Enterprise Resource Planning (ERP) systems vendors, the consummate multitaskers of the business software world, posted impressive growth in 2007. And by most accounts, they¡¯re on track to gain even more attention over the next few years as they continue to fold an increasing number of supply chain capabilities into their bundle of existing offerings.
According to AMR Research¡¯s ERP Market Sizing Report/2007-2012, ERP systems¡ªwhich provide organizations with functionality for two or more systems, and typically more¡ªgrew 19 percent in terms of total revenue in 2007, with license revenue up 18 percent over the prior year. According to the report, sales of core ERP applications continued to remain very healthy, while many vendors also derived substantial revenue growth from acquisitions of other software companies, including those in the supply chain space (see sidebar). AMR pinpoints globalization, centralization, and performance management as the key drivers for continued ERP investment among large corporations, and adds that smaller companies are also purchasing new ERP systems, mostly in response to customer requirements and the desire to participate in the global market.
Fast track trendsIn 2007, ERP vendors continued to move away from offering single, internally developed product lines to providing a broad portfolio of products targeted to specific industry and departmental buyers. AMR reports that Oracle and SAP still dominate the market among very large global companies, with Infor, Epicor, QAD, CDC Software, Microsoft, and Lawson making impressive headway in the small to midsized business (SMB) segment.
Infor continues to grow rapidly, even though its merger and acquisition streak slowed in 2007. The company has remained focused on integrating acquired products to generate additional maintenance and license revenue as well as increasing cross-selling opportunities within its ever-growing installed base.
In the meantime, Lawson reports that it remains focused on vertical markets such as fashion and apparel, wholesale distribution, and healthcare, while Cincom, an Australian software provider, is broadening its horizons with the acquisition of Acquire¡¯s configuration, proposal and quotation management, project bid, and contract order management product.
According to Simon Jacobson, research director at AMR and one of the report¡¯s authors, the fact that traditional ERP vendors are acquiring software companies whose offerings go beyond what is historically thought to be ERP is helping to boost the acquiring vendors¡¯ shares of overall revenue in the space. There were fewer mergers in 2007, but Jacobson says that many vendors remained focused on expanding their product portfolios.
¡°This expansion of functionality has also led to the entry of vendors like Agresso and Cegid into today¡¯s ERP market,¡± says Jacobson, who points out that ERP vendors continue to compete effectively at all levels of the market, from small and midsized businesses to large enterprises. ¡°Many large corporations are still relying on legacy material requirements planning (MRP) and manufacturing executive systems (MES) investments within certain geographies, divisions, or individual facilities, but there is a strong trend toward consolidation and standardization,¡± he adds.
Take the midmarket, for example. AMR identifies it as one of the key areas where the larger enterprise vendors believe they have an opportunity to sustain and possibly accelerate growth because the numbers of new ERP opportunities at the higher end of the market are shrinking. ¡°For vendors that have traditionally served this segment, we are seeing a circling of the wagons, or a focus on selling additional best-of-breed functionality into their installed bases in order to stave off the advances of the larger vendors,¡± he says.
When examining the ERP sector¡¯s overall licensing growth rate of 19 percent in 2007, Jacobson says the numbers are somewhat deceiving in that some of the companies in the report use non-U.S. currency. That discrepancy makes it difficult to pinpoint a specific growth rate in terms of American dollars. ¡°The market is definitely growing at a healthy clip,¡± says Jacobson, ¡°just not at 19 percent.¡±
What shippers should also understand about the ERP market, says Jacobson, is that the sector is moving further away from the core financial and human resources software and expanding into various other functionalities.
¡°Today¡¯s ERP vendor is providing as much portfolio functionality as possible for the markets that it serves,¡± says Jacobson. ¡°What you can buy from your ERP provider nowadays mirrors what once was thought of as 'best of breed¡¯ functionality, including WMS, supply chain planning, performance management and business intelligence functions.¡±
Take Infor, for example. Ranked fourth among ERP vendors by application revenue for 2006-2007, the company acquired a number of firms (including SSA Global Technologies and NxTrend), and in doing so carved out a niche for itself as a purveyor of distribution-specific customer management systems and analytics.
