Compuware Corporation (NASDAQ:CPWR)
December 08, 2011 12:20 pm ET
Lisa Elkin -
David McGuffie - President of Compuware Covisint
Laura L. Fournier - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Treasurer
Peter Karmanos - Founder, Executive Chairman and Member of Executive Committee
Unknown Executive -
Joseph Angileri - President and Chief Operating Officer
John Van Siclen - Chief Executive Officer, President and Director
Robert C. Paul - Chief Executive Officer and Director
S. Kirk Materne - Evercore Partners Inc., Research Division
Robert C. Paul
[Video Presentation] Well, good afternoon, everybody. My name is Bob Paul. I'm CEO of Compuware and I'm absolutely thrilled that you took the time out today to come visit us. This is an exciting day for us as we get to talk about a little bit about where we've been and more importantly, about where we're going. One thing I was just talking to a few of our guests about is, by the end of the day, you'll have an opinion. You'll have an opinion because we're going to share so much information with you that you can't not have an opinion, right wrong or indifferent. You'll know where we're going, you'll understand our strategy, you'll understand our numbers and we think this creates a level of transparency that you need and that you want. Does anybody have these memorized? I was going to have Lisa read this off. It's her 5 minutes claim to fame. But we're not going to do that. We're going to keep ongoing.
Today's agenda is as follows: I'm going to talk a little bit about the backdrop market conditions that helps us form a strategy about 3 years ago. We're then going to get into, very specifically, 2 of our growth drivers in some level of detail to give you a better appreciation for what the opportunity is, where we see ourselves in the marketplace and certainly what the numbers are around the growth opportunities. We're then going to ask Joe to come on up here and talk more specifically about some of the other business units, the remaining 4 business units. And then give you a sort of a summary information about the business plan moving forward and then I'm going to finish it up with some closing comments. After that, we're going to have everybody available that was part of the -- as part of the presentations. We also have Laura Fournier here, who's our Chief Financial Officer, to make sure we're honest, keeping it real. And Mark Hillman is here also, runs our Strategy and Product Line Management Group, if we wanted to get into any next level of detail in technology and trends that you might want to see.
Before we do all that however, I want to introduce our Executive Chairman and I'll tell you, we could spend a lot of time going over his accomplishments whether they'd be specifically business-related or not business-related. But one of the most important things that I think defines Pete Karmanos is the fact that he had a vision, 39 years ago, to start a little services company and his ambition was to get it to 20 to 25 people and since then has been at the helm of this organization, which is very rare through the growth, turning it into a products and mainframe company, continue to expand on the services side and then also getting into the whole distributive platform where we find ourselves today poised for even stronger growth. The other thing that he's done, which I personally appreciate a lot, is that he's actually architected a very, very smooth succession plan, which we're in the middle of and I'm thrilled about it. And so is the rest of the leadership team.
So without further ado, the microphone is all set to go, I'd like to introduce you to Peter Karmanos, Jr.
I have my notes. I'm supposed to highlight 38 years in 2 minutes. So I'll say it's been an interesting 38 years. I plan to retire full-time from the business, March 31, 2013. Right now, I'm Executive Chairman. I watch over Bob and Joe carefully. They enjoy it a lot. They like my comments, especially my hindsight. I got 20-20 hindsight.
Compuware started in 1973. As Bob said, we're small services business and we got into selling software because of the peaks and valleys in the services business. We wanted something to smooth that out. We ended up with at least 2 of the most successful products in the history of the mainframe business that, by the way, we still sell, all right, the Abend-AID and File-AID.
We went public in December of 1992. The day after we closed on the offering, the day after, IBM announced a disastrous quarter and the mainframe was pronounced dead. However, it didn't really die. It just stopped growing 20% a year, site wise. So we fought that battle for a few years, but because of the year 2000, by December of 1999, we had grown from 700 employees on December of 1992 to 14,000 employees in December of 1999. We grew in value from $650 million market cap that Morgan Stanley was kind enough to allow us to have to $16 billion market cap on December of 1999. And we went from $250 million in revenue to $2.2 billion in revenue. It was quite a ride. It was a lot of fun, but it was uncontrolled growth. We added $1 billion of revenue in the final 2 years of that decade, '98, '99, all right? And it changed the company. It morphed our services business into a staffing type of business. It changed the relationship with our customers because we had them by the throat and we overcharged. That's why we had a lot of very angry costumers. And somehow, we survived as a company, all right?
And today, we're standing on the precipice of a lot more growth, but we've learned some really great lessons. We think we're going to grow this company significantly. You'll see that in Joe's numbers over the next 3 years. But we understand that you have to grow it, you have to increase your margin simultaneously while you're doing that and one of my jobs for the next year is to help people understand how to do that from the mistakes that I made in the past.
Anyhow, you're all here to hear about what we're going to do, so I will let Bob and the crew get up and do their thing. Thank you.
Robert C. Paul
Thank you, Pete. Okay, so the theme of the event today is laser focus. And it's not just a tag line, it's something that we started out with a few years ago for sure. What I mean by laser focus is this, I don't think business or running a business has to be complicated. Now you'll see sort of this focused theme run throughout each of the presentations today. We started out with the belief that we had to be best in class in those areas that we wanted to compete. And that all starts with a focus on the target market. So what were the target markets that we were going to address given the assets that we had in place at the time? And what was the growth potential by being best in class inside those target markets? That was the first conversation. The second conversation we had was what was the compelling business problem that we were going to solve in each one of those target markets? It's pretty simple stuff. The third discussion that we had was, how are we positioned in the market against our competition moving forward to give us an opportunity to be best in class?
Now, the challenge isn't coming up with a strategy, a desire to be best in class, therefore, deciding what we're not going to be also. A desire to get very focused around an addressable market that we think we can own and the desire to be better than anybody else at what we did from a differentiated positioning. The challenge is on an operational basis, how do you align and keep the organization such that everybody else in the company is focused along those same goals? And that is a lot of work. It's a lot of work to make sure our salespeople are only selling we want them to sell and only in the markets that we want them to sell in. And that we have pricing, packaging, R&D, innovation, development and everything aligned around achieving those goals. If you get it right the first time and you create a discipline in-house to achieve those goals, good things will happen.
So that's our fundamental belief. We started out with that focus on the market leadership. Now from there, good things should start to happen. With those differentiated value propositions, you'll start to see an opportunity for revenue growth. You're winning more market share. We've got a 3-year plan, we're going to show you actually a little bit more than 3 years, 3.25 and then some. That takes us out to our fiscal year '15 that shows slightly greater than 40% growth. We think we can do it, the plan was built from a bottoms-up perspective. We then went through many, many, many iterations based upon the market conditions we saw, the opportunities, the competitive strengths, et cetera and our global positioning.
The next piece, which is just as important and Pete alluded to this, is focused on profitability. One of the reasons that Joe's onboard now is to help us build best-in-class processes and discipline throughout the organization, which is already starting to have an impact on to make sure that we have our expenses under control as we improve our top-line revenue growth. Now, as we start to build market share, as I'll get into in a few minutes. And as we start to get a name for ourselves as the leader in certain categories, you get invited to every opportunity. Because you have to be. Because you're the leader. Your sales cycles go down, your cost of sales go down, right? Certain things happen around efficiencies along with running the rest of the business that allow you to increase the velocity of your customer acquisition. So that's all good. Now, one of the nice byproducts of all of that is with top-line revenue growth and a profitability and operating margin that we think we can actually get to 26.5% of fiscal year '15. We then believe that the share price is going to react properly.
Now, a lot of you don't know about Compuware yet and this is part of the big issue that we have. They don't know about the new things that have been going on, about our position, positioning in certain marketplaces and how we think about the assets inside the organization. Hopefully today, you'll get all of that and then some, so you'll be able to have a much more detailed dialogue if needed to evaluate our strategy and our position moving forward.
So I'm going to start out with a little bit of focus on market leadership and I can tell you there's never been a more exciting time. I've not been around quite as long as Pete, but I've been around many decades. There's never been a more exciting time to be a part of IT. And that's because of the revolution that's going on right now. The disruptive changes that are going on in information technology and when there are that many disruptive changes, there's going to be a whole class of winners, and a whole another class of losers. And the winners are those that are focused on delivering that differentiated value against or better than the competition as it's been laid out. Not just as it sits today but based upon where those trends are going already.
For the last 10 years, we've been dealing in a virtualized disruptive force in the marketplace. A couple of lessons here, what virtualization did for us and you've seen -- I'm sure you've seen many IT presentations on this stuff, which is why I'm just glossing over it. But virtualization allows us to move compute resources around the data center, virtually obviously, to improve our agility and then also absolutely lower the operating costs of delivering that information technology. Now one of the other things that came out of this, is that you saw a company that was laser focused on becoming best in class, on a very well defined value proposition and target market that they were differentiated on and they created a disruption in the marketplace.
From virtualization, we move to the cloud. And with the cloud, because virtualization was already in place for most companies, and I know it varies a little bit by geography but for the most part, we now see the opportunity to move compute resources outside the firewall. And with that ability, we see new burgeoning industry start to crop up. You see the big guys building these massive outsourced virtualized data centers, where I can create burstable cloud opportunities, move compute at a lower cost point and with higher flexibility. You also see a whole new set of tiered companies cropping up as cloud service providers and managed service providers, creating more and more levels of complexity in between you and your end-user. And now, we're starting to see many different classes of those cloud service providers and as important as any of that, it allowed us to move our compute capability closer to our end consumer, mobility and web.
So now, the opportunity which is from a data point, we all know about it, the proliferation of mobile devices, webpages, right? All the things that are going on, changing the way in which consumers behave, but over the next 5 to 10 years, it will fundamentally change the way in which business behaves moving forward. And so with the revolution going on of virtualization; cloud; moving to compute closer to the end consumer, so my mobile devices, my iPads are all working, the most important change is the impact it has to the business. And I think this is the most exciting part. More than ever, IT is more relevant than it's ever been before to the top and bottom line of business performance. It started out with just your usual retail web organizations. It's now moved to almost every brick-and-mortar company in the world, thinking about how can I innovate, how can I change using this new attack to marketplace, to build brand awareness, market share and top-line revenue growth? It is unbelievable.
And with that, we start to see the innovative companies think of changing their business models, having different investment strategies in order to take advantage of this new world. This is an example of Chrysler, actually, changing the way in which they operate with a very, very highly profitable aftermarket. Real-time alert information, speeding up supply chain, delivering both iPad and web-based apps. Obviously, we're measuring the performance of those apps because they're critical to the bottom line, all right? We're also deploying that in an authenticated, highly secured cloud so other constituents can't get access this information.
Travel services, second-largest travel services company in the world, Dave will talk more about it. Aspiring to become the largest travel services company in the world and their biggest point of attack is how they changed the way in which they deal with the consumer. If their applications or their notification systems go down, people stop using their system. It's that simple. They go elsewhere. They lose the opportunity to be #1.
I love this one, we don't actually do this for them but it's a great story. Tesco, major UK-based supermarket chain, couldn't get access to the South Korean marketplace. Really having a hard time, right? By providing, in train stations, basically visual grocery stores where I can now scan, do my ordering, have it delivered, they're now 130% growth and the #1 online shopping site in South Korea for groceries. They innovated. They changed the game. They created their new business model in emerging marketplaces. And I could go on and on and on about how it's not changing the opportunity for business growth but in this case, fundamentally changing how an industry would work.
This is an example of a dashboard, where the point of care as a patient, I can get access to all of my information throughout the community or throughout the state. Lab records, blood tests, radiology reports. So at the point of care, I'm not running redundant tests and I'm a much better informed physician. Reducing the amount of hospitalization time, the amount of time at the ER, the amount of time in second-guessing, et cetera. Direct cost at the bottom-line and saving are astronomical growth in the cost of healthcare.
These are just a few examples of how these IT revolutionary trends are impacting business, the fact that business now is relying more heavily, more than ever on IT and therefore, the design that we got into, many, many years ago or a few years ago in designing our go-to-market strategies are predicated upon these trends. It wasn't an issue of should we do it? It was an issue of survival and now are we going to thrive in this new environment. And I steal this slide -- I should have put it up there from the Chasm group and Geoffrey Moore, I love it right. Because whether they're still around today or not, right? There's a lot of question whether these companies are taking advantage or innovating in a focused enough way to change their business model to be a player in this new environment.
So 2008, we started with a decision. We're only going to compete where we can be best in class. Now that best in class doesn't have to be global, remember we start with the target market. It has to be best in a given category inside a target market. So, for example, at mainframe, we are already there, easy decision, right? Strategies built to extend our competitive advantage period, 53%, 52% market share and progressing in the same direction. Very mature marketplace.
In Changepoint it was different. We were in a project and portfolio management solution. We were competing across a wide, vast category, lots of players and we decided that in the near term, we couldn't own that category. What we could own is professional services automation. Those companies that have professional services as a core piece of what they do because we had capabilities unique inside the solution to that marketplace. So in each one of the category areas, we decided where we could be best in the world and we will raise the banner of success when we've achieved 30% to 40% market share in those categories by solution segment. That's the strategy.
Now, we do that by delivering differentiated value, all right? The word clear up there is very important. It has to be easy to understand, it has to be simple in its articulation and we're working really hard on making it simple in our deployment. So time to value for our customers is as important or more important now than the features and functions that we're delivering in each of the solution segments. It's a common investment theme. When we've done enough investments around creating that differentiated value that we can only achieve through laser focus. The goal is to create a disruptive solution.
Now, we saw that in the mainframe days with File-AID and Abend-AID. And by disruption I mean, we've created so much of a differentiation in that target market that we're changing the way in which our customers solve that problem today. Changing the way in which they solve it today. and if we do that, we're making our customers significantly more competitive than those that are not our customers. And that, at the end of the day, creates a herd mentality. We've seen it across-the-board, in every category where there's been an early market leader, thought leader, creating referenceable customers in a new way of solving the problem and they've taken over market share rapidly.
Compuware has done that before and it's our expectation that we will achieve that kind of growth again. I will tell you that, that inflection point that I'm talking about has not been built into the business plan and I'll address it briefly at the end when we talk about accelerated growth drivers. But when we do achieve this, revenues go up, operational margins go up, and ultimately, share price goes up.
Now I'm not here to stand here and tell you, "Okay, we're starting today." I don't believe in creating press releases and marketing around things that we're going to do, all right? Although the 3-year plan is sort of that. What I am doing is telling you that we've gone a long way in accomplishing our goals and more than ever, it's down to sales execution.
So, we established a clear vision in each of the solution segments. We've not veered from that. From that, we created a strategic plan for the organization, which created some very difficult decisions. What we're going to be best in the world at and what we're not going to be best in the world at. We made some divestitures that were difficult for the organization, but necessary in order to allow us to focus on those areas that we could be best in the world. Subsequent to that, we made some additional decisions about retiring non-core products. Those products that were creating noise in our portfolio but not growth opportunities.
From there, we looked at where are the elements, where we could acquire faster than we could build. So the 2 core growth drivers that we're getting into today, both Covisint and Gomez or the APM business in more focus. We knew that we had leading capabilities inside the data center. But we also knew the trends that I was talking about is creating a whole new need for visibility where companies don't have visibility. And clarity in an increasingly cloud mobile-based world of complexity. So, we bought, at that time, sort of the joint leader in web performance management, now easily the largest in web performance management and the fastest-growing in web performance management. And because the investments that we're making this year, we were -- besides the capabilities, uniquely positioned in a global basis through some very fast growing emerging markets to take advantage of web performance also. From there, we also found a capability that gave us a level of visibility into performance that nobody else had and we certainly didn't have. And that level of visibility is a profoundly different way of solving the problem in performance management.
