OpenText's growth-by-acquisition strategy will likely take a giant leap forward when the planned $6 billion acquisition of British software company Micro Focus closes early next year. To give a sense of the relative scale of the acquisition, OpenText's annual revenue for fiscal 2021 was $3.5 billion; Micro Focus' was $2.9 billion.
We sat down with OpenText CEO Mark Barrenechea to discuss the Micro Focus acquisition, how it fits into the OpenText portfolio, the evolution of AI in enterprise content management, and how buzzword technologies such as the metaverse and virtual reality fit into the company's plans.
You're in a quiet period now for the Micro Focus acquisition, which seems like -- for OpenText -- a very large deal. What can you say about it?
Mark Barrenechea: When we acquired GXS [in January 2014], on a relative scale, they added about 30% to our revenue. Micro Focus will add into the low 40s. So, it's not a huge step up [in revenue]. It's a business we know well -- enterprise software. It's renewals, the same buyers.
Micro Focus is a company we know well, that we've tracked over many, many years, and we're in similar markets. They call it IM&G [information management and governance]; we call it content. They're in security; we're in security. They have important established technologies in mainframe -- mainframe automation and connectivity; we have important established technologies like EDI [electronic data interchange].
Micro Focus has a highly accountable culture, similar to ours. They're going to benefit from our cloud. We've made significant investments that they haven't -- we've learned how to go to market in a public cloud, and they're just getting started. I look at our journey over the last five years to making cloud our largest business. We can help them do the same.
When Magellan content AI came out four years ago, you told us it's going to be bigger than IBM Watson. What is the state of Magellan?
Barrenechea: Not sure I said that [laughing]. I said we're going to go after them. We'd like to beat them.
We spent [the pandemic years] going deeper with Magellan. We're not looking to deliver a general-purpose tool for all use cases of AI. We want to deliver an AI machine learning tool and platform that unlocks our value -- versus solving any problem for anything, anywhere, all the time, all at once. We're trying to unlock the value of your investment in OpenText via Magellan.
We spent time integrating it. Magellan now talks to Content Cloud, it talks to Experience Cloud, it talks to Business Network Cloud. It knows the data models, the temporal aspect of the data that we need to have from the transactional system. We've selected algorithms and new libraries; we've started to integrate third-party tools. The technology has advanced significantly. It's strategic for us. It's still early days, but we've made significant progress.
Are cryptocurrencies and the metaverse on your radar, and are customers asking OpenText to support them?
Barrenechea: I would say the 'verse -- let's not call it the metaverse, I don't know what term it will go by yet -- is definitely on our radar. What will business look like in the next five, six, seven years? We have a cosmetics company we're working with, a global brand that has standardized on our Experience Cloud for digital assets. But now they're bringing in crowdsourced assets. They're bringing AI-generated images. We'll see where that goes -- as part of the 'verse, having a digital twin, having a VR experience.
Crypto is not our thing. But the 'verse will definitely be more front and center. It will definitely influence our world.
Mark BarrenecheaCEO, OpenText
We used to view OpenText as a content management company, and then an enterprise information management company. What are you now -- a security company? A middleware company?
Barrenechea: The information company. Everything we do, we relate it to information. We've got a wide spectrum of products, and we can deliver a wide set of outcomes. Even with our last acquisition, Micro Focus, we still think we're the information company, whether it be on the content side, experience side, or security and trusted information.
Microsoft, Oracle, Adobe and Salesforce are all coming out with vertical clouds for healthcare, manufacturing, etc. OpenText has stayed away from that, even though you do from time to time release integrations or tools for verticals such as oil and gas customers. Explain that approach.
Barrenechea: We do a lot of work in energy, and in oil and gas, where a lot of information intersects with process and governance. We see ourselves today as a horizontal platform, and we've stuck to that. We can configure for industries, and we have industry modules for legal, tech, pharmaceutical quality management [and others], but we keep trying to make it as widely horizontal as possible.
We just think that's a better strategy for us right now, versus becoming 12 different things.
At the beginning of the pandemic, you said OpenText was going to divest from half its real estate because your employees proved you could function well as a company working remotely.
Barrenechea: Correct. And we did.
How did that work out?
Barrenechea: It was a heck of a time, wasn't it? And it's still a heck of a time.
In [the early days of the pandemic], we were proactive, engaging with our employees. We felt that we would never come back to 100% of the real estate, so we made that early response and said that we're going to eliminate half of our offices. We made the decision that we're going to invest in service centers of excellence and have a head office in every country.
We never lost sight that we will always be best together. We don't believe in being 100% remote, and we don't believe in being 100% together. We think employees do want to control their time and space. But we're innovators, so we need to be together. I'd like to say we now give employees 40% flexibility with their time. We're saying you need to be in the office two or three days a week.
Did that real estate divestiture create more liquidity for acquisitions?
Barrenechea: No. We still want proximity to our talent. I'm not looking to go from 15,000 employees today to 25,000. I'm not looking to work from 25,000 places. Proximity is important. So, it hasn't opened up different acquisitions, but it's opened up talent for us once we decided that we're not tethered to this one place. We're tethered to a 100-kilometer radius [from our offices].
Would you fly on an airplane, if you knew that aircraft was designed by 10,000 engineers in 10,000 different places and they never came together? Probably not. And it's the same for software. We have to be together to be the best innovators.
What can OpenText users look forward to in the roadmap? What's coming out that you can talk about?
Barrenechea: Everything. Titanium in 23.2 [next year's second-quarter release]. We put a lot of think time, a lot of R&D, a lot of preparation getting to Titanium, and here's why it's important: Our public cloud will be at functional parity [to the private cloud offerings], and customers will truly have the choice of where to place a workload in our functional domains. That's a point of freedom ... so that's where we're focused. That, and getting Magellan working on top of it.
OpenText customers have been transitioning to the cloud for years, just like Oracle, SAP and Microsoft customers. Do you think there will be a moment where everybody's 100% on the cloud?
Barrenechea: No. Will the cloud be the largest platform? Yes. Will there be a point in time when the mainframe never exists? I don't think in my lifetime that either off-cloud or private cloud will go away. There's too much value in it -- the value of control, the value of security, the value of protecting all your mojo, your integrations, which far outweighs getting to a SaaS platform. I don't see off-cloud or private cloud going away anytime soon.
Editor's note: This Q&A was edited for clarity and brevity.
Don Fluckinger covers enterprise content management, CRM, marketing automation, e-commerce, customer service and enabling technologies for TechTarget Editorial.