OpenText CEO Mark Barrenechea: ‘Continued Acceleration Into The Cloud’ Is Our Priority
Joseph F. Kovar
‘We weren’t born in the cloud. We were born off-cloud and on-premises. We’ve been in business 32 years, so the cloud didn’t exist when we were born. ... The largest business line is cloud for us,’ says OpenText CEO Mark Barrenechea.
OpenText In An Expansive Mood
OpenText has plans. Big plans. The kind of plans that stem from the desire to provide information management for customers ranging from SMBs to enterprises. And the kind of plans that have a vendor that has already acquired 80 companies build a pipeline as it looks at additional potential acquisitions.
Mark Barrenechea, CEO of Waterloo, Ontario-based information management technology developer OpenText, recently spoke with CRN to discuss his company’s business and its future. Barrenechea said that despite OpenText’s founding long before the cloud, the company’s information management capabilities extend all the way to the cloud and the edge, resulting in recurring revenue already accounting for 80 percent of the company’s total sales.
“Our strategy is to power and protect information all the way from the edge and devices and sensors and offer information management in the cloud,” he said. “And that information management has a life cycle. It can be ephemeral or effervescent, or short term, or it could be very long term with very long retention policies. We don’t discriminate by age. All data is welcome.”
The ability to manage information of any type is not limited to the enterprise, Barrenechea said. Small and midsize businesses also require information management, and to meet that need OpenText has made several acquisitions to power its SMB business, which in turn has expanded its channel business ever deeper into the enterprise and led to the need for more acquisitions to expand its total addressable market, he said.
“When we look across our addressable market, there’s roughly 1,200 companies in our pipeline at various stages,” he said. “So we’re very methodical about looking at the market, proactively outreaching.”
The company is not ignoring the enterprise space, by any means. OpenText in late August also acquired software and cybersecurity company Micro Focus in a deal worth about $6 billion.
OpenText is going through a lot of changes. Here is what Barrenechea had to say about where the company has been and where he expects to go in the future.
How would you define OpenText?
We power and protect information in its simplest form. We look at all the unstructured data generated by enterprise and medium and small-size companies. And we’re looking to deliver a suite of products that help power and protect that information all the way from the edge or end device and/or sensors through the most complex enterprise processes. And we think that powering and protecting can help elevate every person in every organization.
Is that information you’re managing long-term information or do you also do short-term information as well?
We’re reaching a point I call the ‘joy of IT.’ Let me describe that. Over the last two and a half years, the vast majority of the world has worked on one device, their own personal device or work device. Before the pandemic, you had a personal laptop, a work laptop, some people still had two cellphones. Now we’re all down to one device. And that’s big for the corporate world. Second, we all work over the public internet, so why do we need corporate LANs? I think they all should be ripped out and thrown away. I think more and more work will end up in the cloud.
If that’s the case, we’re down to one device, a public network called the internet, and the vast majority of workloads in the cloud. At OpenText, that’s why we’re investing in the edge, the endpoint and the cloud. That’s a unique strategy. In the last few years we’ve made a series of strategic acquisitions: Carbonite, Webroot, BrightCloud, which was part of Carbonite, and Zix and its series of acquisitions. And we’ve gone from zero to approaching $700 million in quote-unquote SMB revenue.
Our strategy is to power and protect information all the way from the edge and devices and sensors and offer information management in the cloud. And that information management has a life cycle. It can be ephemeral or effervescent, or short-term, or it could be very long-term with very long retention policies. We don’t discriminate by age. All data is welcome.
Those acquisitions, particularly Carbonite, Zix and Webroot, seem to be more SMB-focused as opposed to enterprise-focused. How important is the enterprise versus SMB for OpenText?
We’re great students of history and other company experiences. And SMB is a very unique market. So we felt the best way to get into SMB was to do it through acquisitions. We look at content management and collaboration; information management and governance; customer experience; exchanging all that information over a business network; securing it; building applications on it; industry focus from energy, construction, pharma, retail, health care. We see the opportunity not just to service the largest 10,000 organizations in the world, but the 10 million SMB businesses as well. We think what we do is highly applicable to the largest of the large, all the way down to medium to medium-small businesses. So over the last few years, we decided to enter SMB. It’s a very unique distribution. It’s a very unique, multifaceted set of channels. And our acquisitions not only brought us products, but also a set of channels. We have some enterprise products that we felt we could move through those channels, products like Hightail file sharing and collaboration, Core Content, some of our messaging products, and some of our forensic products for law enforcement. So we’ve ended up where we’re both an enterprise and SMB company, with information management applicable from the Global 10,000 to the other 5 million organizations that are out there. And we’re building a formidable channel.
But the enterprise market is still the biggest part of your business, right?
Absolutely. The enterprise is numerically the largest. It‘s like having two beautiful daughters. We love them equally. Even though we may talk about one today or one is performing tonight, we can do both of these things. We can do enterprise, we can do midmarket, we can do small business as well. And SMB is approaching $700 million of our revenue. We delivered $3.5 billion in [fiscal 2022]. So SMB is about 20 percent of our business.
If you look at the enterprise, midrange or small business, how’s the breakdown in terms of your channel partners?