I'm not going to steal any of John’s thunder, he's going to come up here and talk about this, but I will tell you the pipeline activity that we've seen since the acquisition in July and certainly more so in the last 60 days, as we've educated our global sales force on the dynaTrace solution has been stunning. It's almost been hard to believe. So we've checked it, double checked it, triple checked it, to make sure that we really understood what was going on there in the pipeline. What dynaTrace gives us is the ability to monitor, besides a whole bunch of other things, every transaction all the time. The reference competitors, that we'll talk about, don't have this capability, it's a different way of solving the problem and as we go from development and test environments to production environments, it will change the game. When you add that capability to the web performance visibility, it profoundly changes the game. And I'll talk more about that at the end of the presentation.
So, keeping in line with the focus and the capability, we launched our business unit structure. We updated the 3-year plan, we got board approval last October for a 3, 3.5 year plan. I will tell you that the numbers in the board plan that we are being evaluated and compensated on are slightly more aggressive than the numbers that we're showing you today, which I'm sure you're happy with. So we are well motivated to hit the numbers that we're going to talk about and we think throughout this entire timeline that I just showed you, the other things that we are upgrading was our geographic, our emerging geographic presence, our infrastructure monitoring capabilities in those offshore organizations but most importantly, we are upgrading our leadership team. And I believe that we've got the exact right people in the places that we need to dominate moving forward.
So what are the consequences of what we've done? I know that in spending a lot of time with TheStreet that you have different ways of looking at Compuware. We're trying to make it simple today, right? Digestible information is a lot easier to make the decision and be part of the organization. One of the byproducts of this level of focus is that we've gone from a 14% high-growth of our assets now represents 60 -- 36% of our portfolio of high-growth assets, all right?
Now, we're certainly hopeful to change Changepoint and Uniface, also into high-growth assets. But for today, we've left them out of this pie chart. Shortly, we will cross an inflection point that will get us to greater than 50% of our portfolio will be high-growth assets and I'm sure at that point, even more people will be taking a different look at who Compuware is and where we're going. When it gets down to the business unit structure, the reason we did that, and I go back to the focus issue, it allowed us to get a lot more agile. A lot more visibility and transparency into the operations, financial responsibility, empowerment inside those groups so we could address much more quickly changing market conditions. The other thing it allowed us to do is it allowed us to behave differently based upon the maturity level of each one of the categories in which we participated.
We're not going to go to market in the mainframe marketplace the same way that we would in APM or Covisint, high-growth marketplaces. Where we participate, how we participate, our marketing, our attack of marketing, projects, how we invest, where we invest, it's completely different. In the mature space, we want to extend that maturity model, that competitive advantage period by creating one-off value propositions around our core assets. So you'll hear Joe talk a little bit today about data privacy. Absolutely critical that we're uniquely qualified to solve in the mainframe space. You'll hear him talk a little bit about dynaTrace, believe it or not. As I get that visibility down to the transaction level, I can extend that visibility, with strobe, all the way into the mainframe platform. Nobody in the world is even talking about that today. And we know the proliferation of Web transactions, mobile transactions is putting increased volume on those mainframe assets that drive costs up, if -- I don't know what's going on, they could also drive performance issues. On top of the mainframe, we also have a whole new emerging workforce, right? So we have a lot of people retiring that know the mainframe skill sets, a lot of investments and usability, graphical screens, et cetera. That's what I would call mature.
We attack differently our growth assets. Changepoint is an example. We know in professional services automation that we've got something unique. We're now starting to see other players copy our go-to-market strategy because we're winning consistently. They're starting to know our names. When companies that have professional services part of their portfolio, they include us almost every time, because they know it's an area of specialty and that's where we're spending our marketing resources too.
With Uniface, 4GL. We haven't heard 4GL in years. The beautiful thing about Uniface is it's a great opportunity to create multi-tenant apps in the cloud. Again, growth opportunities. Professional services, we went through the same process. Were we going to be the best in class at professional services? No. We're never going to be a global leader in professional services. But if we defined our target market finely enough, we can create competencies inside our professional services organization that will drive higher margins and easier sales cycles, and we've done that, especially around things like mobile application development that tie in across a data center infrastructure, because they have to be leveraged from mainframes and distributed environments. Things like -- something that we'll be launching soon, put a lot of work into, the ability to outsource performance as a company in an outsource environment. That's not a product-related services business, that's a consultancy business that we've got the capability of delivering in the professional services environment. Those will fuel our growth. And finally in the high-growth assets, and I would consider the diversity of the portfolio as a strength here, because the mature assets are obviously driving cash, profitability, the ability for us to invest and position us more strongly in the high-growth assets. But in the APM business, right? We've gone, as John will point out, middle of the pack, even maybe slightly behind the middle of the pack in 2 years to top right corner in the Magic Quadrant. And the market is seeing that and the market share is reacting to that.
In the first 6 months, yes, we had some disruptions because of the integration and the bringing the organizations together, that John will talk about. We are seeing that definitively clear out right now. We're getting back to the growth rates that we saw before and we think now that our capabilities in this space greatly enhance our competitors. Not only where we're at today but the vision that we've got for emerging solutions over the next 12 to 24 months.
Covisint is a hard one, right? APM is an easy category. It's been around for a while. The category that Covisint participates in has not been defined. There's not some nice glossy 3-letter acronym that Gartner or Forrester talk about yet that defines what Covisint does. You'll know what Covisint does by the end of the day and you'll see a ridiculous stat [ph] up there, because we had to use some reference base of the market opportunities, $220 billion. Okay, we're not going to own 30%, 40% of that, right? But as we create subcategories in that, we'll own and we'll be thought leaders and first mover advantages in the space where Covisint competes. It's a phenomenal growth story and when it does become a category, and we see Main Street and mainstream organizations start to create budgets for this in a more formal way, it will hit the sweet spot of what Covisint does.
So there you have it. Sort of a backdrop to the market conditions. How we think about our 6 major business units and now what I'd like to do is we're going to have 2 presenters come up, talk about the 2 core growth areas before we get into the details of the business numbers.
For APM, I'm asking John Van Siclen to come up and as John starts to do that, John came to us as CEO of dynaTrace. The reason that John has been asked and has been starting to run this business unit, globally, is because he's not just a business leader in a sales and marketing perspective, he is a phenomenal operations guy too, right? And so he has helped design and orchestrate the disruption that we saw in the first 6 months related to APM, the slowdown in the growth in APM, got the organization aligned, now working on enablement and has made a tremendous impact to our company already.
Without further ado, John van Siclen.
John Van Siclen
Thank you, Bob. Let me say -- I'm on? Good. You guys can all hear me. So as Bob said, I came over from the dynaTrace acquisition in July. And it's definitely been interesting and exciting. When Bob first came and spoke with myself and some of the founders of dynaTrace, it was very clear, this was back in April, it was very clear that we had very close alignment envisioned in the APM space, which I've now been in for 4 years and close to for about 10 years. And it's a very exciting market, and I want to point out all 3 words here between application, performance, management, because they matter a little bit in the context of what I'm going to share with you.
The first one is the idea of applications. 15 years ago when this category started, it started as a network-centric category. Because the network determined the speed of applications between a client and the back-end database. About 8 years ago, this got redefined into server performance because it was the server and the speed of the server that mattered the most. And the concept was really more around availability than it was around performance. Today, IT has reorganized itself 110% behind applications. And they've done that because it's the application that matters to the business, not the network, not the servers, not the infrastructure but the applications. So that's the first key point.
The second one is performance. This world has been characterized and defined by IBM, CA, HP, Qwest and others as an availability market. Performance is monitored to determine whether something's broken so we can then go reactively fix it. Performance is now becoming the superset idea. So 5 years ago, availability was the big idea. If you think in Venn diagrams and performance was a little piece of it. Today, performance is the macro model and availability is a little piece of it. Because as all of you know, performance matters. Think about shopping just maybe a week ago, couple of weeks ago. Is it better to know the site is down or that it's taking you 30 seconds to get through to get something done? Which one is more frustrating? Which one impacts your loyalty to that company or the brand? It's the performance that matters. So that's critical second step and I'm going to give you some examples so you can try this on a little more deeply. Because as Bob said, we're at a point of inflection, I believe, in the market, where we're going to look back 10 years from now and go 2008, 2009, the downturn of the economy exploded this rise of applications to the forefront of IT.
So the third word here is management. The classic old style of this marketplace was around monitoring. Monitoring, when something breaks, tell me and let me go figure out how to go fix it. We're moving to management which is a proactive, predictive approach, so that users aren't impacted when things go wrong, which they inevitably will.
So remember those 3 words. It's not just APM and everybody does it the same. Its application, performance, management and those are at the essence of the differentiation and the disruption they were driving in the market. So let me sort of dive in and give you a feel about some of the macro trends that are affecting what I believe are the IT and business requirements that are fueling APM as this front and center concept within IT. For those of you who don't know, Gartner told me about 6 months ago, the folks that do the Magic Quadrant charts in APM, that APM is the second largest set of inquiries that they received over the past 2 years in the infrastructure space. The only one that was higher was virtualization and not by much. So I'm going to get into some of that detail then I'll take you into what it is we're doing and what my execution path is in order to drive profitability into this business.
But let me start here, applications for engagement. We don't really think about it this way, but in the last 10 years, the lion's share of IT investment has gone here. It hasn't gone into the applications of record. Where our customer database is, where our product database is, it's not there. It's how we interact with our customers, our partners, our supply chains, and even to some degree, our employees. The second big shift is because of the pressure these applications of engagement have, it's changing the landscape again for that traditional mainframe environment, the applications of record. Because the demand is so great that things have to change. You probably all heard trends of modernization, IBM and HP talk all about them. You might know if you talked to IBM recently that they're changing their strategy around mainframes to be back in transactions, processors as opposed to sort of systems of record, just systems of record, whole new refresh coming throughout the mainframe environment. And then of course, the third big application trend that none of us can ignore, especially after reading about the shopping season again this year is everything's about commerce. And I believe it's bigger than commerce. We at Compuware believe it's bigger than commerce. That what we're seeing is the rise of the digital enterprise.
It is just the way the world works. It's how we're banking. How we're shopping. It's how we track things. It's everything we do. It's how we invest. It's how we get educated, how we track our kid's education. It's everything is transaction-based applications. And the world now has figured this out because of the explosion of apps on the iPhone, on the Android, Facebook, et cetera. So applications are at the center and these trends, these macro trends are driving a series of challenges that IT and business now have to grapple with.
This first one is complexity. The application development is getting more complex. We have globally distributed teams, we have third-party code, we have all sorts of stuff going on. Architectures are more complex than ever, fragmented, service-based, globally distributed. And then you add on top of it, clouds, virtualization, mobility. It's crazy, it's crazy how complex it's getting and how fast. The traditional way of approaching it is simplify it and automat it. Big themes within the APM business unit. And I'll share some of those with you as we go.
But it doesn't stop with complexity. The business now realizes that most of their revenue is now starting to come through digital channels, if not the lion's share of it, and business is now competing digitally. Marketers are competing digitally. I heard a stat recently that the average age of a CEO in the Fortune 1000 is 51. Everyone of them grew up in the PC age. They understand technology. They're the first ones with the iPad. This trend of business IT connectivity is accelerating and the frequency of change being required in applications is staggering. Used to be twice a year, now it's twice a month.
The third major trend is this idea, the Google effect. How fast should a complex transaction take? I think it was Mark who was telling me just the other day that Google thinks of performance in that the speed of the answer should be no longer than the turn of a page. You hear about the consumerization of IT, that you can get faster performance and more functionality at home that you can in the office, big driver for IT change.
And the fourth one is, goes without saying, it's do more with less. There is 5x as many technologies that IT professionals have to deal with that today with the same or less staff. So how do they do it? Big focus on life cycle efficiency, consolidation of tools and it's this combination of things that the APM business unit, these challenges that the APM business unit is focused on.
And if you look at them all in context, you realize one thing, it is impossible to solve these issues without change, without change. So one of the key focus points for the business unit is around modern APM. A new generation of APM. An APM that actually attacks and solves these challenges not a little bit better but a lot better. And it's a big reason why we've been driving such a rapid adoption of new accounts in the face of IBM who's been at this for 15 years with their Tivoli division. With CA, who's been at it for however many years, with the multitude of acquisitions that they've made. Qwest, HP and so on, in their backyard, we're taking accounts from them and you can see here some of the brand name accounts. We have about 4,000 customers, a little over. We're acquiring several hundred a quarter. It's a significant acceleration of business and it's across verticals. Because this trend isn't isolated in one place. It really is a horizontal phenomena, a global phenomena and one that goes from the biggest enterprises out to a very long tail. So we're just happy to sell to that 20,000 -- $20 million e-commerce shop as we are to Amazon.
So it's exciting. Now, I want to take you in so you can try on a couple of these trends because I want you to try these 3 customer examples on a little bit, because it's not about the technology that matters, it's about a new generation of business value that matters. So if you can see up here, this is a French company, they're the AutoZone of Europe, second largest auto parts supplier in Europe and they've made the decision to go from retail outlet to online outlet. And they have very aggressive growth plans. And they're hitting those growth plans. Their challenge is when you start thinking about being, if not exclusively online, the majority of your business online, the customer experience really does matter and it is a key differentiator. But it's not the only thing they have to maintain. They have to improve that while all of the other things underneath are changing: mobility, complexity of their infrastructure, a series of things all at once. And at the same time, the business is asking them more and more capability faster. So they've turned to Compuware. It's actually a combination of the Gomez SaaS technologies and network and dynaTrace for a deep view of visibility across the entire lifecycle chain of the application, how it's built, how it's tested, how it's taken into production. And this is a quote, you've got to love the French translation here. This is translated by one of my guys in Paris. But basically it's, if you want first class experience, which is the key, they're using Compuware and now they can confidently go back to what development's suppose to be doing instead of firefighting, actually developing the next generation of capability. So this is top of mind, CEO level decision-making of how we're going to get growth, turning to APM and the Compuware APM business unit to do that.
So the second one is an organization you may not have heard of before, Everything Everywhere. It's a joint venture between Orange and T-Mobile, 28 million subscribers in the U.K. It's starting to go European wide. And it's a shift again in the business model from retail outlet to online. It's the rise of the digital enterprise just in a different external fashion. Their challenges and their requirements, user experience is a differentiator. Reduced risk because now this is the business. It's not a little piece of the business anymore, it is the business. And consolidate and simplify their environment, so they can actually scale this out. In the first 3 months, they improved the performance of their application with the combination of the Gomez SaaS solution and the Compuware On-Premise solutions, 30% to 40%, 3 months. They've been able to consolidate vendors and they believe that they can get a greater than 400% ROI out of APM, Compuware APM. Again, a new generation of business value not just good IT hygiene.
And the third example, I'm going to give you this one from down under. I think it's an interesting story and it actually brings all 3 of the building blocks of the APM business unit together. The Gomez SaaS network, dynaTrace for deep visibility and the Compuware platform for seeing across the entire infrastructure environment at a transaction level. And these guys actually provided a service to all the news providers in Australia. And they have a series of challenges that they have to break through in order to move from news delivery for free to actually paid subscriptions. And a series of mobility challenges that are exploding on them overnight.
