Infor Drinks Koch by the Barrel While Microsoft Dynamics Sips a Thin Gruel
by Josh Greenbaum
Apparently my blog post last month accusing Microsoft of neglecting its Dynamics product line struck a nerve. The gist of the post was that Dynamics was falling into irrelevance as Microsoft seemed to focus on bigger and better things. The evidence has been pretty definitive – no Dynamics-specific user conferences, analyst events, or, from what I could see, senior executive interest – and the results have been as expected: out of sight, out of mind. Judging from the feedback I got from all over the enterprise software market, that perception is pretty widespread among customers, partners, and my fellow analysts.
In the meantime, I was invited to New York to attend Infor’s annual user conference, Inforum. This is the showcase for the largest enterprise software company no one has heard of, but that’s all about to change. Highlighting the analyst preview day was a presentation from Infor’s newest investor and industrial partner, Koch Industries. Koch, in case you only know the name because of the Koch brothers political activism (I’m not being partisan, they’re pretty happy to highlight this on the company’s home page), happens to be one of the largest private industrial companies in the country and is now poised to become a laboratory for how far Infor CEO Charles Phillips can take his vision, his ambitions and his company.
You couldn’t find two more contrasting approaches to enterprise software than Infor and Microsoft.
Microsoft responded to my blog post with, to their credit, access to the two senior execs in charge of keeping the lights on at Dynamics, and, from what I understand, lighting a path from the rest of the company back to the core ERP, CRM, and other assets that make up the Dynamics family. What I heard was interesting, and in some ways offered a solid rebuttal to my characterization of Dynamics as the unwanted and unloved stepchild of the Microsoft cloud juggernaut.
But nothing Microsoft said or hinted at or offered under NDA can compare to what Philips was willing to share with a couple dozen analysts as part of one of the best analyst programs in the industry.
Let’s start with the Koch story. Koch’s CFO, Steve Filmeier, took the stage in front of the analysts at New York’s Javits Center and basically hit a bases-loaded home run into the Hudson River. To set the stage, Filmeier hammered home the enormity of what partnering with Koch Industries means: Koch is a $100 billion-plus behemoth that spans the oil, gas, paper and pulp, chemicals, and plastics industries, among its many lines of business. It has 130,000 employees, spread across 60 countries, and would be high up on the Fortune 500 if it were a public company.
Here’s what was so impressive about Filmeier’s talk, which he basically repeated on the main stage the next day as the conference kicked off: Koch isn’t just a passive investor, it wants to standardize on Infor’s product line across the company. That includes using Infor’s HRMS for managing a workforce slated to grow to 200,000, dropping Infor asset management software into 300 of its manufacturing plants, deploying Infor’s GT Nexus global logistics network across the company, and dumping Oracle Financials in favor of Infor’s Cloudsuite Financials. And that’s just for starters.
What this does for Infor pretty much makes the $2 billion Koch spent for a 49 percent share of Infor the least significant part of the relationship. While the investment is nothing to sneeze at, the solid endorsement of Infor’s strategy by Koch’s senior management, and the promised scale of the Infor deployment at Koch, gives Infor something that Microsoft Dynamics can’t even begin to touch, and rivals like SAP always struggle to come up with: a respected, multi-industry global company that is deploying a broad set of Infor’s products and is willing and able to become a showcase for those deployments.
The willingness – at least so far – of Koch to get on stage with both analysts and customers is not to be discounted. Every vendor is struggling to find customers who are not only willing to be spokespeople for their vendors, but can also talk publicly about deploying a comprehensive set of products – that whole is greater than the sum of the parts story – from their vendor. And that turns out to be incredibly hard and getting harder all the time.
