Rapidly Consolidating Enterprise Applications Market: The Worlds of 'Organic Growers' and 'Aggressive Consolidators'
Written By: Predrag Jakovljevic
Published On: September 12 2005
Anyone remotely following the enterprise applications market, unless he/she has been on a lengthy leave of absence on a deserted island (or maybe participating in the Survivor reality TV show, followed by the Amazing Race), has likely been worn out by the news that the maturing market has been rapidly consolidating.
The competition for the still underserved small and mid-market segments continues to heat up as different breeds of aspirants try and occupy the landscape of vendors vying for market share in this space. But prospective mid-market customers seeking new solutions still hold the trump card in this tussle that should force vendors to better serve their needs. History has demonstrated that these companies exhibit certain buying characteristics that must be understood and effectively addressed in order for software companies to be successful, regardless of their size (see Cookie-cutter Solutions Won't Cut It with the Mid-Market).
One can rightfully wonder what types of vendors' approaches to the mid-market have emerged from the waves of mergers and consolidations, and what characteristics will ultimately distinguish the contenders from the pretenders. Making the headlines in the new ERP landscape are the vendors who are either those vendors that try to be "all things to all people" and those who focus on more narrow and credible niches (see What's Ahead for Users on the Enterprise Infrastructure Battlefront?).
Major Vendor Consolidations
Indeed, a formerly prominent enterprise resource planning (ERP) player J.D. Edwards was acquired by PeopleSoft in mid 2003, and PeopleSoft was subsequently gobbled up by Oracle early in 2005 (see While Oracle and PeopleSoft Are to Fuse, Competitors Ruse—Leaving Customers (Somewhat) Bemused). Once also the "who's who" in ERP, customer relationship management (CRM), and supply chain management (SCM) vendors Baan, Infinium, EXE Technologies, Marcam Corporation, Computer Associates' (CA) interBiz and most recently Epiphany have lost their identities (albeit not necessarily their functional characteristics) under SSA Global (see SSA GT to EXE-cute [Yet] Another Acquisition and The Name and Ownership Change Roulette Wheel for Marcam Stops at SSA Global), while the same happened to JBA International and Comshare that are now part of Geac Computer Corporation (see Geac Gets Its Commonsense Share Of Consolidation, With Revolving Door CEOs No Less). Further, Frontstep (formerly Symix Systems) and Pivotpoint became part of MAPICS (see Analyzing MAPICS' Further Steps After Frontstep), who was then recently purchased by Infor Global Solutions. And , lo and behold, Infor had been busy on the acquisition front, previously acquiring Lilly Software, BRAIN, Future Three, and SCT Process, among dozen others (see Examples Of How Some Mid-Market Vendors Might Remain Within The Future Three (Dozen)?).
Mid-market vendors like ROI Systems and Scala now belong to Epicor Software (see Epicor's Mid-Market Pitch Becomes Higher For (One) Scala and Epicor Conducts Its Own ROI Acquisition Rationale). The same is the case with former Solomon Software, Great Plains Software, and Navision Software, which are now a part of Microsoft Business Solutions (see Microsoft 'The Great' Poised To Conquer Mid-Market, Once and Again). Softline and other former divisions of Computer Associates, ACCPAC, became part of Best Software, and both are now marketed under the umbrella Sage brand, to be globally aligned with the parent Sage Group (see Will Sage Group Cement Its SME Leadership with ACCPAC and Softline Acquisitions?). Similarly, Macola and Kewill mid-market ERP providers, are both now part of Exact Software (see Exact SoftwareWorking Diligently Towards the "One Exact" Synergy).
