This past week I was at the annual OpenText Analyst Summit in Boston. Snowed in thanks to a major storm, in comfortable and warm surroundings for a couple of days with my analyst peers and the OpenText Executive Team. What follows are some unfiltered thoughts and observations on the firms current status, as well as its future strategy.
I find the world of OpenText observers fall into two well defined camps. The first camp believes that OpenText’s business is in serious decline and dependent almost entirely on maintenance fees from legacy products. The other camp sees OpenText as steady, slow, profitable but dangerously reliant on maintenance fees from legacy products. Though there are threads of accuracy in both camps, the reality is somewhat different. As of 2019 OpenText is a major player undertaking a key, and to date, pretty successful, pragmatic pivot.
This pivot can be summarized as becoming cloud friendly, AI infused and shifting away from platforms to solutions (aka applications). Over the past several years OpenText embraced the cloud in its own unique way. For, whilst everyone was chasing Amazon AWS and Microsoft Azure, OpenText decided to compete against them and to launch its own cloud. Today it runs (depending on who was telling the story) between 30 and 37 of their own data centers worldwide. That strategy has proven to be more successful that many expected (this analyst included). Even so, the reality that some buyers will always want to be on premises (or off cloud as OpenText would prefer), some will want to run on AWS, others Azure and even some on Google has finally taken root. Today the OpenText story is a true hybrid story. That is not something that will resonate with everyone, but it appears to resonate with OpenText customers.
For the pure cloud devotees reading this, the long term future of an on premises (sorry “off cloud”) world was explicitly confirmed on stage by a Corporate VP from Google’s Enterprise division. And in my book, If Google has given up the ghost of moving everything to the cloud, then maybe the discussion can be considered closed. It is a hybrid world, and it likely always will be.
But this messy hybrid world of Enterprise IT is not just a discussion about moving to the cloud, it is also increasingly about leveraging AI & Machine Learning and ultimately the automation of as many activities as possible. Whilst OpenText has the tools at its disposal for much of that work, it faces the same challenges as everyone else. AI is hard to sell and it is poorly understood. Automation sounds great but change management is a bitch. On the positive side, there is a window of opportunity for OpenText to get out in front, provide insight and thought leadership to debunk the myths and lead the way to change. Whether they grab that opportunity or not is an open question, but somebody needs to. Say what you will about the huge portfolio of products OpenText has, there can be few situations regarding information, intelligence and process that OpenText doesn’t have something for in their bag of tricks. Yet, educating and providing buyers with the knowledge and methods to effect change has been left to consulting partners. Yet clearly many of those partners are more than happy to keep the customer confused. If that situation doesn’t change, then OpenText (along with many others) will struggle to capitalize on the opportunities of intelligent information and automation.
Talking of capitalizing, OpenText remains committed to fast but financially efficient growth. With some impressive stats to back up the claims. They currently have around $2.8B in annual revenue, trending a compound CAGR of approximately 15% per year and with an impressive EBITDA. The firm puts its growth down to three key factors, organic growth, recurring revenues and acquisitions. It’s maybe here that the most notable change over the last five years has come. For only a few years back growth was driven in large part by acquisitions (no doubt there will be many more of those to come) but the shift to the cloud and subscription/recurring revenue has been dramatic. From next to nothing six years ago, the recurring revenue they derive from their cloud business is around $1B, with 60,000 cloud customers.
I’m sharing these financial details because, as I stated earlier, observers of OpenText tend to underestimate their scale and growth. To be clear I am not a fan nor am I a rabid critic of OpenText, but I am a long time observer and sometime advisor to the firm. This Waterloo, Canada juggernaut is a conundrum, often seen as a legacy of an ECM past. Yet, if you look at the numbers they are clearly doing something right, and it takes time to change a juggernauts course no matter how much effort you put in to it. OpenText is changing course slowly, but nonetheless surely.