We have a multifaceted channel program. At the top of our pyramid, the top of our go-to-market, we have our top 100 accounts. And we go direct to those. We don’t want anyone between us and our top 100 customers such as the U.S. Department of Defense, Nestle, FedEx, Citibank. We want that direct relationship.
The next tier down are mega ecosystem and hyperscaler partners such as Microsoft, AWS or Google. And we do very unique things with them and with SAP, ServiceNow and AT&T. And beneath that, we have very focused partners like our MSPs, RMMs [remote monitoring and management platform providers], general VARs, as well as specific VARs in our on-demand messaging, fax, SMS, broadcast messaging and EDI. So that‘s how our partner program is organized where at the top of our pyramid, we want no one in between us because their relationships are so unique and I think it’s OK to talk about direct with your top 100 customers.
Are acquisitions a big part of OpenText’s strategy?
In our history, we‘ve completed over 80 acquisitions. We believe there’s about $100 billion TAM [total addressable market] for information management, both functionally and by channel, enterprise through SMB. And we’re going to put all our capital to work. If you’re not busy growing, you’re busy dying, to quote Bob Dylan. I think it was Bob Dylan. And so we’re investing organically. We’re investing in our R&D. We’ve always been an allocator of capital in our business model. And so in the context of our strategy, we look for value businesses that can add to our strategy and platform and go to market and deliver future organic growth for us. So yes, M&A has always been a part of our strategy, and will continue to be.
You recently told Bloomberg that OpenText is looking at 1,000 potential acquisitions. Where did that number come from?
At our investor day, I think in May, we talked about it. We have our in-house corporate development function. It’s an internal team. We have roughly 25 experts on our team. And when we look across our addressable market, there’s roughly 1,200 companies in our pipeline at various stages. So we’re very methodical about looking at the market, proactively outreaching.
What do you look for in an acquisition?
The first [thing we look at] is, is it part of our strategy? Is it in information management? Next, is there a functional gap we’re looking to address? Is there some market share we’re looking to address? Is there a geography that we’re looking to add? And then we get down to some of our financial metrics. It has to add to future organic growth. There are certain metrics on return on invested capital. And we always look at acquisitions through a lens of cash. It has to meet certain cash hurdles for us to do the acquisition. And there has to be a technology filter, people filter, culture filter, and then ultimately a valuation filter.
In OpenText’s last quarterly financial conference call, you specifically called out your acquisition of Zix. What is it about Zix?
We like Zix in the mix, as I say. Zix does a few things for us. One, it really strengthened our Microsoft relationship. And we think that’s a fantastic thing. [Microsoft is] obviously the mega platform on the edge and the endpoints, and we think getting closer to them is a fantastic thing. Together, we’re now a top five CSP [cloud solution provider] with Microsoft. We’re one of the largest technology partners on the planet. We’re leading their New Commerce Experience, their NCE, transformation. And so it brought us really much closer to Microsoft. And we think that’s a fantastic thing. We’ve added nearly 6,000 MSPs. And we really like the core IP that Zix has around email encryption. Email ain’t going away anytime soon. And lastly, part of our vision in going into the midmarket, and specifically with MSPs and other VARs, is we have to do this through automation. And so we’re investing heavily in building our own Salesforce.com platform for partner registration, partner sign-up, partner buying experience, to better manage their install base, renewals, entitlements, bringing in APIs and data from Microsoft, going out to their install base, and bringing up user data. So we’re building this platform, code-named El Dorado, one mega platform to go to market in a highly automated way. Zix added to all of that for us. So we’re really delighted with the acquisition.
What can we expect from OpenText for the rest of 2022?
Top of the house for us is our continued acceleration into the cloud. We weren’t born in the cloud. We were born off-cloud and on-premises. We’ve been in business 32 years, so the cloud didn’t exist when we were born. So we are accelerating into the cloud. The largest business line is cloud for us. Our annual recurring revenues are over 80 percent [of our total revenue]. And we’ve announced Project Titanium, a series of releases every 90 days with the last one coming in the spring of next year. But we have two releases this year. And Titanium brings all our off-cloud capabilities to parity in public SaaS. That’s a big deal for us.
The other thing we’ve done is turned our software into APIs. We have about a $100 million API business now. Our BrightCloud is an API for threat intelligence. We have a Capture API. We have a Content API. We have a workflow API. And so we’re looking to be more embedded wherever we go. More embedded in the network providers, financial services, RMMs, other IP holders. So I would say, watch for Titanium, watch for our public cloud, and watch for our API technology. And also, we’ll continue to invest with Microsoft. There’s a lot more we can be doing with Microsoft.
How about any strategic initiatives for 2023?
We’ll see the final piece of Titanium.
Also, if there’s one thing for January of next year, the pandemic has changed all of us. It’s a big shared experience. The greater threat is climate. And there’s a lot that technology companies can do in climate. The elimination of paper. The re-architecture of supply chains to support decarbonization and electrification. A deep supply chain functionality for sustainability, for making sure that consortiums are properly organized to support the right ethics and ethos for farmers. We have an end-of-year conference, and it’s all going to be centered around be a climate innovator. And we’re presenting our technologies and our expertise to create growth that’s both sustainable and inclusive. So that’s going to be a big part of who we are when we kick off next calendar year. And you just got a little insight into it.