Infor Spurs Customer Upgrades with ‘Flex’ Incentives

June 23, 2009 Alex Woodie

Infor yesterday unveiled a new program that seeks to make it easier and less expensive for customers to upgrade to the latest release of their software, or to migrate to the latest release of an equivalent Infor product. The program, called Infor Flex, is aimed at addressing a problem faced by Infor, along with its big ERP competitors: The fact that many customers are running on very old releases of software, and have no easy way to get current without incurring lots of risk and big fees. Flex addresses those pain points, Infor says.

Infor succeeded in becoming one of the largest business software companies in the world by executing its strategy of gobbling up older software companies with big installed bases and maintenance streams, such as MAPICS, SSA Global, Geac, and Daly.Commerce, and cutting costs by combining redundant operations. By all accounts, the technique has worked, turning Infor into a profitable $2.2 billion venture with more than 70,000 customers. Only Oracle and SAP are bigger in the business software market.

To prevent mass defections of acquired customers, Infor promised to never sunset a product, except when the underlying platform is killed, such as with its accounting software for the now-defunct HP 3000 server. Instead, Infor pledged to support each acquired product indefinitely, while providing customers with an upgrade path to newer software that runs in a service orientated architecture (SOA).

This promise was certainly needed at the time. Aberdeen notes that a “thinly veiled” forced upgrade by Infor’s predecessor firm, SSA Global, did not turn out well, and Infor said it would never force customers into full-priced upgrades, as SSA Global tried to do.

One wonders, however, what kind of effect this promise to “live and let live” has had on Infor’s ability to keep customers moving forward, and its long-term profitability. It certainly has put customers at ease. But at what cost to the company? And are customers truly better off if they just sit on the same ERP product for 20 years?

Infor obviously would like more customers to be more current on their software releases. It not only would ease the on-going maintenance burden for Infor, but make it easier to roll-out new capabilities that can address customers’ changing business requirements, which is Infor’s job after all.

Now, with the new Infor Flex program, Infor hopes it has struck a happy medium between a forced march and perpetual stagnation by luring customers forward with offers of big discounts on the cost of upgrading their ERP programs or migrating to more modern ones. Call it a gentle prod–a carrot dangling in front of their customers’ noses–as opposed to a sharp stick and the threat of withholding maintenance.

Flexible Terms, Discounts Galore

The Flex program has two prongs: Infor Flex Upgrade, and Infor Flex Exchange. Both options are open only to customers who are current on their maintenance contracts (although it doesn’t prevent customers, such as early Flex adopter Stokes Seeds, a BPCS shops that had fallen off maintenance, from re-signing to take advantage of the new program). Another requirement is that the new product that customers upgrade to, or migrate to, must be enabled for SOA, and be one of the “Open SOA” products.

Both programs bring guarantees of low costs for software, and a promise that Infor won’t raise customers’ maintenance fees. Customers would also be eligible for “special incentive pricing” to get them to upgrade to the new product. They are also eligible for Infor’s new zero percent financing, which it announced late last week, and up to a 50 percent discount on additional Infor products.

Of course, the devil is in the details, and Infor is not sharing a lot of it at the moment, which makes it hard to provide a true assessment of Flex’s value. In the one example that Infor provided the press, a customer migrating to Infor ERP LN (the old Baan product) would be charged a “transaction fee” of $15,000, which was calculated by multiplying the number of ERP LN customer seats (100) by the $150 per seat transaction fee. They would also be charged $100,000 for a “Fast Start” implementation, but they would not be charged a license fee. That brings the total to $115,000 for a 100-seat roll-out of ERP LN. (The line for professional services, to be provided by Infor, was left blank, but there would certainly be a charge for that.)

Infor argues that its new Flex program makes a lot more sense than “ripping and replacing.” Because Infor is providing all of the professional services, it has a lot more knowledge of how the original and target systems work, since it owns them and still employs some of the original developers. That minimizes the risk of a long-term migration, Infor says. In the example of the ERP LN customer, Infor claims it can migrate to the new ERP system in six months, compared to an 18-month roll-out for the “rip and replace” method.

‘Sowing the Seeds of Revolt’

In a press conference yesterday, Infor CEO and chairman Jim Schaper said the new program was made in response to changing market conditions. “We’ve seen things out of our competitor’s customer base, frankly, that is unprecedented in this industry,” he said. “What I mean by this is we are now seeing user groups band together and they’re defining what the value proposition is for maintenance and what they’re willing and equally, what they’re unwilling, to pay for that value. And so they’re sowing the seeds of a revolt against business as usual.”

Dennis Michalis, senior vice president and one of the architects of the Infor Flex program, explained the genesis of the program during yesterday’s press conference. “We must look at this from the customer’s perspective,” Michalis said. “They’re confronting the notion of an upgrade. They need additional utility or functionality. They can’t necessarily get it with the solution they have today, unless they sustain modifications or dramatic customizations or integrations, on a one-off basis. They don’t want to do that. They’d rather have more value from maintenance and support. And we understand that.”

While Infor has delivered desirable new functionality, such as the MyDay portal, many customers simply can’t afford to upgrade their base ERP products to take advantage of the new stuff, Michalis continued. “They continuously tell us how they would like to apply the latest innovations, how they would like to apply SOA as they understand it, and how they would certainly like to get access to the extension solutions or the evolved components. But the notion of getting there is simply frustrated by the risk and the commercial equation.

“So we have fundamentally stripped that out, to the greatest extent possible, and reinforced it with the notion that it’s at their timeline, certainly not at Infor’s. If they’re happy where they’re at, we’re happy. We make it as advantageous to them as possible, as simple as possible,” Michalis said.

At first glance, it appears that Infor is willing to take a hit on its license and maintenance revenue, in exchange for helping customers move to more current releases of the products. It’s a bailout of sorts, and also a gamble. Infor is betting that it will make up the difference with incremental increases in sales of add-on products, and possibly even a decrease in the cost of providing maintenance, if enough customers move off older products.

Of course, without detailed information on true costs of Infor Flex, it’s impossible to give a fair assessment. There are a lot of unanswered questions, such as which versions of the ERP products are eligible, what any platform-specific costs might be imposed, and what kind of re-instatement fees Infor might charge for customers currently off maintenance. In any case, Flex looks like a reasonable reaction by Infor to a changing marketplace, and for customers, it sure looks better than a sharp stick in the eye.