private cloud.” I think that term is confusing, however, as when deployed for a single customer, the system loses its cloud characteristics, such as pooled resources and elasticity.) 
    
2. SaaS Customers: these are customers choosing cloud deployment along with a subscription agreement.
    
3. Subscription On-Premises Customers: these are customers that choose traditional on-premises or hosted deployment but pay according to a subscription agreement.

In theory, according to Acumatica, there could be a fourth category: a customer could choose cloud deployment with a perpetual license. In practice, however, no customer has asked for this. If a customer were to choose this option, they would pay the license fee up-front, plus traditional maintenance fees, plus a hosting or cloud services charge on a monthly basis.

What Deployment and Licensing Options Do Customers Prefer?

Richard Duffy at Acumatica was kind enough to share with me the customer counts for each of these three categories for the years 2013 and 2014. This allowed me to calculate on a percentage basis what options customers are choosing and—just as importantly—how those preferences are changing.

As shown in Figure 1, perpetual licenses (either on-premises or hosted) form the largest category of customers. This group accounted for 63% of new Acumatica sales in 2013, but it is falling dramatically to 42% of new customers in 2014. The SaaS customer group is picking up some of the difference: 29% in 2013 rising to 33% in 2014. But the largest increase is coming from the so-called “Subscription On-Premises” group, which accounted for only 8% of sales in 2013, rising to 25% this year.

A Trend to Cloud, But Even More to Subscription

Although I am an advocate for cloud ERP, these results indicate that—at least for some customers today—the attraction of cloud ERP is more in the subscription option than it is in cloud deployment itself. Acumatica’s experience shows from 2013 to 214, the majority of Acumatica’s sales shifted from perpetual licenses to subscription agreements. But a significant percentage of those did not deploy in the cloud: they chose the subscription agreement with on-premises (or hosted) deployment.

Duffy is quick to point out that the choice of licensing and deployment options are influenced by Acumatica’s partners. Some are accustomed to selling perpetual licenses and appreciate the up-front cash that comes from license sales. Others are accustomed to on-premises deployments or hosting in their own data centers and unless challenged by the customer may steer them toward those options. But if this is the case, the trend in Figure 1 is conservative. Without partner bias toward perpetual licenses and on-premises/hosted deployment, the trend toward subscription and cloud would be even greater.

What Does This Mean for Buyers and Vendors?

As outlined in other research from Computer Economics, the benefits of cloud ERP are clear: speed of implementation, ease of upgrades and support, agility, and scalability. But do not underestimate the benefits that come from subscription pricing—whether or not it comes with cloud deployment:

• Up-front cash savings. Unlike perpetual licenses, subscription agreements give customers pay-as-you-go pricing. Some vendors may require customers to commit to an initial contract term (e.g. one year) and pay for that up front. But even so, this is significantly less than customers would pay up-front under a perpetual license.
   
• Risk mitigation. Under a perpetual license, if the implementation fails, or the customer decides to switch systems after two or three years, the customer loses its entire investment in the software. With a subscription agreement, the customer only loses subscription fees paid prior to cancellation.
   
• Alignment of vendor’s interest with customer’s. Closely following the previous point, under a perpetual license, a failed implementation does not cost the vendor anything (assuming there is no legal action requiring vendor concessions). With a subscription agreement, in contrast, vendors must continually satisfy customers, lest they lose the ongoing subscription fees. This tends to focus the vendor’s attention more closely on customer success. 

The combination of cloud deployment and subscription agreements is, no doubt, a powerful combination. But notice that the three benefits outlined above are the same, regardless of whether the system is deployed as a cloud system.

Does this mean that all customers should go for subscription pricing? Based on interviews with some Acumatica customers that chose perpetual licenses, it seems the answer is no. Some customers do not like the idea that they will be paying subscription fees for as long as they use the system. They like the thought that, if they implement successfully, they have lower out-of-pocket costs for the long run.

Personally, I think such customers are underestimating their ongoing costs, including maintenance fees and the cost of money. I also think they are under-appreciating the risk mitigation and alignment benefits of subscription agreements.

Nevertheless, Acumatica’s experience shows where customer preferences are today and where they are heading. Cloud deployment is the future of ERP, and subscription agreements are attractive, even without cloud deployment.

These findings also suggest that traditional vendors that are slow to adapt to cloud deployment may be able to benefit in the short term simply by offering and promoting subscription agreements.