IFS revealed steady growth in licensed revenue in its 2015 annual report. Alastair Sorbie, President and CEO commenced his summary by saying:
”License sales showed strong growth, currency adjusted, of 27 percent in the final quarter of the year and 14 percent for the full year. This growth was achieved despite the fact that throughout 2015 many of our target sectors showed a significant decline, including all markets affected by the fall in the price of oil and also those regions affected by the downturn in the demand for commodities.”
Net revenue growth for the full year was only 5%, up to SKr 3,389 million from SKr 3,034 million. Of this the lions share was the consulting revenue at nearly 45%,SKr 1,524 million which only increased by 2% for the year.
Sorbie justifies this slow growth by adding that the strategic direction of the company is to grow its partner channel to increase license revenues. There are signs of this with IFS recently adding Pro4U to its partner channel, but it has not made as many announcements as some of its competitors recently such as NetSuite.
Overall the figures show a well run company, cash flow remains high at SKr 196 million and all revenue figures are heading in the right direction. However, according to Sorbie, ERP growth in 2015 was 7% and on that figure their overall market share is falling. More concerning perhaps is many of the IFS wins seem to be on-premises installations and of the recent announcements flagged by IFS only WinGroup appears to be hosted on the IFS cloud.
There is no doubt that many enterprises are slowly turning to the cloud for their future applications. While IFS can continue to upgrade its existing client base to the latest generation of software there will come a time where it will need to show that it is also growing its cloud revenues. It is notable that there is no detail about how much revenue it is receiving from the IFS cloud solution hosted on Azure in the report.
In comparison NetSuite booked a total increase in revenues of 33% to US$741.1 million (SKr 6,227.70 million), far outstripping IFS. With IFS heading for private ownership Sorbie needs to make sure that any investment is spent wisely. His chosen strategy is to increase partners in a market where every other cloud company is trying to do the same.
IFS does not appear to have as strong a message on cloud as companies such as Infor who have staked their future on their AWS implementation and who are actively migrating clients into their cloud solution. The big question is whether the IFS approach can be successful. IFS are still winning business from customers with their on-premises solution.
With everybody else chasing cloud revenue it might be that IFS will be able to concentrate on those companies that want their IT solutions on-premises. There is still clearly a huge market for this and perhaps IFS has found a niche that it can exploit. Meanwhile it can grow its solutions on cloud carefully for those of its customers that are ready to migrate, rather than pushing them to migrate perhaps against their natural inclination.
Conclusion
IFS has delivered solid figures for 2015, however in the next year we would hope to see greater revenue coming from its partner ecosystem if Sorbie’s strategy is to prove successful. It may find success in luring away channel partners from other vendors who are aware that their client base is not sold on the idea of cloud computing however far fetched that may seem.
The chosen strategy on its product is also to reduce the amount of development for clients and increase the configuration options for its latest release. This will also have an impact on its consultancy fees going forward as it will see reducing revenues from the customer base as they upgrade their software. In 2016 one would expect the consulting revenue to fall, the big question will be whether license, maintenance and cloud revenues increase to cover the fall.
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