To be fair, this is a problem that bedevils all enterprise software vendors today. It’s one thing to boast that there are currently 6300 S/4HANA customers, as SAP is now stating to the market. It’s entirely another thing to have a critical mass of customers deploying and speaking out about how well those deployments are going. Same with Dynamics – though their cone of silence is as much about the internal lack of momentum I mentioned as it is about an industry-wide dearth of referenceable customers. Regardless, there’s no better or more necessary and essential proof point than finding customers who will stand up, take questions and provide real answers to the world.
Neither Phillips nor Filmeier made any commitment to transparency and access as the Koch relationship unfolds, but it’s pretty clear the challenge is on the table. It would definitely be in Koch’s interests as an investor to play this role: the credibility they lend to Infor’s strategy and products will light up Infor’s sales calls all over the world, which of course will boost the value of Koch’s investment, which just makes good business sense, etc. etc. As long as there aren’t too many problems executing these very ambitious plans, I can’t think of a reason why Koch wouldn’t want to play that role.
Meanwhile, back in Dynamics-land, the paint is a less fresh and the colors less bright. There are definitely some cool things happening: Microsoft has plans to use the LinkedIn acquisition as the strategic cornerstone of a talent management/HR play that could be a strong player in the market. (But you knew that.) There are continuing efforts to leverage the breadth of functionality in Azure as both IaaS play as well as a developer platform play: PowerApps, Flow, and associated tools, including an well-designed data store that can be used to support rapid, “citizen developer” apps development. (Maybe you haven’t heard that one yet.) And there’s plans to push forward with a re-org of sales and go-to-market in order to drive more innovative thinking into these engagements, with Microsoft’s internal consulting arm taking the lead. (Basically, what every other vendor is doing in the age of digital transformation.)
And…that’s all I can say. Or will say. Because I still don’t really know what’s going to happen to Dynamics: a 30 minute call doesn’t really begin to tell the story, whatever that story is supposed to be. To their credit, Microsoft quickly put their execs on the phone with me after my post came out, and that call genuinely gave me the impression that Dynamics is not “missing in action”, as my post claimed. But it’s clear Dynamics is still not sure how it wants its story told. Or what that story is about, or how it positions Dynamics competitively in the market, or what Dynamics’ role inside Microsoft is slated to be in the next few years.
In several follow-up calls and emails after my micro-mini-briefing, Microsoft made it clear that they’re not just struggling with their messaging, but whether they really want to engage in the marketplace of ideas the way their competitors do. Their line of questioning said it all: Was I sure what was under NDA and what wasn’t? Would I submit my post for review? Could we discuss this again please? I spent more time interacting about what I was going to do with the relatively sparse information they shared than I spent on the phone with their execs in the first place. Really.
Contrast that with Infor: The follow-up from Infor after a day-long session, which included a fair amount of NDA info, was a simple “thanks for attending.” Trust, Infor understands, is part of the engagement model. The contrast is so deep that, while I could probably say some more non-NDA things about Microsoft’s plans for Dynamics, I’m going to pass. I think it’s best to leave the details of what Microsoft Dynamics is up to for a time when the company is a little more comfortable playing in the marketplace of ideas.
Infor poses no such challenge. In fact, the real challenge with Infor is to distill my 25 pages of notes from the analyst day into a short, coherent analysis. Should I focus on their cloud story – almost 8500 customers, 71 million users, significant momentum in cloud-based revenue and new customer wins? Or their emerging global SI partner story, with the likes of Capgemini, Deloitte, Accenture, and Grant Thornton showing by their mere presence in the Infor market that the big deal flow is definitely starting to happen? Or the continuing growth and maturity of their XI IaaS platform, now in use by 7000 customers? Or their growing IoT strategy, which seems tailor-made to show up in those 300 Koch plants as part of Koch’s asset management strategy?
How about their continuing focus on deep micro-vertical industry functionality – which was highlighted by an almost criminally dense set of slides showing dozens of capabilities per industry? Or the momentum behind their GT Nexus business network? (Though it has to be said that GT Nexus’ focus on blending financing with the business networks – a key part of the strategy when the acquisition was announced – isn’t getting much traction.)