On the other hand, Ross Systems, Pivotal, International-Matematik International (IMI) Corporation, PowerCerv, CIMPRO, Fourth Shift, and Made2Manage Systems, while not necessarily disappearing from the applications scene, have permanently gone from the stock market (at least under their independent stock ticker). Some of them are now on a strong comeback under either new management or with wealthy financial backers (see Made2Manage Systems "'One Year After": Reenergized and Growing, chinadotcom in the "'Process" of Acquiring Ross Systems, CDC Software Wins at the Pivotal's Auction. Now What? and Fourth Shift's evolution Within SoftBrands' DemandStream). The market tumult seems to continue, since at the time of writing this research note, the breaking news was the impending merger between seemingly unlikely parties, Lawson Software and Intentia.
Over-evolved Mega-suite Vendors
The tier one vendors, which are market-leading, "over-evolved mega-suite" vendors like SAP and Oracle, have humongous cash, research, and development (R&D), sales, and marketing resources. They also have global coverage and strong corporate-level financial consolidation and human resource (HR) management modules. But their implementations—due to the complexity of overblown, spaghetti-like code owing to their attempt to address dozens of industries—often come with a certainty of risk and without quick and clear benefits (see What's Wrong With Application Software? Businesses Really Are Unique - One Size Can Never Fit All).
Aggressive Consolidator Vendors
Another way to be all things to all people is to acquire a number of fading, marginalized, or distressed vendors and then, at least in the short term, largely milk the service and maintenance fees associated with the plethora of systems, some of which have long been past their prime. These aggressive consolidator vendors have built a business model of acquiring various software vendors and solutions and placing their packages into a portfolio of offerings from which customers and prospects can select. Some refer to these companies as "the rollups." They include such as SSA Global, Infor, Geac, Epicor, and even Oracle in part due to the Retek, ProfitLogic, i-Flex and PeopleSoft/J.D. Edwards's acquisitions. While this might currently look like a strategy that works in terms of profitability and market share, it leaves many questions unanswered, such as how these amalgamated vendors will move their multiple solutions forward.
Namely, while these vendors appear to have assembled an impressive collection of software that should, in theory, be able to meet the needs of many organizations, each of these vendors and their new software properties face a nightmarish integration process that could take years before a cohesive product strategy is presented to their customers—let alone the development of an integrated and collaborative collection of software applications. The big question is whether any of these mergers have made these companies better able to compete with various best-of-breed vendors by offering a truly complete suite of ERP and SCM solutions.
Moreover, there is a subgroup of rollup vendors that are either "regional" or "multinational" enterprise vendors, with a strong presence in one or another distinct geographic location. Examples of multinational enterprise vendors are Microsoft Business Solutions (MBS), Exact Software, and Sage Group/Best Software. These vendors often have rather loose relationships with their affiliates in other parts of the world, and disparate regions often work on diverse code bases, which will present a real hurdle as globalization continues. The opposite likes of Made2Manage Systems, Encompix, SSI-World, EMR Innovations, ESS Finesse, Trackware, Workwise or Relevant Business Systems are be examples of solid regional solutions.
Focused Organic Grower Vendors
These developments leave a limited group of focused "organic grower" vendors with a single-code (or that is close to being single-code), flexible product, and a decent geographic coverage. These vendors have taken the opposite approach, growing their companies with few acquisitions, if any, but staying close to their roots with a single platform focus. QAD, IFS, Lawson, and Intentia (before their recent mega-merger), International Business Systems (IBS), Glovia, SYSPRO, Ross Systems, Cincom Manufacturing Systems or Intuitive Manufacturing Systems belong in this category. Despite their focused growth, some of these vendors might have shown dubious or subdued new revenue streams, stressed financial situations, or support for a limited number of platforms.
Combined Third-Way Approach
But, in addition to the aggressive consolidators and to the organic growers, there are others that are thriving , such as Adonix Group, CODA, Unit 4 Agresso or Deltek Systems. These vendors have quietly built successful businesses with a different approach, one that may further re-shape the ERP mid-market landscape in the coming years. Containing aspects of both the consolidators and organic growers, this "third way" approach is aligned towards the needs of mid-market buyers, where the likes of SAP and Oracle have had limited success, staving off, at least for some time to come, the reality (if not the perception) that the entire enterprise applications market is coming down to a two-horse race only.