Their requirements, they set a 3-year plan. It's a very formal plan, CEO down, here's how we’re going to do it, they chose APM as a strategic IT approach to meet their objectives and again, in a very short period of time, significant business value. Whether it's in visibility, whether it's in risk reduction, whether it's ability to scale against a whole new set of complexities that are hitting them. And maybe the biggest one here is this movement from reactive to proactive. It sounds like a subtle little word change, it's a profound efficiency, cost-effectiveness and brand change. So that's how these pieces of our puzzle are coming together. And the market is starting to resonate with us. Not just the customers but the analysts, those of you who know Gartner know they're sort of rearview mirror analysts. They don't tell you what's coming in the future, they tell what's been in the past. They have us up here. The visionaries and the leaders and this is before dynaTrace. This is before dynaTrace and now with the dynaTrace, it's off the chart. That's what we believe that's where we think we're going and I want to share with you a little bit about what that might look like going forward. So I'm going to get a little sort of technical diagramming here with you. I hope you put up with it and can follow it a little bit. But I'm trying to give you a feel for the building blocks of our approach going forward. Because this is how we're going to distance ourselves from the competition. This is the perfect time. This isn't the time to reap rewards, this is the time to jam the pedal down and as Bob said, drive disruptive change.
So first, we are changing, we lead in the user perspective of APM, user experience APM. We lead in the Gomez SaaS side as well as the Compuware On-Premise side. But we're not happy yet. We're going to fold dynaTrace into this mix. The dynaTrace PurePath technology that gives the deepest level of visibility from browser, now, all the way through to the back end. So not only do I have visibility of the entire delivery chain outside of my firewall, I now see deep into all the code that's now running on the browsers or the mobile devices. So think about this. You don't really realize it yet, other than maybe you do on your applications, native apps on your iPhone and your iPad. But there's so much code now running out in the browser that many companies have 25% to 33% of their application now actually running in the browser. There's only 2/3 sitting on the back end anymore. This is a change in the last 2 or 3 years. You've heard it called Web 2.0 it sounds boring, it sounds old, but it's reality. And therefore anybody that does it the old way and monitors back inside your fire, the firewall, does not get a full view of the entire application and you start putting clouds in there, and you start realizing that only half of the traffic when you're on a mobile web app or on your PC, only half the traffic actually comes to the data center. Most of it goes to Akamai in the cloud or someplace else, how do you know the performance meets your requirements, Google like speed, how do you know? That's the game we're changing here and we have the technology portfolio to go to a whole new generation here in user experience and user behavior management.
The second area is in the web tier. Now who cares about the web tier? What is that all about? I've heard of web servers but what's that? The web tier in an enterprise is where all the users flow through and all the information coming from the internal systems flow back out, it's the pivot point. You want to instrument this point in your infrastructure. It gives you significant visibility and between the Compuware On-Premise products and again dynaTrace inside, when it change the shape of this. Now the player that we run into here, oddly enough, is BMC due to a couple of acquisitions they've made. But we believe we can flip the tables on this one as well and have an unassailable shift in how web teams manage their web and mobile apps.
The third area is inside, inside the multiple tiers of the data center and the application set. We have 2 world-class pieces, we have the Compuware On-Premise pieces and we have the dynaTrace PurePath technology. Both are world-class. Both today, both of us today beat the former leader in this area, CA, in the 80% to 90% range when we engage. This is a big replacement market, big replacement opportunity for us and we're going to continue to take this forward a now converged offering fashion. This will take us a little bit longer the first 2 areas, you're going to see announcements from us over the next 5 to 12 months. This area is in the 12 to 24 months, but this is where we really get convergence and bang for the buck, which I'll get into in a minute in the execution area.
Now, the fourth area here, to paint this full picture out, is the mainframe area, and as Bob said, we're quite excited about this. It takes technology that's been within Compuware and Strobe and in the mainframe environment with Strobe and combines it with dynaTrace, deep inside visibility. Technically, maybe you think that sounds cool, but who cares? When you realize that the applications of engagement are driving change to the applications of record, and that's what's driving modernization, projects, that's what's driving IBM shift in its view of the mainframe, you realize that this area is poised for some change coming up in the next 2 to 3 years and we believe that we have the only 0 configuration, auto discovery way of instrumenting mainframe code and then monitoring this mainframe applications to drive the cost of MIPS down for IT professionals. So we're pretty excited about this one. We're well underway. This is one of those 5 to 12-month kind of timelines for us. So if that's not enough across this full spectrum, the other thing that we're doing is we believe and I believe, coming from the dynaTrace side that lifecycle management of applications is more important than ever and the reason is the cycle time and the frequency of change. If you have to change your application once a month, twice a month, it matters an awful lot how well that application is tested, how well it's working, no regressions introduced before it hits production because when it hits production, you're not just touching 10,000 people, your touching 10 million. And it is your brand now because it is your business. So this is -- this portfolio, these 5 areas, define the direction that we're headed as a business unit to out-distance competition.
So when we play in the market, these are the people we see in these areas. We have a best of breed solution across everyone of these entry points. We don't sell everything at once. This isn't the old Tivoli world of 15 years ago, we sell point products, best of breed, head to head against these companies and then we expand. And we're extremely well-positioned to expand and I gave you a few customer examples, I could give you dozens more.
Okay, so we've gone sort of how big is this market, how do we compete in this market. I don't think we have a market growth problem. I don't think we have a competitive challenge problem. Okay? It's all about execution. This is something that I've spent the last 20 years on. I've gotten pretty good at it over the last few years. And it's an exciting area because I'll tell you, I love having the ball. It's harder when somebody else has the ball and you're playing on their field. We in the APM business unit, we at Compuware, we have the ball and it's all about execution. So I want to share with you 4 things that I'm focused on. They're top of mind for me. I'll try and give you some examples, so you have a little color behind it. This first one is the cost of sales. Our cost of sales is too high. Plain and simple. We need to get productivity up and we need to get transaction volume up. We have pockets of great sales productivity, but it's not pervasive. Basic training, basic ongoing enablement is all that it takes. Now we do have to do this globally and it will take a while to get it all done but that's the core of the challenge.
Why the volume? Because I believe I would rather have 100 deals at 100k per deal rather than 10 deals at $1 million. Because it's more predictable. It's more predictable. Subscription revenue is highly predictable, perpetual business can be just as predictable as long as it's on volume, volume of transactions. Key part of how we build dynaTrace, key part of how Gomez built its SaaS business. It's going to be a key part of the APM business unit going forward.
Product investments, I shared with you the roadmap. We've recently rationalized that roadmap. We've cleaned out products that really, they're cash cows that need to go on maintenance or really not driving enough revenue. We've simplified the portfolio, it will take a little while for this to flush through the P&L. But we're well on our way down this path. The second big kicker we're going to put into this is a rationalization of centers of excellence within our development centers. Some of you may not know, but we have development centers in Beijing; in Gdansk, Poland; in Lindt, Austria; in Detroit, Michigan; and in Lexington, Massachusetts. We have 5 of them. Just logically, methodically moving things to some of the offshore environments over time will help us not only reduce the cost but increase innovation. The third one, cost of goods. This is a little more challenging one when you consider that we have the largest web and mobile network on the planet in the Gomez SaaS environment.
We built this out and extended it from, over the last 2 years, from mainly North America to global. And so we still have another year to 2 years before the sales catch up behind that global investment, but it will.
The second key piece to this is modernizing our services and support, from being professional services-driven to more packaged and community-driven.
And this last one is, may sound like a little bit of motherhood and apple pie, but I've been -- inherited this business unit about 4 to 6 weeks ago, and there's plenty of redundancies and things that we can do smarter, better, faster just by simplifying the organization. And I'm a big believer in the concept that if you can't measure it, you can't manage it. And I'm pretty good in knowing where to put the measurements, the yard sticks, to be able to manage a highly efficient organization. So you'll hear more about that from me as I get to interact with all of you over the next few years.
So those are the 4 key focus points for me at this point around execution. I believe the ball is ours to execute and that the future is hugely bright. These are some aggressive numbers here for our 3-year plan, going from less than $300 million to well over $500 million in 3 years. The key is the green underneath, not the line on the top. It's about the profitability of this business unit so we really can call it a business unit, okay?
And so if you take anything away from this presentation, other than big growth drivers, right in the mainstream of the market, the software infrastructure market, well positioned versus competition, I'd like you take away these 4 items. 3 years from now, more than $500 million, compound annual growth rate 23%, 25% margin contribution, world-class margin contribution percentage and the leader and the dominant player in this high-growth category. Thank you very much.
Robert C. Paul
Great. Thank you, John. As you can tell, John was focused primarily on what we do today in the competitive positioning. I will tell you the way in which companies buy APM today is non-sustainable. They buy point-specific tools. They have, in some cases, many, many, many point-specific tools. We have some customers that have over 100 point-specific tools and they're getting thousands and thousands of alerts an hour.
But we're not talking about a lot of today, but you'll see it as we achieve it, is as we bring these assets together, the ability to monitor, sift through the data and then provide answers to those customers across a very, very complex application delivery chain. And that will create more disruption in the marketplace.
One point to note, I forgot to mention is that this is being webcast. So you'll have that available, right? Sorry, Lisa, got caught up. And I think now, it's time for a 15-minute break. So I've got approximately 1:33-ish. We'll get back here by 1:45-ish. We'll be able to ready to go. Thank you.
Robert C. Paul
There it is and it's near and dear to my heart, this is where I came from. And fundamentally applying the same rules that we've applied so far, as you're seeing sort of being pervasive throughout the rest of the business units, have been applied to Covisint. It's a focus thing. And focus is even harder when you don't have a reference category by which to compete.
Covisint started way back 11 years ago, 12? I don't know. Before Cloud was a term, Covisint was delivering a Platform-as-a-Service in the cloud for some of the largest companies in the world. And now operates globally, solving some very, very, very big problems. I actually joined Covisint a couple of years after they started, and Dave McGuffie was running most of the operations at that point. And I'm thrilled to see that he's doing a great job and still running the show today. So it's with great pleasure I'm introducing Dave McGuffie, President and COO of Covisint.
Thank you. Thanks, Bob. So I'm going to talk to you -- define the problem, the market problem that Covisint addresses. In addition, go into some level of detail on how we do that. So let me start here.
Okay. Today's enterprises need to connect, engage and collaborate with their customers, business partners and suppliers to transform their businesses. Connect, engage and collaborate with customers, business partners and suppliers. These are critical processes to the mission and objectives of any organization. We're seeing whether high value, complex, global and they're quickly moving into the cloud. The expectations that have been set from consumer technology is changing and accelerating these.
The proliferation of mobile devices, the simple access to data and applications at any time you need it, the new ways of forming communities and collaborating around those communities, all those accelerating these transformations across every business segment. Every vertical industry is having these transformations going on. New business models are being formed. New products and solutions being formed. New ways and innovative ways of organizing and organizing around innovation around with your business partners and suppliers. These are mission-critical process.
So Covisint provides the leading external engagement platform. No other -- there is no other platform out there that allows these mission-critical business processes to be run in the cloud. We provide a set of external engagement tools and technologies that move these business processes into the cloud. We have a proven platform, validated by the largest business globally, running their most mission-critical business processes. So we allow these processes to be moved into the cloud.
So Covisint is enterprise-grade. We have over 500 customers, 22 million managed user IDs, over 1 billion transactions annually, with 100% availability. And all of this leads to virtually 100% customer retention. We're running these for the largest organizations globally. These are the most demanding organizations from a security and from a scalability standpoint. 6 of the largest automakers, global automakers, we run their supply chain, connect their supply chain. 3 of the 6 largest energy companies, we run their business, run the integration with their business partners. The largest health organizations nationally, we manage the data access to the private and critical patient data across the community. These organizations, if you take them on their own from a market opportunity standpoint, there's over $1 billion market opportunity with existing customers that we have today. So let's talk a little bit about the technology here.
We have a platform. And this platform, it's a Cloud-based platform made up of a set of 4 component technologies. These are enabling technologies for any critical business process. They run out of the cloud with no on-premise software. Run out of 4 global data centers. Built from the ground up for reliability and scalability. So the first technology is around identity services. Identity services consist of 3 major processes. First, how you get an ID and how that's vetted out; how you authenticate at the point of log in, how you're validated; and third is how you're taken out of the system.
On their own, they seem fairly simple processes, but when you consider the external engagement area, you have issues in use cases like industry-wide single sign on. How you manage single sign on and identity across the community of 70,000 companies? You have global compliance and regulatory issues around data access. You have access issues around how you access private, critical patient data across a healthcare community.
These are all a level of complexity that is not in a regular identity management. If you take identity management issues in the consumer world, it's fairly simple how you get a Facebook ID or a Yahoo! ID. It's generally tied to a credit card. It's not tied to your role within a business process or an ecosystem. If you look at identity management within a company, within enterprise, it's generally very controlled, very simple. You're either in or out. But when you start going across organizational boundaries, it gets much more complex. And that's where we have a platform of technologies that may take that complexity and simplify it. We're regarded as a leader in identity management as a service by the technical analysts.
So the next area is portal services. Portal services is the user interface aspect to the platform. This is the point of engagement after you're secured and logged in, you come in. You have access then to very quickly, on a personalized and kind of relevant data basis, navigate through to different data sources, applications, cloud services. And very quickly, get to them in a very personalized fashion. This service goes across devices, mobile device, tablet, online.
In addition to the basic functions of a portal technology like a content management search, file sharing, video. We have the ability to create ad hoc communities on the fly. These are secured communities, allow people to collaborate around a document, around ideation or knowledge sharing.
The next set of services is our data exchange services. This is considered the plumbing of the platform where we can aggregate huge amounts of data on the fly, translate the data into common data sets on the fly. So this is also the integration point, integration to Cloud-based services, integration to internal applications. It's a critical part of the platform. Finally app cloud. App cloud is our third party marketplace of applications. There's over 500 Cloud-based applications, name brand applications out there that are accessible through 1 ID. These applications are often tied together and brokered together by Covisint from a workflow standpoint.
We've recently added an app store. The app store allows internal developers or third-party developers to develop application code to be deployed out on the Covisint platform and the Covisint app store. In addition, that same code using the Covisint APIs, can be deployed through an Apple App Store or the Android store.
So underlying all of this service is a analytic service. And there's a tremendous amount of data that's flowing through when we have 22 million users going on. So some of the data we use is from a byproduct standpoint and some of it is that we actually product-ized and roll out. So for example, in automotive, we are the definitive source for contact information and location information for automotive suppliers, 70,000 companies out there. So when the tsunamis hit Japan, we were the source of the automakers looking for locations of the suppliers in order to determine disruption to the supply chain. In healthcare, it's much more about product-ized analytics and that is care coordination of patient data across the community. Tracking that data, tracking the outcomes based on it.
So all of these technologies are necessary for any mission-critical process. They're enabling technologies. So it allows an organization to then focus on the business process at hand, to focus on their transformation and not focus on integrating and building together this enabling technology.
So let me give you some examples here. One of them is General Motors OnStar, the connected vehicle program for General Motors, 6 million subscribers. Traditionally, it was a call center and a crash response system. Over the last 18 months, they've been shifting more to an online service provider. Things -- services to how you download infotainment applications to your vehicle, services for how you interface with your navigation system, services for how you get diagnostics out of your vehicle on a mobile device. For example, a charging status on an electric vehicle. And services that allow you to open or even remotely start your vehicle from anywhere in the world via mobile device.
