I had a little bit to do with BMC back when it was still a public company. After they went private, BMC hunkered down for a while and focused inwardly as it rebuilt its business. The recent BMC Engage conference was one of the first chances for media and analysts to get a good look at how far BMC has come, and how far it has yet to go. (Disclosure: The company paid my travel and expenses to attend the event.)
At the event I was given excellent access to the majority of the senior leadership team, from CEO (and, it is worth noting, largest individual shareholder) Bob Beauchamp down. It was fascinating to get their view on where the market, BMC’s existing and future customers and the company itself is at.
I have to admit that my default was to be somewhat dubious. BMC’s history lies on the oldest of old school IT. This 35 year old company has a legacy of being all about managing the largest enterprises mainframe computers.
While this is exceedingly lucrative, it is also very much a sunset area of the industry. While it was cause for much debate at the event, BMC execs remained adamant that the largest of banks, airlines and telcos will retain their mainframes for the next decade or more. This narrative was somewhat in tension with things I have witnessed both at the event and outside.
Indeed, BMC had the CEO of BBVA Compass on screen talking about the fact that his organization, as well as every incumbent business, has their own “Uber moment” coming. The fact seemed to be lost on most people at the event that Uber (and add here your favorite choice of disruptor -- Airbnb, Google, Amazon, PayPal) has zero need for mainframes. Rather they look to cheap, disposable, commodity hardware for their infrastructure needs.
So that is the crux of the question for BMC. If infrastructure is increasingly an undifferentiated commodity and the real value lies in the applications and touch points at the very top of the stack, what hope is there for a vendor playing down in the weeds.
Of course, BMC would deny it is playing in the weeds and would point to the announcement of its Innovation Suite, a kind of developer platform, as proof of that. But the slight issue I had with the Innovation Suite, as detailed previously, is that it is still somewhat IT-centric. It’s less about building amazing customer facing applications and more about managing IT processes.
I put all this to Beauchamp who explained the mid-term prospects for BMC’s customer base. He told me that the mainframe business is only 25% of total revenue. And that this has been falling for years.
The mainframe division stands alone to an extent with its own go to market teams. Lots of gas is being put into the rest of the business, which has had a huge change in the executive ranks with alumni from exemplar vendors such as Salesforce. These folks are seen as the new DNA that will reinvent the company. As Beauchamp explained it, “BMC sells production, cost reducing tools and utilities to the largest production users on earth. While the smaller mainframe market (from vendors like IBM and CA) began evaporating years ago, the large mainframe user base is still strong -- flat if not slightly up."
The company has a similar line when it comes to its ITSM business saying that “service management isn’t going away.” I questioned the importance or otherwise of IT as a provider of infrastructure (as opposed, for example, to relying on public cloud vendors or other, higher-level platforms). “I’m not concerned about that,” said Beauchamp confidently. “The disciplines of it [ITSM] aren’t going to go away. We’re enabling digital services on top of core ITSM functionality."
I got a similar line from the guy heading up the 75%, non-mainframe part of the business, Robin Purohit: “We make a lot of money from [the loyal Remedy guard]. We’re not trying to win the broader PaaS battle since not much money has been made there. Rather we’re helping them extend their existing technology.”
So to for Paul Appleby, the Salesforce alum charged with building the go-to market strategies for the company. “As a vendor, we want to be a strategic partner to our customers. We want to sell a truckload of software, but have to earn the right to do so. We earn that right by understanding a customer’s business and speaking in their language and working in partnership to build a solution.” Which is all very kumbaya, but unfortunately, IT is often a lot like Henry Ford’s carriage owners -- they want a faster horse but have no idea of where the future really lies. By moving at their customer pace, some might suggest that BMC is going to join them in falling off a cliff.
Of course, there are some good proof points of BMC’s success. Despite no longer being publicly listed, Beauchamp continuously waxed poetic about how revenue is “moving up and to the right.” A 400 basis point improvement in customer retention, 33% growth in net new customers, a customer base that includes 82% of the global 500 largest organizations, and over 10,000 of the largest companies counted as customers. And even there more traditional business lines are growing well -- service management, something I’ve been prepared to write off as at its sunset, is growing by 20-30% per annum.
Appleby also pointed to the fact that GoPro, very much an example of a high-growth, new-style business, is a big BMC customer. He rightly raised the point that GoPro, while not needing ITSM tools per se, is still a service-centric organization and hence much of BMC’s way of thinking about process is applicable. Similarly, Ikea, another BMC customers, is building service-based offerings on top of the BMC core.
As Appleby pointed out, there are three distinct generations of technology -- mainframe, client server and cloud -- and most big organizations live in all three. They want to mobilize but do so within the context of existing infrastructure. And it is for these customers that BMC’s focus on economic efficiency, stability and reliability comes to the fore. To which I couldn't help but wonder how long those three generations of technology will really exist side by side -- the rhetorical question being whether supporting the legacy simply isn’t too much of an inhibitor to agility and innovation.
Finally, I talked with Beauchamp about the impact of going private and what it has done to enable BMC’s transformation. His response was emphatic. “As a public company, every time a big technology shift happens there is pressure on a company like ours. We need to invest heavily in the new things which will not be profitable, plus pull money from other pars of the company to fund that investment. Being private has let us short circuit the innovator’s dilemma.” He went on to talk about leadership explaining that, in his view, sustaining change is hard unless the people at the top and the board want it: “Are you and the board committed to doing the things which are really needed?”
Reflecting on the journey as BMC sits halfway through the process, Beauchamp says he is, “proud of the progress we’ve made and anxious we’re not making enough. We feel a need to maintain a real sense of urgency. The goal is to not just be stable but to build something contemporary and relevant."
This is going to be fascinating to watch play out over the next couple of years.
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