Or should I talk about Infor’s Coleman AI/ML strategy and its well-considered focus on building industry specific solutions instead of going to market with a general purpose platform that, frankly, would just make them the latest entry in the race to the commodity bottom of the AI platform market?
I assume you get the point, and hopefully Microsoft does. But let me spell it out succinctly in case it’s not obvious: enterprise software in the cloud is a white-hot market opportunity, made even more white-hot by Oracle’s NetSuite acquisition, which both pissed off a lot of customers who don’t relish working with Oracle as well as galvanized companies like Infor, and SAP, to step up their enterprise-in-the-cloud game, particularly but not exclusively in the mid-market where Netsuite once thrived.
Infor clearly gets it: The nice thing about being a private equity company is that there’s more breathing room for strategies to mature, and this year’s Inforum was perfect example of what happens when a comprehensive cloud strategy finally comes into its own. Public companies like Microsoft are to be excused for succumbing to the quarterly cadence of Wall Street and focusing on the big wins to the detriment of the small. Grow like a cloud company, be profitable like an on-premise company: It’s a diktat that Wall Street continues to enforce, to the detriment of everyone.
But that’s a lousy strategy in the long run for Microsoft if t means neglecting the long tail of innovation in favor of the fat quarterly profits that the rest of Microsoft’s cloud business is turning in. While there is no doubt that Microsoft Azure and Office 365 are amazingly successful, and getting more successful all the time, there’s more to the market than the kind of cloud platform and office productivity plays that Microsoft is largely focused on.
The battle for the future of enterprise software – which is both the ultimate proving ground for the cloud, and the ultimate delivery point for differentiated value – is being fought in the lines of business, not the IT shop, which looks at platforms and desktop productivity products as largely commodity technologies. Winning in enterprise software is a matter of also getting those LOBs to use a given vendor’s tools and technologies to transform their businesses – almost regardless of what platform or platforms have been chosen by IT. And working with the LOB means looking for the small wins, not necessarily the biggest and most Wall Street-friendly deals.
The IoT/ML/AI world is a perfect example of this: Every cogent analysis shows that most of the IoT/AI/ML market momentum is based on proofs-of-concept, not enterprise deals. But it’s those POCs that are destined to become the future enterprise-wide deployments every vendor is banking on, and those IoT/AI/ML pioneers – the “citizen developers” or visionary LOB managers – are the midwives of this strategy. Which means that, as the market matures, each of those enterprise-wide deployments will have an enormous ancillary sales impact, requiring more apps, more cloud, more analytics, more integration, more data, and more and more and more.
Infor gets this, which is why they have spent so much time planting seeds that they are just now beginning to harvest. One day, Phillips knows too well, they’ll have to transition from a company that lives off a fat maintenance revenue stream into one that lives off of a fat innovation-based revenue stream. The myriad bets Infor has made, whether it’s by acquiring GT Nexus, or focusing Coleman on product, not just platform, are clearly focused on that day coming sooner rather than later.
That’s because – back to the marketplace of ideas that Microsoft is so far eschewing – It’s pretty clear that the pioneers in LOB are going to go with what they know and what’s in front of them. And they’ll most likely stick with existing providers – assuming they have the innovative tools and products the LOB is looking for – as the LOB move its POCs up the food chain to become enterprise-wide deployments. And it’s these enterprise-wide deployments which in turn mean enterprise-class revenue streams for their vendors.
So if you’re a vendor who is absent when the market is doing advanced show and tell about the future of enterprise software and how your company can transform the enterprise, you’re not just missing out on the early adopters, you’re potentially missing out on the really big prizes as well.
Infor clearly gets it, and it will be fun to watch all this vision unfold inside the domains of Koch Industries and the other companies a name like Koch can attract. Get out the popcorn, this movie is going to get real interesting real soon.
Et tu, Microsoft?