So all of these services are shifting to online services. Covisint, we contracted with them about 18 months ago. Within 12 weeks, the platform was up and running. We provided over 20 new offerings into the marketplace with OnStar off of the Covisint platform. So we provide the identity management across mobile devices and online, as well as a portal and user interface for aggregating all of these different data sources behind the scene.
So another company that's transforming to the cloud is Carlson Wagonlit, second largest travel company the world, $24 billion in revenue. They have 20,000 companies that they're providing corporate travel services for. So they attempted to build an online presence for their 8 million users.
After 2 years, they came to Covisint. We were able to get the platform up and running in 30 days and get the 20,000 companies migrated, starting over a 5-month period. So what we provide there is an integrated -- each customer, each corporate site and each user is integrated with their home identity management, so they have a seamless flow into the Carlson Wagonlit travel site, all brokered through Covisint. We provide the platform of engagement as the consumers look at their experiences, branded in their corporate branding. And then it pulls together relevant personalized information about their specific travel.
So a third example is the AMA, American Medical Association. This is a -- with 250,000 members, the largest medical association in the country. 1 in 3 physicians is a member. Traditionally, a publishing organization, a medical journals and a lobbying organization. They formed an initiative to put out digital tools for their members. So we provide a platform that enables them. Through one ID, the physician can log in and get access to over 100 applications. These application oftentimes tied together into workflows.
There's a single aggregated view that the physician has -- a unified patient view that pulls data from all the applications.
So how do we attack the markets? We attack the markets in verticals. We have a horizontal set of technology. When we talk to the industry analysts from a technology analyst standpoint, we talk to them about their horizontal technologies. When we go to the market, when we attack the markets, we attack it in verticals, for reference selling, for subject matter expertise, for domain expertise within those verticals. So we have solutions today -- marquee customers in all of these verticals. Our main focus up to now has been automotive and healthcare, the majority of our revenues from automotive and healthcare. The technologies that we're providing go across all verticals. They solve business problems that are addressable in all markets.
So there's been a lot of talk about the cloud, and there's no doubt there's a massive secular shift going on. The Forrester says this is a $220 billion market by 2020. There's a lot of ways that you can split this up. There's a lot of ways analysts look at it. They call it Platform-as-a-Service, Infrastructure-as-a-Service, Software-as-Service. But there's no doubting it is a massive market.
And if you talk to any of the fortune 100 CIOs or even reading the surveys that are out there, especially what are the barriers to adoption of the cloud services going forward? They say it's security, integration and reliability. These are the 3 areas that Covisint addresses. No one else is addressing these issues in a Platform-as-a-Service model today.
So to summarize, we're the leading external engagement platform, the only one addressing these mission-critical processes in the cloud, proven enterprise strength, major successful marquee reference-able customers in multiple industries. We're a key-enabler for the enterprise shift to cloud computing and we are shifting mission-critical business processes to the cloud. So it's simple, scalable, compliant, secure, integrated and simple.
So on the financials, so a couple of notes on the financials here. We're a subscription model, the Software-as-a-Service typical model, which provides us great visibility, forward-looking visibility. Because we have virtually 100% customer retention, we're always going to have growth going into the next year. As the customers from the prior year, that came in at different stages of the year, you get the full year subscription for them. So generally, you're going to get 10% to 15% growth out of the box going into next fiscal year. We have a strong recurring revenue mix, 75% recurring revenue to 25% professional services type of revenue. A strong backlog that's going and huge and massive markets that are available to us.
So that leaves these numbers. These -- the growth rate to get to these numbers are consistent with what our growth rate has been over the last 6 to 8 quarters. This has us growing our revenue 3x over 3 years in addition, with significant margin expansion.
One of the reasons that we can get this margin expansion is that from a scalability standpoint, from an infrastructure standpoint, we've made those investments. Those investments are all in place in order to scale the recurring side of it. The expense line does not move, barely moves based on adding recurring revenue onto the platform.
So that leads to these final 3 numbers. 42% growth rate, consistent with what we're talking about this year, 32% contribution margin. 3x revenue to be a business that's greater than $200 million. Thank you.
Robert C. Paul
Thanks, Dave. One of the very powerful things that Covisint offers that you may or may not pick up over the course of that presentation is that when we engage with a new customer, we're typically engaging in a use case, or 2 or 3 use cases. They represent 1 business process, maybe a couple of applications. The ability to engage in collaboration across customer side, supplier side, partner side, joint venture side, whatever it is, represents almost an unlimited opportunity to grow that subscription revenue within the same account.
And the other thing, obviously, because we typically -- at the beginning of the market, as this market is being formed, gaining Fortune 10, Fortune 50 companies, right? Covisint could stay very, very busy just engaged with our existing customer set and growing subscription on a quarter-by-quarter basis and be very, very healthy. So we're very excited about that, and that give me put up there for the growth rates is -- let's see how it goes.
Okay. So now we're getting into an area where we're going to start to share more numbers with you. But we also would like to cover off the 4 other business units very quickly. Not because they're not as important. They are absolutely critical for us, obviously, the mainframe represents 40%, a little over 40% of our revenue today. But by way of introduction, Joe has been on board, 5 months, Joe? 5 months. So Joe comes to us from Deloitte and without getting into a long introduction of history and everything else, there's 2 important things about Joe. Number one, is he was about to take over a mission-critical global role for Deloitte reporting director to the CEO. And just before taking that role, we have the opportunity to talk to him about the opportunity that rested here at Compuware. And we're thrilled that he took this opportunity that goes to how smart he is and the opportunity.
The second thing about Joe, as probably is more important, he represents a critical and vital skill set that really helps complement me and the rest of the leadership team. He's got a discipline -- a sense of numbers and a very, very strong business acumen that is absolutely valuable for us on the second half of our equation this year, which is not just to grow top line, but to do it fiscally responsible. So with that, I'm going to allow Joe Angileri to take us through the next part of the presentation. Thank you, Joe.
Thanks so much. Unlike my illustrious colleagues here, I don't know how many guys have this monovision. Have you guys tried that in your eyes? I just kind of had that going where you have one contact in that can see distance and then one that you use to read close. It kind of messes up your brain originally, but so I have that monovision and we can kind of have a monitor over here so that we can see the slides as we move them forward. I can see that exit sign perfectly well. And I can see this -- my pieces of paper up here but I can't see that for anything. I don't have any mid-distance because I can see far and close. So I'm going to have to look at my notes here periodically.
But let me just start by saying it has been a really interesting 5 months. I remember a couple of weeks back, maybe a month or so ago. I have great days and I have days that I'm go to scratch my head and I say what did I just do, leaving Deloitte to come to Compuware. And I was having a conversation with Pete at lunch. And I said, "You know Pete, sometimes I have these days where I think, what did I just do coming to Compuware from Deloitte?" And he said to me, yes, I have the same question.
So anyways, let me just get on with the presentation here. I'm going to talk for about 20 minutes or so on the other 4 businesses at Compuware first, and then I'll move into the 3-year plan. John did a great job covering our APM business, Dave on Covisint and Bob setting the strategy. So I'll move forward and just get into some of the other businesses.
So the first one I'm going to focus on is our mainframe business. And this is still a very important piece of our portfolio. In fact, it's a $400 million piece of our portfolio that's generating high 70s in terms of contribution margin. So it's still one of the significant drivers of our company.
I was going to talk a little bit about the trends, kind of market trends in Mainframe. But I actually thought I'd change it. Since I've been with Compuware, this raging debate Pete talked about that started about 20 years ago about mainframe and the future of mainframe and is it dead, actually still goes on. And so I just thought I'd tell you a little bit about my view after being in the business for a number of months now.
So the future of mainframe, is it dead? The answer is no. If it was dead 20 years ago and we're still doing $400 million of revenue, I don't know. That's not a bad situation. It's a very healthy business for us. But what I will say is this, is Mainframe is clearly a closed market, not a lot of people setting up new mainframes. It's a closed market. Most of the development right now in terms of new compute is happening because of the cloud. Most of that's happening undistributed. True that a lot of small mid-market size businesses are not using mainframe. They're going to distributed. But there are still some very, very large companies out there that have a tremendous amount of transactions and data that's still being done on the mainframe. And my view is that it's going to still be done on the mainframe for years to come, simply because it's a very stable environment, it can handle massive volume.
The ROI in pulling that out of your shop and replacing the distributed sometimes isn't there. But probably the most important thing is risk. Because mainframe is the backbone for a lot of this data and transaction, pulling that out puts the business under risk. And you have to ask yourself, is the risk reward really worth it?
So I think the future of mainframe is still there. But I will say this, what does it all mean? It means that we are in a closed market and I do think it is declining, but I don't think it's declining at a rapid rate.
A lot of people have said web and native apps that's really creating tremendous amounts of transactions. And if there's a lot of transactions, then isn't that going to require growth in mainframe because that's the back end for all these transactions and data? I think the answer is probably yes. But I would also say that -- and IBM will talk about this, the new architecture that they're putting in with respect to mainframe is a much more efficient architecture. And I think I read an article that they say it's 25% more efficient. So as transactions and volume go up, efficiency goes up too. So I think that's the reality that we live in.
I've heard that mainframe is going to die because the generation of workforce out there that's used to the green screen, they're all retiring. And so the fact is that's probably true. But a company like Compuware, we've started -- and I'll talk about this a little bit later. But we've got what we call a workbench, which is a that looks and feels like more of a Windows application, and so it allows the next generation to actually still continue to use the tools in a mainframe environment.
And the last thing that I wanted to share with you is I've heard now that Compuware -- our growth is directly tied to the number of MIPS that IBM throws on to the floor. And I'd answer that 2 ways. Number one, when IBM says how many new MIPS are out there? They really don't break that out between is it replacement or is it actually new?
But more importantly, that really doesn't drive kind of our revenue trajectory. What really drives it is just the renewal opportunities that we have with our largest -- we call them diamond, our largest customers.
So what does this all mean? I'd say simply this year, as you've seen, we've had a tremendous growth in terms of new renewal opportunities. One was very significant. When I look for it in the headlights next year, we really don't have that type of opportunity. So bottom line is mainframe is going to always be lumpy. And it's going to be lumpy quarter-to-quarter. It's going to be lumpy year-to-year. You're never going to see the Mainframe business look like the nice smooth, as Dave was talking, the nice, smooth SaaS business.
Let's just talk about our market space where we’re at. We've been in this business for many, many years. We still, in the areas we compete, we still have close to 53% of the market. And frankly, 93% renewal. And I would say the only time that we really get replaced is when a competitor comes in with a portfolio of products, puts tools that compete with ours into that portfolio for really low or no cost, a perceived low or no cost. As you guys know, there's always a cost.
So what does that leave us? Well, we are looking at how do we extend our Mainframe revenue. As I mentioned, the renewal opportunities, as I see forward, next year is not going to be as significant as this year and you'll see that as we get to the numbers. But there are other things that are on the horizon. Test data privacy, that's a piece of our business that we have tools that disguise data.
As you guys know, data privacy is a huge issue and the test environment is a huge issue as well, so we have tools that will disguise that, which really helps our customers with controlling their costs, as well as maintaining privacy for the data of their customers. dynaTrace potential. This is something that, over the last 6 months, is on board. John talked about it. Bob talked about it. But it really is visibility into the very back end into the Mainframe that really doesn't exist today, so we're pretty excited about the opportunity there. And last one, the workbench, this is what I mentioned earlier. This is a Gooey-like platform that solves this next-generation problem. Actually, there's a way to access all of our mainframe tools in one space. And if you are a legacy green screen guy, you can get that as well.
So let me talk about the Mainframe numbers. And the first thing that I wanted to point to is the margin. Over the next 3 years as the plan that we designed, you're going to see that the 1 primary focus is to keep our contribution margin at about 75%. And we think it's critically important to do that, and we're very focused on that. I'm sure the next number you guys are looking at is the 2013 number. There's a big decrement in Mainframe. And when I was here a couple of weeks ago speaking to -- had the opportunity to speak to many of you, I told you that today, we're going to be as transparent as we could be. And this part of that transparency. Probably this is toughest number in the presentation today. But yes, we do believe that we're going to have a challenge in terms of repeating revenue this year and next year. Simply because of probably what I'll say 3 primary factors.
Number one, as I said, we had a very large capacity deal this year that we don't have any line of sight to something of that nature next year. That was about $20 million to $25 million. Secondly, over the last, I would say -- Laura, 4 years maybe? 4 or 5 years -- we've been consciously moving away from term deals and into perpetual deals to really lock in that maintenance stream. Well in term deals, you actually, you have a deferred revenue. And so that deferred revenue has been burning off. And this year was a steep year. There was $17 million in deferred revenue that was brought into this year that won't repeat next year.
And lastly, as I mentioned, we have about a 93% renewal, and so there's a natural attrition there about $8 million. And so when I add all that together, that gets me from where we were this year to the 368 for next year.
Now I will say this. Again, with transparency, none of us are happy about that number. I'm standing up here and my Executive Chairman is right there who's probably the least happy with that number. But that number is something that we're working really hard to improve upon. And it doesn't include any of those growth drivers that I just mentioned earlier. So that's the Mainframe business.
Let me jump to our next business, and that's Changepoint. Now Changepoint is our project portfolio management company business. Changepoint is about $45 million, and it plays in this project portfolio management space, which is about $1.4 billion. It's growing at about 10% to 15%. But it really plays in the subcategory. Bob mentioned it a little bit earlier. It's professional service automation. And we really are focusing on software and hardware companies that have a service component to them, as well as what I would call just traditional and technology consulting. And we're focused there for a couple of reasons.
Number one, their services right now is projected to grow by a lot of the research analysts. Number two, as you can see from this chart, it's a pretty fragmented space, there's no real clear leader. And if you the bottom 2 lines, about 50% of this market space is still very small shops and homegrown systems. In fact, some even Excel spreadsheets that people are using. So there's a lot of opportunity there. And the other thing is that the competitors, a lot of the competitors in this space, they really don't have the robust product that we have in terms of Changepoint. Changepoint isn't just about efficiency and project management, but it's really focused on revenue generation and how that's transpiring an organization. And so when you have that capability, it really gives you entree into the C suite [ph] , which I think makes the opportunity to sell even better.
So what are the strengths of our Changepoint portfolio? As I mentioned, this PSA space, we've been playing in it, we've actually been very original players in that and helped to find that space. And as a result of that, we really have a tremendous, tremendously strong client base that we can use for reference-ability, which is very important in this space and we've used it to our advantage. And that's one of the key differentiators that we have.
The second one is I said, our solution is really an end-to-end solution, and it's a pretty robust solution. It can manage -- I have this habit of hitting the button and I think that thing changes size or scale. But anyway, it's an end-to-end solution that manages the entire life cycle from sales to delivery, to invoicing, to revenue recognition to the back end financial. It's a real big advantage that we currently have.
Service credibility what I mean by that is, when we are in the proposal process, we bring our service architects in early on. And we've heard directly from our customers that, that is a key differentiator. They want to know who's going to actually implement the system for them.
And lastly, we talked a lot about SaaS today. Our Changepoint platform, we do have that as an offering, a SaaS-type offering. And so I think that is a key differentiator as we see the growth in that space as well.
