Last week, we reported some of the highlights from the Oracle CIO Executive Forum. Near the end of the article, we wrote that one company executive had commented that the “big deals were coming back” in the Enterprise Resource Planning (ERP) market, and that interest in ERP was accelerating. Twenty-four hours later, we were on a conference call with a well-known analyst from a Wall Street firm who offered the same view based on interviews with ERP firms and their customers. While two data points are not statistically significant, I think we’re onto something: ERP is regaining momentum.
We then hosted our quarterly Webcast on the “State of the Union for Technology Vendors.” Most of the one-hour event was on ERP, including market sizing, growth rates, power shifts, and market consolidation. I’ve condensed the Webcast and some subsequent research into five broad ideas.
The core ERP market will grow 3% through 2008
For the first time in two or three years, Dave O’Brien, who runs our Quantitative Research Group, is predicting positive growth for the core ERP market. The latest data shows the market growing to $15.8B in 2008 from $13.4B last year, a Compound Annual Growth Rate (CAGR) of 3%. While 3% may not set your hair on fire, we’ve revised it from an earlier estimate of 1%, and it is a marked improvement of the -1% of years past. The 3% only includes core functionality of financials, manufacturing, and order management, but doesn’t include any of the ancillary applications for managing customers, suppliers, and product lifecycles.
The JBOPS Yield to SPOMS
Remember the JBOPS? In 1997, the combined revenue of J.D. Edwards, Baan, Oracle, PeopleSoft, and SAP represented 59% of the total market. Since then, Baan was acquired by Invensys and then SSA Global, and PeopleSoft bought J.D. Edwards. Our current research shows that the JBOPS are now the SPOMS: SAP, PeopleSoft, Oracle, Microsoft, and Sage Group. Combined, their ERP revenue represents 72% of total ERP sales. What’s significant is that Microsoft and Sage target Small and Midsize Businesses (SMBs). Historically, ERP market leaders have always been those that sold to the higher end of the market.
Who will be the SPOMS of 2008? Watch SSA. We don’t think it will be content to be lumped in under “other.” The company is on a $700M run rate and is looking to reach the $1B revenue mark. You can’t get to that target fast enough through organic growth; we would look to some additional acquisitions.
ERP vendors part of new IPO market
While the market has been waiting for the Initial Public Offerings (IPOs) for Google and salesforce.com, the buzz among our financial clients is that Agilisys and SSA Global may be public companies in the next 12 months. If this happens and the IPOs are successful, these will generate positive buzz for the ERP market. In the 1990s, IPOs were viewed first as a marketing event, second as a source of cash and liquidity.
ERP replacement market starts next year
This week, I met with Mike Casey, the chief financial officer at MAPICS. He floated the idea of 2005 to 2007 being the start of the era of replacing the first generation of ERP systems. He noted that most of these implementations will be 7 to 12 years old. I can see the SMB market as ripe for this, but I’m not sure about the high end. This certainly merits more research on our part.
Southwest Airlines as role model
Mr. Casey also talked about Southwest Airlines as a model for midsize software vendors to follow. Southwest has clearly carved out a profitable niche against American, United, Delta, and the other large carriers. Its secret? Competitive pricing and providing customers with repeatable, no-frills experiences. This is an interesting concept. In a future Alert article, we will look at which companies may be the next Southwest or JetBlue. Send your nominations to email@example.com.
Finally, I can’t end this article without adding a comment about the latest news on Oracle’s bid for PeopleSoft. Last week, Larry Ellison reiterated his intention to complete the acquisition, despite the U.S. Department of Justice (DOJ) lawsuit alleging antitrust. Regardless of how you feel about Oracle’s bid, you had to love the irony of DOJ bypassing both companies and buying financial software from American Management Systems. Further irony was exhibited by the state of Michigan, which just joined seven other states in lawsuits opposing the Oracle bid for PeopleSoft. A Reuters report noted that Michigan is a large Lawson customer.
AMR Research originally published this article on 9 April 2004.