OpenText: Tackling the biggest of channel challenges
This year the OpenText World event was held in Nashville, TN and visiting Music City gave Cathy McKnight and I the chance to directly take the pulse of the firms’ senior executives, partners and customers. Though there were product and roadmap announcements galore, most notably the daring announcement that the firm plans to challenge IBM Watson head to head with its new Magellan cognitive analytics product. And to a lesser “shock and awe” factor, Mark Barrenechea OpenText CEO and CTO, also broke the news of Bandaroo (not kangaroo), their new, next generation of enterprise content management and social software – think Slack, Yammer, and (sorta) IBM Connections. Some would think that the OpenText team has set their sights to take on IBM?!
But what stole the show for us, was the showcasing of the recent HP acquisitions and the rumors of more acquisitions to come.
Autonomy happy to be adopted by their new OT family
During the past six months, OpenText has acquired virtually all the enterprise software assets from HP that had originally landed at HP via its 2011 acquisition of Autonomy. Though certainly there is overlap in terms of product functionality, it would seem that the firm bought not just some good technology but also brought across a strong team that was looking for a sympathetic, and symbiotic home – something it never really found at HP.
The unhappiness at HP was due in part to the spectacularly toxic nature of the original Autonomy acquisition:
- $11.7 B paid,
- a subsequent $8.8 B write off,
- the loss of a CEO, and
- multiple civil and criminal investigations
Let’s face it, it doesn’t get much worse than that. And if that were not bad enough, the fact is that hardware giant HP really didn’t know what the heck to do with enterprise software. What can get forgotten is that there were gold nuggets of technology in HP’s bag. For example:
- MediaBin (Digital Asset Management)
- Extream (Customer Communication Management
- HP Qfinite (Customer Center Management)
All impressive pieces of technology. Though it is our understanding that HP made the first move in reaching out to OpenText, it is not surprising that they took the bait and happily snapped up the assets are a very reasonable price.
Documentum next to join the OT family?
While it is too early to see how/if this deal will ultimate work out, what we do know (and surprised us) is the sheer enthusiasm of the former HP software team for the deal – they appear to be over the moon to have found a home that actually understands the value they bring. Also, we know for sure (because OpenText said so) is that more acquisitions are on the way; many expecting Documentum to soon join the OpenText family. A potential deal that again looks good for OpenText as the Documentum team are strong, the customers blue chip and loyal and brings technology (LEAP & InfoArchive in particular) that could give OpenText’s legacy ECM business a real boost.
Even so, acquiring so many firms each with bulging bags of technology and associated channels is fraught with danger. Although OpenText is now a $2B business with a long track record of acquisitions it is not a firm with the scale of an Oracle or IBM, nor does it have a great history of integrating acquisitions into the whole.
Investors: 1, Customers: ?
Traditionally the firm has targeted distressed software firms, bought them at a bargain price, stripped out some costs, and milked the maintenance revenues. Though cutthroat, it proved a successful and highly profitable model for decades. So while investors grew to love OpenText, customers and partners often had a rockier road to travel. OpenText seldom ever sunset an acquired product and would instead provide support services until literally the last customer running the product stopped paying maintenance fees. On the one hand this was, and can be a good thing, but the fact is that many of these products saw little further investment and simply grew old on the vine until they died, did nothing for its customer base except leave them frustrated and forced into a position of finding a new solution if they wanted ANY additional functionality.
The challenge for OpenText moving forward is twofold:
- Streamlining the product set, and
- Integrating the channels.
Based on twenty years of solid financial performance we are not too concerned about the firm growing and remaining relatively profitable. But rationalizing the product set has not been a strength of the firm to date. Even so, integrating or at least rationalizing the many channels it now has, and continues to gain, is, in our analysis, the first order of business.
Doing right by channel management and professional services
The OpenText channel under the leadership of Vince Nigrelli and its Professional Services under the leadership of Prentiss Donohue appear to be in good hands. And to give credit where credit is due, the firm started about two years ago down a path to radically simplify the channel structure from the partner tiers to the incentives and associated partner training. Significant progress has been made. It’s fair to say that OpenText’s channel was fragmented and loosely managed in the past; less a unified channel and more a collection of channels with different structures incentives and relationships. By default, this simplification has meant some weeding out of partners, but as of today there are still well over 1000 channel partners with more to come this year as new acquisition plans roll forward.
So while we can argue that the OpenText products really fall into three large buckets (Analytics, Business Network & Content Technologies) and a good number of channel partners will be solely focused on a single bucket or even product – this is still a huge number of partners to manage by any measure for a firm of this size. Read: More work to be done on their partner strategy. Add to this the fact that all these technologies need supporting directly or indirectly by OpenText itself, and there is no getting away from the fact that this is a gargantuan task for the firm to manage. Read: OpenText will continue to grow its professional services team and its capabilities. A task that will be further complicated as OpenText continues to build its own services capabilities and deliver more managed services that will naturally sideline more of today’s channel. It is a good thing that services and channel have strong leadership because at the end of the day this, rather than product integration, is now the potential Achilles heel of the company. For the scale of the challenge faced is literally unprecedented in the enterprise software world and as we have previously noted, channel partners across the board have become more assertive and aggressive than ever before.
Our analysis: OpenText needs to not only continue its course of simplifying and rapidly assimilating new channels to this unified structure, but it also needs to more aggressively, and quickly, separate the wheat from the chaff.