Okay. So how are we going to grow this business? We, in fact, are going to grow this business and that is clearly something that we want to do. We need to scale it and the best way that we're going to try to scale this business is not by building out a huge direct sales force, because the other thing that we're really focused on at Changepoint is operating margin or contribution margin.
So we're really looking to develop it through channel partners. And channel partners to bring 2 things to the plate. One, again increase sales. But we're also looking to channel partners with respect to delivery. This is primarily outside of North America because we really don't have the scale there and we think this is probably the most effective way to scale Changepoint. Develop international markets, it kind of goes hand-in-hand there are specific markets like Brazil, which is really exploding in terms of technology service that we really want to get ourselves out there and play in that area.
And the last 2 areas that, on the bottom is with respect to the system itself, the application itself. Most of the work that we're doing in that application is not the functionality. As I said, we believe we've got a very strong functionality. But it's really investments in mobility, usability, automation, it's how our customers are interfacing with us. Tablets and mobile phones is how people are tracking their time and entering it in a service industry, and that's where we're particularly focused.
So let me move on and look at the numbers. As I said, Changepoint's about $44 million company today. We're looking at about a $10 million growth trajectory over the next 3 years to get up to about $76 million. But the bottom line is the important line, it's the key line. Right now, Changepoint generates a pretty much breakeven contribution margin. We want that to grow to about 13% next year, 26% the following year and jump over 30% in '15.
Now I'll say a couple of things. As I mentioned, channel partners being a very significant piece of that. Let me just give you guys a little color around that. Going from today to '15, we're projecting that our revenue from channel sources is going to go from about $4 million to $9 million. The service component, the delivery component that we're going to look to third parties to help us with is going to grow from about $1 million to $4 million. And then the SaaS component that I mentioned, we're looking for that to go from about $2 million, to anywhere between $7 million and $9 million by fiscal '15. So that's our Changepoint business.
The third business that I want to show is Uniface. Uniface is an application development tool. And as you guys know, it's a very big -- that's a very big category, about $8 billion. Much like Changepoint though, Uniface is focused in a subcategory called rapid application development -- excuse me. Uniface is about a $48 million business for us today. And simply, Uniface are tools about help organizations build better applications, mission-critical type applications, applications that are going to be long-term applications used by a company. And as our business unit leader says to me, he likes to think of it as being the high-end alternative to Java and .net.
So much like what you've heard today, a lot of opportunity is out there for Uniface because of the changes in the marketplace, the advent of cloud, mobile computing and HTML 5. HTML 5 is the new standard for applications -- web-based applications. And all of these things provide opportunities for Uniface to grow. And you take cloud computing. Bob alluded to this a little bit earlier, a lot of companies you may have an application but to put in the cloud they need to make it a multi-tenant application. And our Uniface tools have the ability to accomplish that.
So growth for Uniface. Number one, as I said, we have a pretty good cadre of customers that are actually taking the applications they have today and they're modifying for things like cloud. We're going to focus there. The HTML 5, again, modifying for the new standard in web. But we're also going expand through our value-added resellers and partners. Again, like Changepoint, Uniface is a business that we want to grow, but we're very focused on profitability. And so we don't want to invest all the direct cost. We want to do it through our channel partners again.
Right now, Uniface's revenue, about 50% actually comes from our channel partners and we want to increase that because we think we'll get -- this is probably the most efficient way for us to scale the organization.
A couple of opportunities for growth. Uniface is scheduled to have a release mid-2012, Uniface 9.6, which actually I think is a follow-on 9.5 that just came out. That provides the update for a cloud development. And then in the end of 2012, Uniface 10 really is focused on the HTML and mobile component that I just discussed.
So here's the numbers for Uniface. So I said it's about a $48 million business today. We're looking at about an 8% to 11% growth over the next 3 years on a pretty steady basis. But, once again, we're focused on that controllable margin. Uniface is about a 55%. We'd like to keep bumping that to where it jumps over 60% by '15.
Okay, before I to get to the 3-year plan, let me talk about the last business unit that we have, our Professional Services business. Now before I start, our Professional Service business has gone through some terrific transformation over the last couple of years. That business a handful of years ago actually lost money at the contribution margin level. Today, it's generating about a 19% contribution margin. So I've got to give Pete and Bob and Marj Kozlowski who runs that business unit a heck of a lot of credit for turning that business around and making the hard decisions that had to be made to get that business where it's rolling on a profitable basis.
A Professional Service business is competing in that marketplace and I think, as all you guys know, that's a massive marketplace, $300 billion, it's huge number. And actually it's continuing to grow. I think its 4.5% growth is what the analysts are projecting that that service space grows in.
And I put this slide up not to state the obvious about the size of the market but I really put it up because most people think of the big players the Accentures, the IBM Global Services, et cetera. But when you look at that little pie chart, what it says is there's like 100,000 companies out there doing professional services, 98,000 I think -- I think that's the number. Yes, 98,000 are companies that have less than 50 people as employees. And I just showed that because I think what it really says is that it's a big market but it's massively competitive.
And the moral of the story is, is you really need to know your sweet spot in this space and you need to be laser-focused as we've talked about in terms of where you're going to play. Because if you're out there doing proposals in an area of the service industry that you're not going to win, trust me, you're going to have no margins. And if you're not razor-sharp in terms of your delivery, the margins are so thin, you're not going to have margins. So that's really critical for us in our Professional Service business. And as I said, our business unit leader, Marj Kozlowski, very focused on it as has the rest of us.
So what are our strengths? What is Compuware's sweet spot? And it's pretty much the same that it's been for a long time. We're very, very good at developing complex and maintaining complex, custom applications for our customers. Over the last couple of years, with the development of mobile and what we're calling machine-to-machine applications, that's where a lot of that custom application developments occurred. So we actually have created a competitive advantage right now in the service center [ph] Because we have the expertise in those 2 areas.
So how are we going to grow? Well, once again, this is a business that we want to make sure that we're growing in a stable way and very focused on margins. In a professional service business, we really are -- I use the term just in time, but we're looking at maintaining a just-in-time consulted workforce. We don't want to create a big bench because, once again, your margins can erode like that if you do that.
So we're really focused though on the areas of sweet spot that I said we play custom applications, mobile applications, machine-to-machine applications. And I think it was -- it might have been John or Dave spoke about this earlier, that one of the research analysts said that the IT spend for new initiatives is going up from 18% to 24%. And it's not really going up with respect to system of record, but it's really the user systems of engagement. That's where it is. And our expertise in mobile and machine-to-machine fits right into that sweet spot.
The other area of growth for us Bob mentioned it a little bit earlier is performance engineering. We are a performance company with our APM business and we believe that, that's a growth area with respect to services. Companies just have too many tools and are looking at ways to get help in that regard. So that's another growth area that we're looking at.
As I said earlier, the primary focus for professional service is margin expansion. It's all about retaining your best talent. It's all about continuous process improvement and how you deliver. And we may even look at things like extended delivery.
So here's the numbers on Professional Services. Right now, our Professional Service business is about $156 million. And our goal is to really grow that to about a $200 million footprint by '15. That's about a 9% to 10% compound annual growth rate. But, once again, I don't want to sound like a broken record but the key focus is moving the margins from 19% to 21% to 23%. We think we have the ability to accomplish that.
Okay. So that's the remainder of our portfolio at Compuware. Now let's talk a little about our 3-year plan. And what you're going to see is -- what we're referring to as a base case. And by that, I mean, we're taking that portfolio of businesses and we're looking forward and saying if we have that portfolio business and it looks the way it looks, what is it that we can accomplish over the next 3 years? And I recognize that, that may not be the case. But what I'm saying is that things like a Covisint IPO. We're not really taking that into account here. And the reason we're not doing that is because timing is going to be an issue. And I don't know exactly where that will land. We haven't determined the amount of equity that you'd put out. We don't know the cash you'd bring in and how that would integrate into the business. And then you have to deal with things like would you continue to consolidate at minority interest, all that stuff. And so we said, you know what, that's all kind of alternatives to the base case. Let's build the base case first and drive it from there.
So when we started this, it's been a bit of an iterative process. But when we started it, we said, okay, so what should we accomplish as a company over the next 3 years. But just kind of a gut check, we said, but what would we have to accomplish the be considered a best-in-class company? And that's a little bit of a nebulous term but we thought we really wanted to do that, because we wanted to see whether or not we were going in the same direction that I think best-in-class companies would be. Now, of course, best in class can mean a lot of different things to a lot of different people. But what we were really focused on is best in class in terms of how revenue growth and margin expansion relate to each other.
So what we did was probably something that you guys would do. We benchmarked our different businesses against publicly-traded competitors. We have a very diverse portfolio so nobody looks exactly like Compuware. We did a weighting of that and then we kind of did a quadrant. And we've said, okay, if you've got revenue growth as the Y axis and you've got margin as the X axis, you kind of plot it and said, what is best in class? And I probably would say that I didn't do a scientific financial job as I'm sure all of you guys would. But again, we're just trying to look at it as a benchmark and I think it's directionally correct.
And so here's a sampling of the populations in companies we looked at to benchmark ourselves against. There's more in the population and Laura can talk about the iterations we did on this. But we kind of concluded that this is where we needed to be. We needed to be at about 12% to 14% growth by '15 and we needed to be at 26% -- 25% to 26% operating margin.
Now I want to make sure I'm clear on this is that, yes, there are companies out there that are growing a lot faster than 12% to 14% and yes there are companies out there that have a margin, a lot higher than 25% to 26%. But again we're were looking at the relationship. We're saying we want to be a growth business and we want to generate bottom line margin.
I'd also say there are companies out there that are doing both of those things. But again, their portfolio is different than ours. Our portfolio from a Professional Service business to a SaaS business is very distinct and very different. So those are the benchmarks that we set for ourselves and so we kind of -- as I said, as we were developing the plan, we kind of looked at it against these benchmarks.
So how do you get there? Our key focus, as I said and I think I'll probably say it 15 more times, is we really want to create margin expansion. Going from a 15%, 16% operating margin to 25%, 26% takes a lot of work and it's -- you can't accomplish it with one thing.
We had a meeting a couple of weeks ago with the entire management team and I said there's no one silver bullet. Compuware does a lot of things well but we have to do them even better, we have to have greater discipline. But when I look at it, there are really 3 drivers to operating margin and this is motherhood and apple pie, I mean it's growth. It's really optimizing the cost structure in our business units. And by optimizing the cost structure what I really mean is making sure that your dollars are going to what's core to the business and not what's contextual. So it's not about reducing the costs, but it's also about making sure that your costs aren't growing faster than your revenue.
And then lastly, what I call shared services and G&A, incredible efficiency. That's what you got to get to. Best in class means incredible efficiency. And so I believe there's an opportunity to reduce of those costs. And all that's going to create the margin expansion that we're shooting for.
So let's talk about the revenue numbers. You've now seen all the parts of the various businesses and this is the summary of it. This year, we're going to be about $1 billion, $1.40 billion at the end of this fiscal year, growing to about $1.3 billion -- $1.131 billion next year, $1.290 billion the following year, $1.454 billion by '15. So that's about a 40% growth over that period of time. This year, it's going to be -- or this year to next year, about a 9% growth because of the challenges I mentioned around Mainframe. And going to about a 14% -- a 13% to 14% clip over the next 2 years.
Now how are we going to do that? We just go back and say, you've heard John, you've heard Dave about the growth and those are the 2 growth drivers. We have to maximize the growth out of those businesses. And then, as I said, we're going to grow the other businesses albeit at a much slower rate but at a very profitable rate.
The second leg is what I call business unit optimization. We've got to optimize the costs here. And by that, I mean, we just cannot allow the cost to grow faster than revenue. Right now, 66% -- $0.66 on $1 in our business units is spent on operating cost. We want to drive it down to 61%. How are we going to do that? Well, there's a host of things that we're working on right now. But I want to be clear on this slide and I want to be very crystal clear is the key here is we are not going to let these costs grow and outpace the revenue growth. So if the revenue growth trajectory doesn't go quite the way we have it, I can assure you those operating costs and the business units aren't going to grow that way either. Right now, there's a delta between the revenue. I think the revenue compound annual growth is about 12% and the operating costs right now about 8%. And as I said, I want to be very clear that, that's critical because the real focus is that is optimizing our operating margin.
So a couple of things of that I want to share with you in terms of some of the things we're looking at. I think John and Bob and Dave alluded to some of these things. I'll just touch on 3 of them there's more we can talk about at the cocktail hour. But let me just start with product portfolio rationalization. We have a lot of products and but we really need to really laser focus our thinking about maintaining those products that are going to create a return on investment.
And in the development world, people get all jazzed up about their product and their functionality but we have to be really disciplined about ROI. I was sitting in a meeting with John and the APM team about 2 weeks ago, kind of our product roadmap, and it was great to see John just hammering that home with those folks. He says, "Look, that's great but is it -- are we going to get a return on our investment?" And that's very critical because if you don't do that, the cost of just maintaining currency, it will create an inability to do any type of H3 initiatives. It's going to create unnecessary complexity for the sales force and the market. So that's critical.
The other piece of product portfolio rationalization is really looking at your various labs. John mentioned we have labs across the globe. We want to make sure that we're going to maximize the productivity of those labs and at the same time, minimize the cost. So we're going to looking over the next couple of years making sure we got the deck chairs in the right places to accomplish that.
The second area that I'll touch on in terms of optimizing our cost structure in the business units is around sales productivity. For those of you that I had the opportunity to meet a couple of weeks ago, I was probably harping on this and I think you heard John mention it today as well. This, I think, is our biggest opportunity when it comes to optimizing our operating costs. I'll just say it simply, we're not where we need to be with respect to revenue per sales rep, we're just not. And I'm not talking about incremental change. I'm not talking about increasing that 10% or 15%. I'm talking about 80%, 100% change in terms of productivity. And we have the opportunity to do that.
Things like streamlining the sales organization, greater empowerment to regional leadership, greater discipline around the products, the product mix that our sales folks keep, stronger sales enablement. I wish our products were iPads. I mean it'd be great. You can sit them on the shelf, and they fly out the door. But they're not. It's a consultative sale with respect to our products. And when you have that type of situation, your sales folks need to be not only trained in the products very thoroughly. But they need to be trained in the value proposition, the value propositions to the customer. And they also need to be trained in how to beat the reference competitor. So that's a critical piece of really developing -- of improving our productivity. But we also want to look at things like better leverage for our sales folks with inside sales and support.
And lastly, and probably as important, is we've got to be very disciplined and create accountability around sales productivity.
The last item I want to talk about is pricing. Pricing is an art. It's not a science. And as I said, we have a very complex portfolio of products and I believe, as I mentioned earlier, if we focus on the value proposition, the value proposition that our products have over the competitors, our unit pricing will go up. And that's an area that we really are spending a lot of time on.
Product related services though is another area. We're -- we probably have room for improvement when it comes to -- when it really comes to looking at the scoping of what it takes to implement one of our products. Some of them are very different. And so we have to do a better job at the front end when we're selling the product as to educating the customer, what it's going to take in terms of delivery. Because much like our Professional Service business, that just crushes our margins. And so we need to focus on that as well. So those are just a couple of things, as I said, to optimize the profitability of our business units.
