2019 Annual Report: A Look Back and What’s Ahead

Blog Post created by sbrighton Employee on Apr 4, 2019

2018 marked the first in our six year history where we did not expand through acquisition.  This was an intentional decision; coming off of our biggest acquisition year ever – highlighted by the July, 2017 purchase of Jive Software – we wanted to take some time to ingest, integrate, and focus on our customers.  And we also wanted to think a bit longer-term about where we’re taking the entire company, and how we can better leverage our expanding assets and capabilities to create more value for you.


A big part of this, of course, was the launch of our new branding in 2018.  If you’re not familiar with it – and the fact that we aren’t plastering it over airport billboards means you may not be – it’s best summed up in our simple ambition to become the “Netflix of business software.”  Let me talk a bit about what we mean by that.


Content business models have undergone a profound revolution in the last decade.  We have moved from a world where content was purchased individually in physical form (books, CDs, DVDs) to a world where it was rented or owned in virtual form (iTunes store, Kindle books), to a library model today - where a single subscription provides unlimited access to an entire inventory of available content (Spotify for music, Audible for audio books, and most famously Netflix for filmed entertainment).


This change has had a similarly profound impact on how people consume content.  According to Nielsen, the average amount of music consumed per person has grown 50% in just the last three years as streaming services have continued to increase their penetration.  As the economics have changed from price per unit model to an unlimited subscription service, consumption patterns quickly followed suit.


Enterprise software – admittedly a laggard in the adoption of new business models – doesn’t work this way. While enterprise software has seen its model evolve from large up-front costs to annual usage subscriptions, the unlimited consumption model that is now standard in most forms of consumer content has eluded the industry.  At least until now.


Aurea Unlimited


Unlimited Possibility with Aurea Unlimited

We call our new model “Unlimited” and use the tag line “Unlimited Possibility” to suggest our ambition – to change the economics of enterprise software consumption and drive the same kind of change in behavior we see in the consumer markets. Namely, to encourage a usage rate that is higher than what would be economically feasible under the old model – creating the basis for differentiated competitive advantage for our customers.  I’ll get to that notion momentarily.


But before I do it’s perhaps worth explaining in a bit more detail how our new business model works. After all, unlike Netflix or Spotify all of our customers come to us – either organically or through acquisition – with a desire to purchase a single product to solve a specific business problem (in another similarity, you could argue this was the case with Netflix in the early days – House of Cards as the reason to purchase).


Aurea Unlimited Business Model


The way our model works is each software subscription agreement contains an addendum that spells out each customer’s entitlements under our unlimited subscription business model.  And the design is fairly straightforward – a customer’s spend with us entitles them to deploy that amount of software for each and every one of our software products. For example, a customer who spends $1M a year on Jive is entitled to $1M worth of Aurea CRM, and $1M worth of CX Process, and $1M worth of AlertFind.  If a customer increases their spend, their entitlement rights increase accordingly across each and every product in the portfolio.  Importantly – and  much like Netflix or Spotify - we are investing heavily in our library, committing over $1B in planned acquisitions and R&D to increase the scope, scale, and value of our portfolio for you.


Digital Transformation as Competitive Advantage

We live in a world where continued innovation is the only durable source of competitive advantage. Any moat that any company constructs will eventually be overcome – generally by technology shifts that render the prior model obsolete.  Without constant innovation, the shelf-life of competitive advantage is a decade or less.

Average IT Budget

You can see the pressure to do this in IT budgets; according to SIM International, over the past ten years the average IT budget as a percentage of revenue has growth from 3.5% to over 5% as organizations seek to maintain a relevant pace of innovation.  But innovation is both hard and expensive.  IT budgets are largely consumed just with enabling current operations.  Most of the increase in spend has gone to innovation – with digital transformation initiatives now accounting for 28% of IT budgets – an increase of over 50% from just 18% a few years ago, according to CIO Magazine.


And that is the transformative logic of our unlimited, “Netflix of Software” business model.  If we can help organizations increase their consumption of enterprise software – and its power to drive digital transformation – by the same 50% rate that’s been observed in the consumer space, then all of our customers will be moving at a pace that is vastly faster than their competitors.  And 50% compounded over each three-year interval will, to be sure, build a progressively deeper and wider competitive moat. That, as we see it, is the opportunity our unlimited model is designed to deliver.


Creating a Frictionless Path To Rapid Digital Transformation

As we’ve worked with customers to leverage their Aurea unlimited entitlements, we’ve encountered two general sources of friction that have slowed the ability to leverage this expanded access to our software for digital transformation initiatives.  The first source of friction is largely informational, and the second source of friction is what I’ll refer to as the collateral or indirect costs of change.


