Driving Factors in The Enterprise Applications Market

Situational Analysis

The enterprise applications market has long matured and contains a significant number of both larger global and smaller regional providers of, by and large, complete and comparably adequate systems. User maturity has also become significant, implying that customers nowadays possess extensive know-how and system implementation and usage experience, and, consequently, the right to impose ever-higher and more specific expectations upon their providers. As a consequence of this mature market, vendors have for some time been focusing on replacing or retrofitting existing legacy systems when customers need upgrading, in addition to offering more extension (add-on) functionality to existing customers. Some also manage to sell brand new systems to first-time customers, primarily in a few growth markets.

As a result of the rapidly consolidating enterprise applications market, once "high-flying" vendors and their well-known products are falling en mass to the wayside (see Rapidly Consolidating Enterprise Applications Market: The Worlds of "Organic Growers" and "Aggressive Consolidators"). This combined with the dread of functional parity and software commoditization among the surviving players have led many to believe that a vendors' size only matters, and that small, focused local (or niche) providers do not have much to offer or hope for. (See If Software Is A Commodity...Then What?)

Acquisitions and strategic corporate transactions will continue, and within the next five years or so, up to 60 percent of the current players are expected to disappear. Simply put, the market is converging creating fewer providers, yet, so far, there are virtually the same vast number of competing systems. It appears that only vendors with commanding market shares will be able to commit to the massive investments required for next-generation systems and remain profitable (i.e., absorb the associated costs).

Driving Factors

A number of factors continue to drive the demand for enterprise applications, such as

These market trends indicate a mature market, albeit one that is in transformation, forcing both vendors and their partners to focus their development on tailored industry solutions with built-in business logic for over the last decade. Many suppliers have also taken the step from using a single platform and their own database to supporting various commonly accepted platforms and databases, while the Internet has opened up new opportunities for leveraging Web-based personalized and role-based client interfaces and mobile gadgets. New functionality is feverishly being added to specialized systems to increase the market potential, but this increased complexity often leads to more consultants having to be involved in the projects, and thus longer and more expensive implementations. Hence, there are also still many specialist niche systems on the market.

Shift from Big Bang to Tactical Increments

Also, smarter and more experienced users have lately been requiring a smarter way to support their business, including lower TCO, adaptability of systems to accommodate best business processes across the entire value chain, seamless migration to next generation systems, and local presence and cultural attunement of the vendor. Some recent surveys and research like the one from Saugatuck Research Services also show that user information technology (IT) investments continue to shift from "big bang" to tactically-focused, incremental investment models based on short-term return on investment (ROI), albeit coupled with long-term, strategic business enablement.

Thus, the top five IT spending priorities for 2006 are reportedly as follows:

  1. Applications integration;
  2. Security software and services;
  3. Business intelligence (BI);
  4. Enterprise performance management (EPM); and
  5. Service-oriented architectures (SOA).

For more information on some of these applications, see Business Intelligence Corporate Performance Management Market Landscape and Understanding SOA, Web Services, BPM, BPEL, and More.

The reason for these priorities is because of the increased focus on business process improvement, including compliance and efficiency investments, both of which tend to be short-term tactics that can incrementally improve enterprise-wide business operations.

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