Okay. The next piece, the third leg of a stool, margin expansion comes from what I'll just call cost containment around G&A. And this slide says that we're going to go from $0.19 on the dollar to G&A down to $0.13 on the dollar. And let me just share a couple of things with you on this slide, again for the sake transparency. The cost that we have taken out of G&A here are 2 things. These are costs that we already have line of sight to. I can already tell you where the costs are going to be and where we're going to take them out.
I will also tell you that this number is not where our board wants us to be. The number that I presented to them was much steeper. This is about -- what you're seeing is about a 6.5% reduction. It's actually a little bit higher because our Shared Services, which I think most of you guys would consider G&A, we already allocate to the business units. And if I add that, it's a 9% reduction. The numbers that I shared with the board are a much steeper reduction. But this is already what we already have line of sight to. And it's couple of things. As I said, these are some of the things that we're looking at in terms of really driving our G&A cost down. I'll just touch on a couple of them. Let me just touch on -- virtual workplace is probably the one right now where the farthest to one on. And we have about 75 offices around the globe by reducing that footprint, and going to more virtual office space, creating technology for better connectivity with our people.
And it's really aligned with the way our people work today. We think we have a great opportunity to reduce the cost of our real estate footprint over the next 3 years, kind of our line of sight is to take about $8 million to $10 million alone on an annual basis out of those costs. We probably can get a little bit more but because of some of the leases that we have, it might take me a little bit more time. But right now, we think we can get about 80% of it done in the next 3 years.
The other areas that we're focused on, I'll just call it process improvement within G&A with respect to Legal and Finance and HR Executive. We've got a lot of work to do around just making sure that we're improving the processes that we undertake to create greater efficiencies. And I would say that I can take something very simple like a contracting process. It's not fair for me to say it's always all the same, but a lot of the same processes around a $50,000 SaaS opportunity versus a $2 million on-prem opportunity, a lot of the same processes take place.
And so if we kind of streamline the processes a little bit, we not only will create again more sales productivity and more velocity in the marketplace. But we can actually take some of the G&A costs down that have to go into that contracting process. And we really want to try to create a little more leverage by empowerment in terms of decision-making so that we don't have to operate with a high-cost component here.
So what does this all mean in total? If we accomplish all 3 components of that stool, revenue growth, optimizing our cost structure in the business units and containing the costs and actually reducing the costs in G&A, As I said before we go from about $1.040 billion to $1.454 billion. And we take our operating margin from 15% to 18.5% to 22.5% to 26.5% and operating income goes up from $156 million all the way to $385 million.
Talk a little bit about operating cash flow. Again, if we accomplish those goals, our operating cash flow is going to go from about $170 million today to where we get to close to $300 million in operating cash flow by fiscal '15. My guess is a lot of you guys are asking what are we going to do with all that operating cash flow? Well, we're very focused on a couple of -- I can almost tell you a hierarchy of how we're going to deal with that, a great thing we want to deal with this. Number one, nonorganic growth, primarily APM area is where we'll be looking at. And if there's a strategic asset out there that we think will enhance our portfolio, John told you a little bit earlier about where we're going with the portfolio but if there's a strategic piece out there that we think we can buy, we'll look at that first.
Market share, if there's a particular place in the market or area in the market that we want to have a share in that we may not be very strong in, we'll look at that next. And then, let's say if there's other opportunities that we really think to build out the comp of our portfolio, right now the only way I can think of would be Covisint. I don't have anything on my mind for that, but that would be next. And then lastly, we still -- our board still has authorized us to buy back about 20 million shares, so the stock buyback is still out there. Earnings per share. For purposes of modeling this, I use $0.47 this year going to $0.58 next year to $0.80 the following year and to $1.06 by fiscal '15.
So let me just summarize. If we accomplish our goals, revenue is going to grow about $414 million, that's 12% compound annual growth. Our operating income is going to go from $156 million up to $385 million. So $229 million improvement of 35% compound annual growth. That's the focus.
Our operating margins today, hovering around 15%, 16%. We're going to grow those to 26.5%, which is a 11.5% incremental improvement in margin. Cash flow, we're going to go from $170 million to close to $300 million, $298 million in operating cash flow, $128 million increase, 21% compound annual growth.
And lastly, as I said, earnings per share, $0.47 to $1.06, that's a 226% improvement. I would say that this plan is something that we've all, as I said, we've all really focused on wanting to be a growth company but wanting to be a company that's known for margin expansion. And there's opportunities here. There's challenges in this plan, but there's certainly opportunities as well. I'll go back to that best in class slide that we set to say, are we on the right track? 12% to 14%, 25% to 26%. If we accomplish our goals, we'll have a company that's growing at about 13% and we'll have an operating margin of 26.5% so we're kind of right within our benchmarks.
So as I mentioned, there's some opportunities here as well. And I'm going to turn it back over to Bob, talk a little bit about that. We really appreciate, this is a great crowd. I really appreciate you all coming out and have -- showing an interest in Compuware. Thanks.
Robert C. Paul
Okay. Well I guess you saw a level of transparency that you probably weren't expecting when you walked in the door this afternoon. Hopefully that's a good thing. We have a lot of confidence about our ability to go execute against that plan. I'm going to wrap it up with some final thoughts. One of the things that we've been dinged on every once in a while has been volatility on a quarter-by-quarter basis. The primary reason for the volatility is that we have mainframe deals that come in, and we have mainframe deals that go out. We have very large mainframe deals that we might expect that to go ratable, right? Today we presented a 3-plus year plan, and we want you to measure us against our ability to achieve those numbers over a period of time. If we beat one quarter, right, good things happen to stock price. And if we lose or miss the next quarter, bad things happen to stock price but the value of the company hasn't changed one iota because a single mainframe deal goes ratable all of a sudden, right?
As the subscription revenue goes up as a percentage of revenue, as the high-growth business goes up as a percentage of revenue, that will smooth out. That continues to be the case in our business, and I can tell you, we are absolutely focused as a leadership team on hitting the numbers that you saw there and we'll be in a very good spot as we go through the next several years. So, this is all -- you can all choose your own reference base for companies of where we get the multiples. So this is a trailing 12-month revenue multiples that we threw up there for each of the assets. Gomez, I think you could -- or the APM business, I think you could very clearly get to 6x. We hit the numbers probably. I think that's a reasonable assessment.
Covisint, there are 3 SaaS companies taken out. Thanks to the knowledge on that before the presentation today in the last week, ranging from -- well just remarkable multiples on the revenue, much, much higher than what Covisint is today. We've got external, a lot of external advice on what we thought Covisint would do with the improvement in the margin relative to multiples. And certainly, we're in the wheelhouse relative to reference competitors there. And so on and so forth.
So the idea here is not to argue about what you believe is right or wrong for the exact multiples of each one of the business units. I think the point here is where do we believe that we could get the share price to which is ultimately the good news that happens as we start to achieve this plan. Now the $14.66, yes, we're not that way today. In the portfolio type of business that we have, you're going to get a 20% haircut regardless, right, because you're not individual business units, off of some of the parts. So with that, we're right in the range of where most of the sell-side analysts have us today as far as target share price and we're okay with that.
Going forward, if you continue to do the math and you continue to use, I think, which are reasonable multiples moving forward, our expectation is that we could do a sum of the parts evaluation by fiscal year '15 and achieve an over $30 share price. Even if you take the 20% haircut of that, we're still in good shape from growing the business and growing the share price moving forward.
We heard a lot about the baseline plan. I want to talk very briefly about some of the things that we didn't model in explicitly that could either do 1 or 2 things: Help us make up for any shortfalls that we didn't anticipate; or number two, provide accelerators on top of the plan that we can take advantage of.
First off, emerging geographies. We've got a great -- a great team is in place right now in the BRIC. Well, certainly in China and the Asia Pac market, South America doing very well and growing rapidly. But we're just getting going, right? Our footprint relative to the rest of the business is small, and the relative use of mobile devices and webpage access in China alone is 46% of what it is all over the world. So the opportunity is staggering, especially as it relates to the new consumer base and the trends that we talked about. The second thing is, certainly in China, there's a lot of emphasis and influence from the Chinese government to make sure that Chinese-based companies are going global.
Now what does that mean for us? Well, the only real competitor we have in that marketplace is an incumbent that only does Chinese-based measurement metrics. So for any company looking to go outside China and the Asia Pac region, they need a global performance monitoring system, and obviously we would be the choice. We would be the choice there. We've made some investments this year in local infrastructure to beef up our measuring capability, both in South America and across Asia Pac. And certainly, we all talk about the emerging growth companies because they are emerging growth geographies that represent a huge opportunity for us and we've got a great base presence in those environments.
The second thing that we've been working hard on -- for a couple of reasons, number one, the leverage on the cost of sales. We've actually done some very cool innovative solutions in conjunction with partners this year that are really starting to pay off. So embedded technologies in conjunction with Cisco, both on their NAND devices but also now moving into their UCS platform that are unique and are getting a lot of market interest. We did a lot of innovation with BT, as an example, simply on pricing and packaging. Basically, a consumable point system that will create, I think, it's over $10 million but talk about many, many, millions of dollars of revenue for Compuware and even more than that in revenue for BT this fiscal year alone, and that is just, again, getting going.
There's a whole class of cloud service providers, managed service providers that now become not just partners, but a new class of customers for us because they are making the decisions, in some case about how to measure performance. There's a monitor out there as you go out to the left that has cloudsleuth.net on it, www.cloudsleuth.net. It's a free service we put up there. It monitors all public clouds. We now have 30 managed service providers operating on that platform besides the general public ones, and they're using that tool as a demonstration point for how their cloud delivery model is better than their competitions in any geography, in any location, on any platform, okay? That turns into a modernization opportunity for us, not only with a partner, but as they sell cloud services for their customers moving forward.
Pricing leverage, Joe talked about this. As we continue to create separation from our competitors, we continue to create the opportunity for price increases and we will take advantage of that in a very formal way moving forward. Again, that's not distinctly been modeled into the plan. We also have, in conjunction with that, new opportunities that we've actually had prototypes working. We haven't yet introduced them into the marketplace but there are very, very interesting opportunities off of the existing platforms that we have. Let me give you an example. If I'm a CIO moving into the cloud and I've got, 10, maybe different other organizations that could impact my ability to deliver web-based apps, why wouldn't I have a supply chain performance benchmark? We already have that data. We can already show everything that's going on in the cloud just through the existing monitoring sites we've got out there. It's just a different view on the solution.
So now, as I'm running my performance platform, I can see immediately if Akamai is causing me a problem in Frankfurt or a local ISP is causing me a problem in Seattle. Whatever is going on, right, I use it as a supplier performance metric to measure and choose what I'm going to do with my cloud and managed service providers moving forward. Another very common theme that we could deploy very, very quickly is this issue of SLAs, right? Why isn't the cloud moving faster? Well we talked about security and performance and everything else, right? If our customers get to the point where they have to reach into a file cabinet, start reading through the legalese around service levels, it's too late, right? You've got a problem. Wouldn't it be better if I could define service levels but in a different way of what's being done in the marketplace today with real monitoring, real data, every transaction always on, providing visibility back to a dashboard that say, hey, we could be having a problem here or there is a trend going in the wrong way. Let's work with these suppliers to make sure that we don't go over that service the problem as an immediate proactive way of solving it moving forward. This creates revenue opportunities off of the core platform moving forward and that's just a couple of them.
I want to talk about the Covisint IPO. Okay, we've talked about it publicly in the past. Why do it, why not do it? I'm not going to get into a conversation here because I know there are different opinions in this room. But we have a remarkable opportunity with Covisint. And we don't think the value of Covisint has been unlocked especially reflected in the share reprice today. An IPO could represent the opportunity to create a capital to more aggressively invest in Covisint and new industry verticals, new geographies to further that expansion. It certainly is a marketing activity to help create a spotlight attention on the asset itself to create a new opportunity for a new class of investors to get involved in the organization, right? And it also represents an opportunity if we retained 80% as an example. We do a 20% carve out for a separate valuation, more focus on the valuative [ph] Properties of Covisint itself.
Where are we at today? Well, we could be ready to go. We've got the book runners selected. We haven't announced them yet. We haven't even told the bankers yet, but we're very comfortable we're in a good spot there. We are looking at the numbers from a growth perspective. We're looking at the timing, and we think right now, all things being equal moving forward of the right opportunity to do that using potentially calendar year, fiscal year '13 metrics would be in September of next year. So that's a timeline we're on. We are in no rush. There's no business-critical reason that we have to do this. But right now, that's the level of thinking that we're got relative to the Covisint IPO.
We have not basedlined in anything for mergers and acquisitions. We talked a little bit about that before. It has to make sense. It has to be at some reasonable time accretive. And it has to obviously be in line with our core growth strategy moving forward. And that could potentially -- could create some potential upside. Let me leave you with this, and then we'll open up for Q&A. Today, as we've talked about, we've got very large customers and very small customers that have a big, big problem that's coming at them very, very quickly. They're getting too much data. They've got too many products. And they're facing a world in which the complexity of their ability to support the business, given the increased importance of IT, is getting more and more difficult. Imagine a world in which you could have a little dashboard or portlet [ph] pop up on your screen and somewhere in the world, you see you've got a spike in abandonment rate of your website because it's poorly performing. And because we can measure those transactions all the time, we know that as we run a business, what the value is, the direct bottom-line value to it as an organization, where in this case, it's showing as of today so far, a $4.2 million revenue loss. Okay?
Now what goes into providing that information? It's simple. It's easy, it's graphical, it's intuitive, okay, which is the new world of consumable IT for business. What goes into that is that you must have measurements across the entire application delivery chain, okay? We have that. You must have measurements across the cloud and you must have measurements to the end user or consumer, what we call last mile. We have that. Immediately, you can then potentially double-click on that and get to the exact transaction or server or partner that's creating that problem.
Now, you go to the CIO that's got -- or a CEO that will be very interested in something like this that's got over 100 monitoring sites today. All that maintenance, all that cost, all those people. And you create a disruptive value proposition that says, as a consumable service, we're just going to show you something on the screen that pops up that tells you when you've either got a problem or going to be having a problem, and we'll cut through all the other alerts and prioritize it based upon impact to business, okay? Got all the assets, complete the analytics layer and away you go.
What if you could then because you've got these assets and it's in a SaaS-based environment, instead of you just being alerted, you've alerted everybody in that application supply chain. Whether it's internal, directors of IT or CDNs or cloud providers or whoever they are. You've identified them. They've already been alerted. If they have access to the same information you have as a eliminating time to resolution. What are then -- by the way, that has to be locked down in the cloud from a identity management perspective. You don't want other people, right, necessarily getting access to highly sensitive competitive data, which obviously from today, you can see that we uniquely have.
Let's say, from there, you can see what's going on from a messaging on a thread screen in your ability to solve this problem. Imagine the days in the front page of the Wall Street Journal when a major, major global retail banking application goes down for 4 days. What is the revenue impact, credibility impact, advertising impact, business impact to that organization to have something like this? We're seeing an uptick, we'll see it if it plays out in the numbers in future quarters. But because of the impact of dynaTrace in the agentless platform and SaaS together, our average selling price in the pipeline is spiking up because the footprint of what we're being asked to solve is getting bigger and bigger and bigger. We're not reflecting that yet, but obviously, we feel very good about those trends.