The informational source of friction is the difficulty customers experience in gaining a clear sense of how they can leverage their unlimited rights to create competitive advantage.  After all, enterprise software tends to be complex, and the value proposition of individual products may not be clear (or at least their application within a customer’s business system not immediately apparent).


The major change we’ve made here is to establish for customers what we call “unlimited roadmaps.” Like product roadmaps, unlimited roadmaps define a journey of new capabilities and resulting value that customers should expect from their relationship with us.  But whereas product roadmaps involve upgrading to get new capabilities, unlimited roadmaps involve deploying additional products to get new capabilities. We think of this a unique way of accelerating innovation.


And like product roadmaps, Unlimited roadmaps are intended to be strategic and sensible extensions of where each customer is today.  They build on the current base and an understanding of how they are deriving value from the existing product, and create innovation paths that look to increase that core value first.  As a specific example, many of our Aurea CRM customers have deployed Aurea Email Marketing, a natural extension that provides marketing automation capabilities that are a meaningful value extension for CRM.  Beyond that, many CRM customers are now deploying a product called Infer, a lead scoring solution that helps identify and prioritize the most promising sales opportunities for follow-up using advanced analytics.  And many, we expect, will follow that with FirstRain – technology that helps provide relevant and recent customer news so salespeople always understand the most pressing business issues their customers are facing.

Infer and FirstRain

Conversely, the “collateral cost” is something that can be a bit more pervasive, and it’s something we are focused on relentlessly eliminating over time.  The most obvious example of this kind of cost is the effort associated with deploying new software.  Certainly, old-school on-premise software deployments and their subsequent configurations can be major affairs.  Fortunately, most of the technology trends – from public cloud to services-based architectures – are reducing this source of friction rapidly.


And this is why you will see that, for all of our products, we are making a pronounced effort to move them to the public cloud, simplify their architecture, and enable them to be quickly and easily integrated through a common and modern API framework.  Over the long-term, enabling second and third products, we expect, will literally be as easy clicking an activation button from a central console, with all of the common data flows and integration points between the different software applications pre-defined and instantly activated.


We are committed to making our unlimited business model a hugely powerful and differentiated asset for you.  There is much we still have yet to learn – this is a new business model after all – but we’re convinced that this can literally change the business of enterprise software to the meaningful benefit of all of our customers.


Our Focus in 2019

We’re well in to 2019, so let me touch on a few of the things we have well underway this year.



The Most Important and Under-Appreciated Technology Trend:  The Public Cloud

There are lots of technology trends getting oodles of press – machine learning and blockchain are two that seem to be part of the pitch of nearly every Silicon Valley startup.  But one that we believe is far bigger and more important than both of these -- and is somewhat misunderstood and under-appreciated for its potential impact – is the public cloud.  While we believe machine learning and blockchain will have important impacts, we believe the public cloud is going to have profound impact on the future of software and the businesses it enables.  In 2019, re-platforming our portfolio on the AWS stack is one of our most important product priorities.  Let me explain why.


When most people think about the public cloud, they think about physical infrastructure – a virtual data center as it were.  In that context, the public cloud is mostly exciting for its potential to reduce complexity and cost (which can be dramatic; a company I serve on as Board Chairman, Optiva, is reducing the cost of managing telecom billing by 10x using public cloud infrastructure and database technology).


But we think about the public cloud quite differently. We see it as the emergence of a wholly new type of operating system, and like operating systems in the past it is evolving by moving “up the stack” – embedding higher level capabilities that used to be individual software components (for example, browsers used to be independent software and they are now embedded in the OS itself).  As this trend continue, more and more capabilities will be built into the AWS operating system, and those software providers that take advantage of it will be at a substantial advantage relative to those building all these capabilities themselves on a “dumb” physical data center.


Here is a specific example. One of the things we are working on right now for Jive is a massive expansion of video related capabilities. Instead of building all these capabilities ourselves or weaving together a disparate array of third-party vendors, we are directly leveraging the AWS operating system.  Not only does this enable us to do things we were intending to do – like create video transcriptions that are searchable in Jive – but it will also enable us to do things we hadn’t originally considered, such as using AWS Comprehend to extract insights and sentiment analysis from videos. So a hospital won’t just have a transcription of a video, it will have key topics tagged and linked to the appropriate experts within PeopleGraph.



Next Generation Quality: Simplification & Standardization

We have talked about quality for a long time; indeed, it has long been our core belief that quality precedes innovation – you can’t move a product forward without a strong foundation. Investing in an extension to a home with a cracked foundation is not a good strategy.