The decision to take the ERP route can be beneficial for shippers, namely because the cost of ownership is usually less as companies don¡¯t have to worry about integrating and managing multiple data models and applications. ¡°It¡¯s all in one simple application,¡± says Jacobson.
Whether an ERP or best-of-breed is the logical choice often comes down to the shipper¡¯s internal IT organization. ¡°The more centralized the buying process is,¡± says Jacobson, ¡°the more likely it is that the shipper will opt for and benefit from the ERP route.¡±
Traditionally, AMR Research has divided alternative licensing and pricing models into separate revenue streams. As companies accept hosted and subscription-based models, however, the lines between these revenue streams and traditional on-premises license revenue start to blur. And while the pure software-as-a-service (SaaS) ERP market has yet to gain full stride, the major revenue growth for most ERP vendors came from add-on functionality, such as customer relationship management (CRM) and human capital management (HCM).
¡°This does not imply that core ERP revenue is declining, but rather that customers are seeking to acquire more functionality from a single source instead of enduring the complications of integrating best-of-breed applications,¡± says Jacobson. ERP players that are pushing into the supply chain space include SAP, Oracle, Infor, Microsoft, and Lawson. Much of the growth for Infor and Lawson has been a result of acquisitions.
¡°The same thing goes for Microsoft, whose revenues in this area might not be huge,¡± says Jacobson, ¡°but many of the vendor¡¯s applications are being taken a step further into the industry by its partners, thus boosting the vendor¡¯s license revenue in this area.¡±
Vendors throughout the ERP space are also boosting revenues by going after potential clients who ¡°sit in the front office,¡± says Jacobson. ¡°The ERP players are going after the business planning functions,¡± he explains, ¡°and they¡¯re also making it simpler for folks to access ERP data in other parts of the company.¡±
And while SaaS hasn¡¯t taken hold in the ERP space, vendors are beginning to respond to customer demands in this area. ¡°Conventional wisdom tells us SaaS will primarily appeal to SMBs, while large enterprises will favor conventional licensing and on-premises deployment,¡± says Jacobson, who sees reluctance on the vendors¡¯ parts to serve up software in this manner because they are concerned about cannibalizing their license revenue.¡±
Jacobson expects interest in SaaS as a delivery option for ERP to increase in 2009, but says the new options won¡¯t eradicate perpetual licenses, term licenses and enterprise agreements.
Take SAP for example, which recently trimmed back forecasts on Business ByDesign (its SaaS product, formerly codenamed A1S). ¡°We still expect early successes to emerge soon,¡± says Jacobson, who adds that vendors such as Epicor and Infor are still primarily on premises for ERP, but they are doing well with their SaaS accessories, while Microsoft Business Solutions and QAD are also seeing early successes through offering flexible deployment options for clients.
¡°While pure SaaS ERP is still emerging, with some vendors fine-tuning their business models, a perfect storm might be brewing, given the global economic climate,¡± says Jacobson. ¡°Companies with minimal IT budgets and support staff may embrace the concept of software as a service as a way to get ERP capabilities without a major capital expenditure.¡±
More growthLooking ahead, AMR predicts a 10 percent compound annual growth rate (CAGR) for the ERP market through 2012, based on continued revenue growth generated by extensions such as CRM, HCM, and supply chain. At the same time, alternate pricing revenue (such as hosting and subscription revenue) will continue to grow at the expense of license revenue (which is expected to increase at an 11 percent rate), with software becoming a larger part of the revenue mix as installed bases continue to grow.
¡°For any vendor to truly succeed in this market going forward, new license sales and new customers will be the holy grail,¡± Jacobson concludes.
| Vendor | 2007 Revenues ($M) |
| 1. SAP | 14,033 |
| 2. Oracle | 7,853 |
| 3. Infor | 2,208 |
| 4. Microsoft | 1,215 |
| 5. Lawson | 810 |
| 6. Activant | 295 |
| 7. QAD | 263 |
| 8. CDC Software | 245 |
| Source: AMR Research | |