And finally, as you're collecting this information, maybe you've got an employee that left that used to have all this expertise. And you're searching on other problems, other issues that have happened around the same characteristics that may provide a library for you to point to in order to solve it this time because you can't figure it out right away. It's simple, it's beautiful in its elegance, it's of immense business value and we're getting there. And this is the disruptive change I talked about, the ability -- the thing that we started a couple of years ago, the building out of the portfolio of assets around both APM, leveraging some things from Covisint, right, that we can bring to the marketplace that would fundamentally change the way APM is being thought about today. And this isn't a nice to have, this is the only way APM can solve a problem of the future cloud. Okay, that's it. That's it for today's content, formal content. And thank you very much for -- we didn't lose many people either. I think it was a good thing to say the numbers until the end. Alright. With that, do I have any logistics stuff to talk about or we're just going to do...
We'll do Q&A. We'll come to you with a microphone.
Robert C. Paul
Okay. This is just like the earnings call. We have a question from Kirk Materne.
S. Kirk Materne - Evercore Partners Inc., Research Division
Robert C. Paul
So let me address the last one first. Buyback is of higher importance, right? When there's not something obvious, as a core competence, it's going to grow the business in a strategic way. So we know what the strategic core growth drivers are. We have nothing on the horizon today. We're going to continue to buy back stock. And we've got authorization to continue to do that and it will happen. There was a slight lull there, because we got into an acquisition and paying off debt and all that kind of stuff. That's clearing out, and so full steam ahead. So the way to read into what Joe was talking about is when there is an opportunity and it's clear and accretive and for all the right strategic reasons, we'll take it as we've done in the past. When that's not there, right, we'll use the cash to help buyback stock. Does anybody have a different opinion? We're okay? We're all aligned.
Let me talk about the APM business and the lumpiness. Yeah, I would say that what happened with the APM business, which was not as growing as fast as we would have liked it to, was kind of lumpy but it was certainly sort of a deceleration. It was sort of a line that didn't go as fast. And the reason for that, we've talked about, right? So why do I think it's better? Couple of things. Number one is, when you go from being very good at selling web performance solutions to line of business executives, right, and now all of a sudden, I've got this sophisticated data center solution and I got to learn, in some cases, how to talk to IT professionals and compete there and all that, your sales skills are sharp as it relates to objection handling, competitive positioning and everything else when you're focused, okay? We've now returned that focus back to the organization. And we're starting to see -- well we are seeing, right, that we're getting back -- we're getting but without giving any advanced information away. We are getting back to where we thought we should have been.
So we're already comfortable that those growth numbers going into next year, we're feeling pretty good about. The second thing that we did not anticipate, and I'll turn it over to you, John, and/or anybody else that wants to -- to Joe or anybody who wants to say additional comments, the uptick in interest and demand from the dynaTrace solution. Not just the core solution that they've always had, but the extension of this user experience monitoring capability that we just recently added. I think it was in the 4.0 -- is it the 4.0 release? -- that came out a couple of months ago that we've been sharing and now can show that platform has been much greater than we anticipated. And so, you'll start to see that now start to spike up a little bit in our revenue breakouts moving forward in APM as part of the on-premise number. The reason that we think that's going to continue is because it is disruptive in and of itself, the way dynaTrace solves this problem, and they had a 92% win rate against their reference competitor, okay? That was with a -- John, how big was your sales force in dynaTrace?
John Van Siclen
23 quota carriers.
Robert C. Paul
John Van Siclen
Robert C. Paul
23 including quite a bit of inside sales, right? How many people have access to that solution or train right now? What's our global APM sales organization?
John Van Siclen
In the field, a little over 150, and a little over 200 total quota carriers.
Robert C. Paul
Right. So now, we've got that solution with access to those people that -- and these are on-premise people, right, that understand the data center, the people that they're talking to on how to solve the problem, right? It's a replacement strategy, but then it’s a land and expand strategy at the same time inside those customers, okay? So we're feeling very, very good about that. One of the areas that did not see any sort of slowdown was -- for us was Europe, right? So the other issue was, right, this is a homegrown issue that we are solving and an enablement issue that we have come a long way in fixing. So we feel very, very good about that.
The other thing on the mainframe numbers, we didn't want to come out here and put numbers out here that we couldn't do well against. We got a lot of coaching. We got a lot of coaching. I'm pointing some people in the room, right? Make sure that you're in a position to do well against these numbers, okay? With that said, there are some things in our back pocket we talked about that I think are going to bolster some of those numbers moving forward. Anything else?
John Van Siclen
I was just going to say from my perspective, aligns very closely with Bob's. There was -- we had dynaTrace came in, in July right in the middle of, sort of a mix of things going on within the Compuware's sales organization, especially in North America. And it's clear to me having done this kind of selling for a few decades now that there was a distance or a gap between the buyer for the Gomez SaaS world and the traditional Compuware products. And that gap was wider, I think, than originally anticipated. And dynaTrace actually fits right in between them. It has a presence with the same group of people that buy Gomez SaaS, and it has a presence with the same people that buy the Compuware on-premise products. So it's a much more straightforward sale actually for both sides to pick dynaTrace up. It's part of the reason for the fueling so quickly if the dynaTrace technology sort of infusing itself into the sales organization globally, and I think you're going to see that continue and it's going to help bolster actually both sides. And as we sort of take a step back and split back a part the SaaS thinking from the on-premise thinking, and the go-to market split between the SaaS go to market and the on-premise go to market, I think you're going to see a much more predictable APM growth off both sides of that business.
Bob, I had 2 questions. One for Bob and then maybe one for John. But you talked a lot about the potential opportunity for sales productivity, the increase there. How much of that is underlying the overall revenue growth and what gets you there in terms of the sales productivity increase? I know you talked about the maybe going back to a more specialized on-premise and SaaS model, but what's sort of the next to get that sales productivity up to the metrics that you talked about? And then maybe for John, you came from a hyper growth company, now within a larger organization. Other than the sales piece you just talked about, is there anything operationally that you see that is inhibiting your ability to get that higher growth that maybe you could address sort of in the out year?
Robert C. Paul
So let me take the first stab on sales productivity. There are many -- sales productivity as it relates to everything else, it's hard to put an exact number on it. We try to look at sales productivity in of itself and the growth that we can get from there. A big part of it is the focus, right, which we've already talked about. A big part of it is the training or what we call enablement. And that comes in a couple of flavors. Number one is the consistency of the training to a referenced competitor position and a definable market of where we want them to spend their time, right, could be a lot more succinct than what it is. So we get to fine tune at the sales organization based upon the value propositions that we're putting forth. The next thing is just trying to simplify our ability to create value for the customer. And there are many, many, many steps along the way from contracts to pricing to proof of concepts to deployment, standardized deployments, right, that will speed up the sales productivity moving forward. And then the last thing, we just went through a few weeks ago, I got to tell you, it was an amazing product strategy rationalization focus and it was -- had laser-focused those companies that we see at which we put up there as real or perceived competitors. And I can tell you, there wasn't more than I would say 6 months, in one case, 12 months, before we either made a big leap in capability, or leapfrogged capability, whether it be mobile performance or things going on in the on-premise side that if we get out in front of and succinctly define and get our sales organizations head wrapped around it in the right way, we're going to be in great shape. So sales productivity is important, but there are a lot of things that go into that.
John Van Siclen
So let me punctuate a couple of those ideas. About 1/3 of the sales organization is new this calendar year within Compuware. That's a big group of people to have to train, bring up to speed and have an impact. That's significant and the enablement processes Bob mentioned need improvement. So it's a pretty straightforward thing to hit. As a relative to sort of speed and acceleration and relative to dynaTrace hypergrowth, Compuware and what that looks and feels like, the biggest thing in my opinion that needs improvement is in distributing the authority to move and make decisions and to price and to actually do business in local geographies and in the field. We have a -- everything sort of rolls up through multiple layers and it's just some things that for history of the company exist that way, and one of the things that in order to accelerate, I believe, that the sales operation is going to need to improve a little bit around the empowerment and certainly the distribution of authority out and down through the ranks of the organization. Which means the organization then has to have a lot of discipline and you have to have a lot of metrics that you are watching around it so it doesn't get out of control, but that's the way to move much more quickly globally.
Just, I guess, one clarification on one sort of strategy question. I just want to clarify that the growth plan here, that's all organic growth that you're looking at there?
John Van Siclen
And then 2, I guess a question for John. Historically, the Gomez on-prem business has been a high ASP, low-volume type of business, which sort of doesn't fit the strategy you've talked about. So how you're going to kind of manage that type of model going forward?
John Van Siclen
That's a great question. So the dynaTrace business when I inherited it had some of the similar characteristics. It's about 4 years ago is obviously very small sort of a microcosm of the Compuware world. And we -- I shaped sort of the vision of how to go to market away from larger footprints and much more into a high transaction base. And it's actually pretty simple to go do, but everybody has to be lined up behind it, so you need sales leadership and all the ranks to be doing the same thing. And we had accomplished it. And one of the keys is that the product has to work as advertised fast. So we could stand up a dynaTrace environment in less than a day, very complex application environments and people could get value extremely quickly. And it had a big impact and then, the next sale happened within 90 to 120 and the next one and the next one. I think some of our financial guys, big, sort of the top 10 in the U.S. in insurance, top 10 banking folks, they buy every 90 to 120 days. But the product has to taste good, it has to go in fast and easy. So the approach, and you see it in the roadmap, is how to take those same technology concepts and apply them to the Gomez on-premise products. It can be done, it will be done. And that's in that 12- to 24-month horizon. In the meantime, some of its sales focus but with the product coming in behind it to enable it. And so look back 12 to 18 months from now, and it's going to feel and look like a very significant business. And as the transaction volume goes up, obviously you have to distribute the decision-making further out because the volumes is too high. But that gives us a predictable business and one built against a much more stable cost model and with the revenue climbing faster than the expense itself.
I actually have 2 questions. First, Bob on mainframe in the past, you've talked about the renewals of some of your top 15 deals coming up and I think 2 years ago, it was 1 and last -- and this year, it was 6. Is that less important given kind of the elephant that you were talking about or is there a pipeline of those large renewals coming up?
Robert C. Paul
Yes, it's somewhat important because we do have -- I forget the exact number, it's less than this year but of our top 15, I'm going to guess at 3 or 4 next year. But, right, they're not as sizable as some of the other ones we have had in the past. So you've got -- you get a little bit of that going on next year.
And the second question is for John. On dynaTrace, if I understand it correctly, there needs to be potentially earlier buy in from, let's say, a Uniface -- a typical Uniface customer to really get the full benefits. A, is that true, and B, is there a plan for that? Is that confusing or is that an opportunity?
John Van Siclen
You said Uniface?
On the development side.
John Van Siclen
So when I talk about life cycle, I talk about the AMP, the application performance portfolio, not the Uniface piece as it relates. The Uniface piece, yes, it does. You have to buy into the whole development paradigm. And obviously, the time you start a developments project to the time it actually hits initially takes a while. But with dynaTrace, you're able to -- we're able to land at the point of final test or volume test. We're able to land at the point of production. This application could have been in the market for 5 years, but it's having problems because it's trying to scale it into a service-based environment or they're trying to now connect it through an enterprise service bus through a host of back-end hosts or whatever. And so at that point in time, literally, in the same day we walk in the door, we can be adding value in that environment. So we don't have to wade through some kind of a process of development in order to add value, okay? So our thought of life cycle is, inter whether it's in development test or production, doesn't matter. We can add value but over time, we can do it across that whole spectrum. In fact, most of our customers, just to be clear here, most of the dynaTrace customers start in production and then they move the product back into preproduction in order to improve the performance of the quality of the code that's coming through to production.
I have a question on Covisint and the thinking around the separation. I'd be surprised to learn that most people here wouldn't like to see sort of an event. I think it's for a lot of shareholders. As you think about September of next year, having us live through obviously a very challenging market environment and depressed valuations for SaaS comps and now they've sort of rebounded, how are you sort of considering or weighing the market risk you're taking by waiting longer? I understand the desire to have higher numbers as a base for valuation, but you'll be starting your next fiscal year with $100 million plus of revenue in March. So the extra 6 months you're taking on, I'm sure the bank is giving you an advice, but why take that market risk and not risk losing 10% on the valuation to get the event done as opposed to taking on this big unknown?
Robert C. Paul
Yes. So we had an internal threshold set. We've talked about it quite a bit. Whether you believe in the multiples or not is irrelevant. With the multiples we have assigned to coast [ph] and would like to hit at least $1 billion valuation for that, for the entity. And looking at the timing, there are some things that have to occur, right? There are some audit issues that got to go on. There's getting the team together, which took a little bit while longer than we thought. We had some interests from some very reputable companies that wanted to do a pre-IPO investment to sort of set the low-end threshold for share price so we had that going on and still under some consideration. And then if you get into September, right, you're using the following years' financials most likely in the valuation. So there are a number of things going on there that outweigh whether or not the market conditions will be better or worse or what have you, but we just thought it was prudent again because there's no absolute, critical reason why we have to do it except for all the obvious reasons of watching the value.
So right now, we're on that trajectory. And we'll keep you up-to-date if things change in that trajectory.
John Van Siclen
Can I add to that, just a few points. First of all, we're not looking at a complete spin of the Covisint assets so we would retain -- at this point I thinking is to retain about 80% of the asset itself. So market fluctuations, albeit, it could impact the amount of cash inflow that we get. The primary focus on Covisint would be to monetize that value in Compuware. So the fact that we want to do it at the right point in time when we think the revenues where it needs to be, we think the growth trajectory is where it needs to be. It's probably at this point the way we're thinking about it more important because we don't really anticipate getting out of the asset in an immediate term.
Thanks, Bob. I've talked to people in the field that say that dynaTrace is actually potentially going to increase mainframe business because it's hooking into the mainframe. And does the mainframe numbers you put up today include the potential increase to the mainframe business via dynaTrace or is it priced in such a way that it's unlikely to drive mainframe business? But if it is, is it -- are those numbers built into what Joe put out?
Robert C. Paul
Yes. So it's very, very difficult for us to model the impact that dynaTrace would have on the mainframe business. And so we did not. There's very little in there for the impact that having visibility in the mainframe would provide for us. If we're going to complete it, I think the timeframe for the completion of the solution is our Q4, right? So assuming that it's ready to go by April 1, our next fiscal year, then we'll do a pretty big launch. And it will, assuming it's -- we're getting the advanced marketing and everything is trained, people are training and all that, it will improve our mainframe revenues specifically for strobe as a pull-on effect in that business. So it is potential upside and Joe will tell you that the modeling that we did around the mainframe numbers was fairly cautious. So we have some opportunities for sure.
John Van Siclen
Let me just quickly add to that. So the discussion that we've had internally is exactly who is the buyer and how quick is the uptake. And the thinking right now is that we know it matters to the distributed system architect, that's the dynaTrace on-prem customer. We know its valuable. We're being asked about it. Within 2 months, we're talking about in the field. We have about a dozen early adopting partners, big financial companies, hugely interested. We are now exploring what does that look like to the mainframe buyer. A little bit different characteristic of that buyer and so it's a little too early to tell which is why we didn't fold it into the numbers, okay? So that's the way we're thinking about it.
So what I hear in the market is that there are different buyers for the products and it's more tactical than strategic. You have the IT dev ops guys buying and you've got the business guys buying. They've got different agendas. And it sounds like you've seen that as well in terms of what you're going do. Sales force had gone back to a more of a specialized sales force. Now, Bob, you mentioned that one of your agendas is try to influence customer behavior, buying decisions and really move the market forward. So where are we in that process and how critical is that to meeting your APM growth numbers over the next couple of years?