For products we acquire it is often an unanticipated struggle to get them to target levels of quality.  Often, as has been the case with Jive, we inherit a very large bug backlog.  But frequently more problematic than the bug backlog is the overall health of the code base.  Poor or over-engineered architectures, redundant or dead code, or simply bad (complex, non-standard, or obfuscated) programming practices that make a code base fragile and increase the likelihood of creating new problems as you innovate.


But perhaps the biggest struggle in all of enterprise software is the extent to which customers configure and customize software (often with the assistance of partners or with the vendor itself).  These customizations and configurations make each upgrade expensive, causing customers to languish on old versions and unable to take advantage of new features or quality improvements built into new versions.  They also make that particular deployment particularly fragile; many of these customizations are unsupported and intrusive to the code base.  As a result, when an upgrade occurs, there is no assurance that any of these intrusive customizations will work. Often, because they are not part of the quality assurance process, they will not.


A good example of this phenomenon is Jive.  For the on-premise version, we have customers on 170 different variations of the product across 35(!) versions (variations are created by one off “hot fixes” done to particular versions).  As you can imagine, that creates an impossible quality assurance and innovation challenge.  Before we can move the product forward, it’s critical to ensure all of our customers are on the latest version. By doing so, our R&D investment is focused on the future, rather than maintaining myriad versions of the past.


Lastly – and I appreciate you diving into the weed with me -  to get customers to the latest version we have to deal with the fact that there are hundreds – and in some cases thousands – of custom plug-ins deployed.  Our hosted customers (where we have very good data) collectively have 343 plug-ins in operation - the vast majority of which are not certified and thus are subject to breakage when the core software is upgraded.  90% of the plug-ins are used by a single customer.  This  complexity undermines quality and performance, and we need to reduce it.


So our goal in 2019 is to start the process of certifying customizations and plug-ins – creating test suites around them and making them upgrade safe.  Once we are through this process, we can start moving customers confidently to latest and greatest versions.  And once we do this, all our R&D investment can be focused forward. This is a big priority for 2019.



Strategic Communication & Alignment:  The XBR

In 2019 we are also investing to ramp up our individualized customer conversations, with a focus on long-term strategic direction.  The principal vehicle we are introducing for this purpose is the “business review,” or XBR.


During an XBR, our goal is to present a variety of meaningful content; but more importantly, to listen deeply and develop a shared understanding of what each customer is trying to accomplish from a business perspective.


During the XBR we will provide a corporate overview of Aurea, we will discuss the vision and roadmap of the products in use at that customer, we will discuss the customer’s situation in terms of our Customer Success framework, and we will agree on a set of next steps designed to create a “Business Value Roadmap” – a sequenced set of priority initiatives designed to meet that customer’s individual business objectives.  We started rolling out XBRs in the first quarter for Jive and Aurea CRM, and they will be rolling out for customers of other products shortly.


Restarting M&A

Beginning in Q2, we intend to re-start our M&A activity adding new products, customers, and capabilities into the Aurea family.  We’ve developed a fairly broad acquisition profile, so there aren’t specific areas that we are prioritizing, nor are there areas that we are ignoring.  We look for software companies with potential – good core technology assets, great customers, and a meaningful business value proposition. If there are companies you believe we should look at (even if only because you will get access to that technology for free under Unlimited!), by all means send me a note to let us know.


Scott presenting at Aurea Experience

Expanding Unlimited Access to Select ESW Capital Sister Company Products

Late last year, we introduced three new products to the Aurea portfolio for eligibility under customers’ Unlimited entitlements – Infer (an intelligent lead scoring system); FirstRain (a news curation and distribution system); and myAlerts (a commerce event alert system).  However, none of these three products are Aurea products.  The first two are part of the portfolio of one of our sister companies (Ignite Software), and the latter is a standalone software company  (also in the ESW Capital portfolio).


These products are particularly attractive because they are inherently “add-on” in nature – they are more like features than full-fledged individual products.  This makes them great options for Unlimited, and if their availability proves popular (and early indications are that they are), we will explore adding additional products from companies within our ESW Capital portfolio to Unlimited.  We fully recognize that the value of Unlimited to customers expands with every product we add to it, and we will continue look for ways of doing so even beyond our traditional route of software M&A.


Hoping To See You in 2019

The Aurea Executive Leadership Team and I will be spending a good portion of 2019 on the road in support of the XBRs I mentioned above.  We will also be gearing up for a series of events, including our Advisory Boards and our Aurea Experience user conference, scheduled for late 2019 and early 2020.


I look forward to seeing you in person, and as always I encourage interaction and feedback on AureaWorks.



Scott Brighton

Chief Executive Officer