Robert C. Paul
Yes. A great, great question. We're very early. From a maturity perspective, from a product life cycle perspective, we're very early. And it is important over the next 3 years that we get it done. So here are the implications. The way which companies buy today are point-specific tools. We've already established that, right? And so whether development testing, operations or line of business web, web managers get it, totally get it. And we're selling there. The problem, as we've talked about, is much more profound than that and the existing tools aren't going to solve that problem. We have, I would say, first-generation interoperability between some of our products and the dashboarding capability that I talked about. So we have components of the Gomez SaaS working with the on-premise that's just this year, this past year, has gotten done and is starting to roll. We've got dynaTrace that has been plugged into Gomez SaaS that's created a new value proposition footprint. The reason we're not pouring a lot of fuel on this is because we're waiting until the first sort of composite across the application delivery chain is fully in place. So no matter where we sell the point-specific tool, we can expand from there, okay? And it will be part of the sales dialogue. You still can't leave it. You've got to say, yes, we're going to solve this problem here. And just in case, there is some confusion or discrepancy about A versus B, right, this is just the beginning of you to achieve best in class performance management moving forward and we're going you walk you up that maturity model. From a product maturity level, we're not there yet and we'll start to see interations that continue to grow. So we've got another release coming out in the March timeframe. We've got a goal in place to hit the 12 to 18 months to have full everything cobbled. And then we'll improve the sophistication of the analytics at the same time, right, for the dashboarding based upon who the end user is.
So to summarize on your question, we're very early stages. It's somewhat of a -- right now, it's somewhat of an educational sell. We think that the market has to go to this direction and most of the people that we talk about, talk to, are going, they're putting up their hands and saying, "Let me know, because we're ready." And it is an important part of our 3-year growth strategy.
John Van Siclen
Just real quick, Mark. Before we wrap it up, let me just punctuate that a little bit. That what we're actually -- my belief of what we're seeing is a new generation of application performance management taking hold in the market. The first generation ended up in a consolidated set of suites; the HP Suite, the IBM Suite, the CA Suite. They ended up in suites. They didn't solve the problem. The market's been moving too fast. It’s the complexity of this environment, the business requirements, the user demands, all the things I talked about is creating a new generation. Much more than half of our revenue opportunity is in replacement of that first generation. What's happening is the IT executives are sitting there going, "Well wait a minute, didn't I just spend the money on that? Didn't I just spend $5 million, $10 million, $20 million on this thing?" How is this going to be any different? And so they're taking a bite at a time. But as you saw on those customer examples I gave you and I could give you dozens of them, they're expanding. Whether they expand within one set of the products or they expand by snapping things together. But don't be confused, the way this market works is that it expands out and then it contracts back again. There will be sweet buying again. I don't know whether it's 3 years, 5 years, but it'll happen again. And you saw hopefully today, the kind of portfolio we're putting together. I don't care whether we land and expand or whether somebody wants to buy it all at once. I'm happy either way. But I think land and expand is going to survive for the foreseeable at least a 24-month kind of window.
Just a small add-in on the buying behaviorship. Bob said that people are buying into the message but we're kind of in this early adopter shift in the behavior. So we are seeing some early adopter guys, very specifically changing how they run their business. Just in the last months, Allstate, JPMC, Office Depot, we had dinner last night and listened to the Merck guys and so on, where they're putting in people who are now going horizontal across that are more architect-ish guys both looking at the technical styles in the life cycle because as Bob kept saying, it's not working. And so they're buying the target and we're starting to see the first mobilization of structural shift. And we believe that these adopter guys will set the tone for the others to follow. So it has tangibly started. But the structure change is early.
And just a second question. You guys have had some changing go-to market focus and it's been a little disruptive to growth. BMC has had even more disruption and seems like there's a lot of moving chairs going on within salespeople in this market. So, I mean, can you comment on what kind of a net attrition you've seen? What the opportunity is to get bodies out there that are on the street? And then kind of what your thoughts are on time to productivity and how long it takes for new reps coming on board?
Robert C. Paul
Right. All solid, right? And the fact that we saw across the APM landscape last quarter, right? It challenges across the board for some reason. So there's very little -- we're seeing very little voluntary attrition inside the organization from a sales perspective. When we talk about the sales growth, most of that, when we talk about the new sales people, a lot of that has been getting better people inside the organization to grab onto the opportunity. We are working really hard at this. And this is one of the things that's falling in Joe's purview and that is to make sure that we're not getting the serial sales rep, right? Somebody jumping from one organization to the next, spends a year here, spends a year there, may or may not have a completely accurate series of numbers on the CV and away you go. So we're doing -- more disciplined about that. We're trying to institutionalize it, so we've got that. This is a global practice. And in fact, we've done a lot of profiling of those people that have been successful here. What is their DNA? What is their makeup? What have they done in the past? And we're actually finding that bringing in hungry people from the smaller IT organizations, not the big systems management, whatever, they tend to do quite well inside the organization. They grab it, they understand it, and they go out, they have activity levels. And so if we can provide the things we talked about more simplified, clearer enablement, which is a big part of the deal, and if we can make sure that we are working a lot harder on filtering out the good people from the not so good people, that would be very, very helpful. Sales productivity has gone -- had a 2 years ago, there was a 33% improvement. This past year, there was a 25% improvement and we still have plenty of room to go, right? So now we're going to double down on that and believe me, if there's one thing that John gets that we've talked to him about every day is what we are doing about enablement, what are we doing about enablement? And so the productivity has to be improving, not in 3 years, not in fiscal year '15 but next quarter and the quarter after that and the next fiscal year. It has to start now or continue now.
Over the past 3 years, you've done a great job at turning around the professional services organization and you've turned it profitable. Do you still have a lot of your $159 million or $60 million of revenue that's non-product related? How does this non-product related professional services business fit into your longer-term vision of becoming an APM company? Why is that business strategic and needless to say, if you divest that part, your margins will go up a lot faster and higher than what you're thinking right now.
Robert C. Paul
It's a good question and we get a lot of -- there's a lot of banter, I mean, valuable banter about this -- don't mean to demean it but -- about the professional services business. A couple of things. So the reason it's looking a lot better than it is now is that we went through that process and said, where are we going to be best? What are core competencies, right? We are playing in the cloud world. All those products that you talk about are going to be influenced by this new IT. And having services people available, right, to take out some of these larger projects does 2 things. Number one, it allows us to get competencies in cloud practices, right, which are high growth models, great relationships with CIOs, great relationships with business people that we can leverage for the rest of the other components. Then the second thing is, and the thing that we're taking advantage of that you saw a little of today is that we believe right now, and we've done some market testing with some of our -- some of the friendlies we have good relationships with, that there's a wonderful opportunity to take performance management as a -- and take it to the next level, right, as an outsourced practice. So what happens if I'm a top-level executive in the company and the complexity is too much, the issues are too much, and I just want to turn that over the management of the suppliers, the cloud service providers, managed service providers and everything else that's going on. We have the ability to go in, put in our products, provide our consulting expertise that used to be professional services, now you may consider them product-related services but migrating them into a performance engineering practice, right, leverage that strength, that way of thinking, the way in which we manage them, the way in which measure them, in deploying that capability. And we think it's a really nice transition, the next transition for many of our professional services people, both in mobile application development and having performance there, and also performance engineering moving forward.
You provided a great level of detail today so I appreciate that. One of the things that's not really clear to me, it seems like from your model that you're going to be generating $550 million or $600 million of capital over the next 3 years if the model works, which it's not clear, are you going to deploy it for acquisitions, do you need to do acquisitions to get from the '12 numbers or the '15 number? If you don't need to do it and the capital gets deployed to buy back shares, the EPS number you put on the board doesn't really tie in with the rest of the numbers. If you do, could you help us understand how much capital still needs to go into the business in order to generate this kind of growth?
Robert C. Paul
Yes. So that me take that one head on as a failure in the plan, which is use of capital. We'll be the first ones to put up our hands and say we need to -- we need to start to define what that use of capital looks like in the 3-year plan. And as we get more clarity around that, we'll start to include those numbers. But you're right, we're not going to let that cash sit around. We will be using it. When we got to fiscal year '15, at least on the EPS side, we did have us going down to whatever on the board amount was for allowable outstanding shares. So there is some buyback of shares involved but not a lot. And I think the next generation, right, because this is a plan that will be a working model has to get a lot more definitive about the use of capital. So I'll take that one on as a very good point.
John Van Siclen
Can I just jump in? It is a great point. But I've always learned that first thing, you don't want to count your chickens before they're hatched. And right now our biggest focus is executing on that plan. And once we begin the process and we start hitting the numbers, that's when I think we'll jump into what to do with all this terrific cash that we have. So I just felt that in the couple of months that we've been here, for us to focus on that at this point in time probably wasn't the right answer. We really needed to focus on getting that margin, how are we going drive revenue and how are we going to maximize the operations from a cost standpoint. So that's really where we're at. And I think Bob is right. I know if you add the numbers up, it's a huge number of cash that's not represented anywhere. But frankly, as a said right now, our biggest focus is on executing.
I wanted to go back to Covisint a little bit. Obviously, the automotive and healthcare verticals are key to the growth at this point. And you outlined a lot of other tangential verticals that make a lot of sense. I guess I'm wondering kind of a 3-point question. One is, how much additional spend is needed from a functionality from a sales force perspective to build up those other non-core verticals? And then the second question would be, obviously, much of the early growth has been automotive and healthcare, how fast are those other non-core verticals growing versus the big 2? And then finally in your 3-year plan, 42% CAGR, how much of that growth is actually coming from these other non-core verticals or should we expect to see outsized growth from automotive and healthcare?
Robert C. Paul
Well I'll do the best I can, and then if there's any details, Dave can plug in there. So the cost of scaling the business as it relates to capability, technology, functionality is almost 0. The infrastructure when it was designed is infinitely scalable. You just add servers and compute and away you go. The technology is expansible to levels that are -- that go on into perpetuity. And we've proven that time and time again. Every time we do a launch, we have millions -- hundreds of thousands, in some case, millions of users and it's going. It's working, response time, it's all there. The necessary -- we used to show the slide at Covisint that have all the parts of the infrastructure and capability on a single page. And there must've been about 30 to 40 boxes of capability or technology or tools or services in that. And it scared the heck out of everybody looking to buy in to the platform. So we just say, hey we're going to do your identity and all that kind of stuff. This is the most powerful thing about Covisint. It is rock solid architecture, technology and scalability. Now, the reason that Dave was hesitant, and I hope he was hesitant to put that slide up there with verticals. In fact, he was somewhat a little bit hidden during the preparation about doing that is because we are all about focus, right, and vertical focus. There is cost expansion because we have to get a specialist in there that understand, especially in early market where the category is not well defined, understand the vertical issues. Usually there is some workflow associated with it. Sometimes there is, sometimes there isn't, but have the terminology built into our repertoire in order to go tackle a given new marketplace. Now, some of these verticals that he put up there, honest, they came to us, right? They go to Gartner. I got this massive problem, how do I solve it? Why don't you try Covisint and see if they can help you, right? And all of a sudden, we find ourselves in a sort of this emerging vertical that starts like this, right, very, very slow growth. The energy started like this, very, very slow growth, and all of a sudden, there's an inflection point because you've proven it, you got referenceability, existing big clients add use cases and the reference competitor of those customers wants a piece of the action, right? And that's what's happening with Shell, with Chevron and with BP. And we're just getting started in the energy industry. So there is investment on skill set and knowledge when we translate to new verticals, and we're handling that carefully as we go. As a percentage of the 42% of the overall revenue, I don't remember seeing them at the non auto, non healthcare, what percentage of your...
It's 20, 20%.
Robert C. Paul
Robert C. Paul
But in the future, do you have that model out?
We left it at 20% for the model. Just a comment on that. Over the last 6 quarters is when these other verticals have come into play. And it's validated that the problems that we're solving are across verticals. The issue is having the customer intimacy within those verticals. And what's happening is we're finding channel partners and other partners to help with those verticals. So we know and we validated that the problem is across verticals. And we think there's tremendous growth in there.
Robert C. Paul
The other thing, too, is that the -- one last thing on that is probably still model the 20% if I was guessing because, again, healthcare just -- the revolution is just starting in interoperable healthcare, right? It's life cycle and the connected vehicle is just starting. We talked about OnStar, they've got 6 major, major OEM so the car manufacturers doing evaluations right now to use that same platform to get to this connected vehicle as securely and as efficiently as possible. So even the auto is going to continue to grow pretty good.
Just maybe a clarification on the capital question. No matter what you do with the capital, if you do acquisitions, they have to be accretive. And if you use it for buyback, that is additive to the numbers you've given us, correct?
Robert C. Paul
Correct. Was I not clear about that?
And I guess just secondly, in terms of how you guys are getting paid, how are you being judged, there's a lot of parts of your business that aren't growing so I know that you guys are focusing on margins for them. The executive team, I guess, is there waiting between how you're getting paid on and hitting your revenue targets or hitting your margin, meaning is the margin being weighted higher so that if something happened from a macro standpoint you will be incented to make the correct adjustments from a cost perspective?
Robert C. Paul
Right. It's pretty much equal weighting today. It has pretty much been equal weighting in the past. And as it relates to the 3-year plan, it's under design right now. I would call it 90% of the way done, waiting final approval. But we actually have a board member in the back who's a part of this. But what's going on right now is that they think that -- we went through the details, an additional level of detail with the board of this plan, and they really want to make sure that we are motivated to exceed what we've shown up here. So that's a component of the plan that's being introduced that we all, at this table and beyond, are being measured and motivated against. But right now, it's got equal weighting. Let's take one more question.
Just on this capital allocation point, because it's think it's been covered a couple of different ways. Do you remember in the last conference call that you talked about paying down your debt that you took on recently with the cash flow from the balance of the year. Given what the cash flow profile looks like for the balance of the year and the next couple of quarters, why is it not better to allocate some portion of the cash flow in the near term towards buybacks and some towards debt pay down? It's a very manageable small debt level, especially given that your stock trades around $8 a share, and we think it's worth 30 bucks in a couple of years...
Laura L. Fournier
Yes, we have been.
He's right, but why not at a faster clip. My understanding, correct me if I'm wrong, was that the near-term intention just to focus on debt pay down as supposed to higher priority on stock repurchases at these levels?
Robert C. Paul
I don't think it's -- maybe you can clarify, I don't think it's been black and white, and I think that we're going to continue to buy back stock was the plan, as well as pay off the debt, but just at a slower rate than what we have been.
Laura L. Fournier
We have been focusing, though, on paying back the debt, and the rate of the stock buyback has been slower but we continue to evaluate that based on where the market price of the stock is. So there's going to be some -- we make that decision on an ongoing basis.
I appreciate this comfort with debt, but where the stock trades and your debt relative to your EBITDA or any possible relevant metrics seems like it really should not be a major concern when you can buy back $8 stock that's worth $30.
Robert C. Paul
Right. We're in concurrence. Okay. Well listen, it's a great turnout by any measure. I was thrilled that you came. We've got everybody at this table will be available now for further questions on a one-on-one basis. Where's the cocktail?
Right outside of the door.
Robert C. Paul
Right outside. Please feel free to tinker with the screens and thank you once again for coming. We look forward to talking to you in the near future.
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