continue to see evidence that the business application software space is consolidating,
a process which has long started in the mid-market space (see The
Mid-Market Is Consolidating, Lo And Behold). Very recently, Invensys has
put Baan up for sale. SSA GT also recently purchased interBiz and Infinium (see
Unloads interBiz Collection Into SSA GT's Sanctuary and Is
SSA GT Betting Infini(um)tely On Acquisitions?, and Is SSA GT Betting Infini(um)tely
On Acquisitions?), while MAPICS acquired Frontstep (see MAPICS
To Leap Forward In A Frontstep Way). In a spate of recent acquisitions,
one should not forget Microsoft buying Great Plains and Navision (see Microsoft
'The Great' Poised To Conquer Mid-Market, Once and Again). What is the current
and future impact of these on the end-user enterprise?
Consolidation? For years, application vendors have fueled their economic
success through new accounts but things have changed. Most application software
markets are mature. Most markets show high penetration. Few new accounts are
available. To continue to be healthy, a software company either needs a defendable
niche or a large market share. For the latter, acquisitions are often required
to grow and prosper. With revenue streams shifting from new accounts to sales
to existing customers, software support and services, a large customer base
is the key to continued health. Alternatively, vendors are developing defendable
niches where the bigger vendors cannot afford to have a solution. By definition,
these vendors are serving smaller, specialized markets and therefore will not
grow into a larger company but will remain smaller but highly profitable.
The Enterprise Applications Market Of The Future
expect the market for application software to break into two tiers. The first
group will be a limited number of very large vendors. The second group will
be a large number of small, highly focused vendors. This migration has started
and will continue. The Big Five Daniel, keep on same page with preceding topic
Big Five (or maybe it will be Six or Seven) will have a business model that
focuses on the customer base. They will depend upon support revenues as a primary
stream. They will also try to sell additional software and services to the base.
A large customer base also gives the surviving vendors economy of scale for
support, services, and technology investments. How large of a customer base
will prove large enough? SAP now claims nearly 20,000 customers, many of which
are large and mid-size global enterprises. SSA GT currently claims 10,000 primarily
mid-size global customers, which number is likely to grow via future acquisitions.
To be a Big Five player, vendors need to get into this range or larger.
the past, some vendors have justified acquisitions with a plan to replace the
new customer's software products with the vendor's existing products. We talked
with Cory A. Eaves, Vice President of Solutions Management at SSA Global Technologies,
and he says SSA GT disagrees with this approach. Cory pointed out, "It is very
expensive, in terms of both money and disruption, for a customer to change application
software. Therefore, we see that most customers want to keep the software they
have, increase the value received and grow with it. Meanwhile, SSA GT, like
every other similar vendor, must continually simplify its development and support
businesses to be profitable, allowing them to invest and grow. Successful companies
will be able to meet both goals simultaneously; doing what is right for the
customer and while doing what is right for our business." We nonetheless see
the need for the companies who acquire their way into the Big Five being challenged
to manage the many different products they have acquired to reach these two
course the Big Five will continue to sell new accounts, particularly in still
non-penetrated and/or emerging markets. In Asia, East and Central Europe and
South America, new accounts will represent significant license growth. This
is important for the future health of these companies, driving them to innovate
and replacing natural installed-base attrition.
will make it into the Big Five? We see the Big Five coming from several
sources. We have to say that SAP is already and will remain there, as it has
the base and momentum already. Of the other large vendors (i.e., J.D.
Edwards, Oracle, and PeopleSoft)
we see one or two making it into the Big Five but which one(s)? We expect Microsoft
Business Solutions and Sage/Best Software, now with several hundred thousand
customers (albeit most of them being small businesses, and not including small
offices/home offices (SOHOs)) to be one of the Big Five.
also expect there is room for a company to acquire its way into the Big Five.
This seems to be SSA GT's strategy, which looks to be well on its way. It recently
raised $75 million from General Atlantic Partners earmarked for acquisitions
and the company has been very profitable in these difficult times. SSA is often
mentioned as the logical buyer for Baan. We also see the possibility of a wild
card or two. What if IBM wants to join the Big Five? IBM has
the money, but does it have the desire?
also see a second tier of many small, highly focused businesses. Their business
model will be focusing on a relatively small, tightly defined market with specific
requirements that cannot be met with more generic products. Usually, these markets
will be too small for the Big Five to want to compete.
markets will also have unique requirements which cannot easily be built into
the more generic products offered by the Big Five. These boutique vendors will
compete by having in-depth product functions and intimate knowledge of their
market place or by offering services (content or location) not available from
the Big Five or independent service providers. Example of these markets can
be industrial (e.g., fresh meats, dentist offices, etc.) or regional (e.g.,
Chicago, New Orleans, etc.) focus.
of the Boutique Vendors will actually be conglomerates of smaller divisions
or vendors with a common owner. These might be a current mid-range vendor who
specializes in a series of smaller markets or even a sub-segment of a Big Five
- Vendors need to make a strategic decision, pick where they want to be and
execute. To be part of the big five, they must either grow their base at rate
faster than the market and their competitors, or find the capital, in these
difficult economic times, to grow through acquisition. To be a boutique vendor,
focus on one or a limited number of verticals and become very good at serving
those customers. If a vendor does not pick between these two strategies, the
vendor will end up as a collected company, owned by one of the big five.
- We suspect that most end-users organizations will weather this storm. The
larger the install base for the products they are using, the safer they are.
End-user companies should track the financial health of their vendors to see
if the vendor will be a collector or one of the collected. If the end-user company
has a focused vendor, think of that vendor's health and help them become even
better in your type of business.
your vendor is acquired, meet the new owners. Talk with management and make
certain they know your expectations and plans. Understand their product strategy
and look for opportunities in their product portfolio. The new owners motivation
in buying your product and vendor was the install base and that's you. Showing
interest is your part in keeping the relationship the way you want it.
Thompson is a principal of Process ERP Partners. He has over 25 years
experience as an executive in the software industry. Olin has
been called "the Father of Process ERP." He is a frequent author and an award-winning
speaker on topics of gaining value from ERP, SCP, e-commerce and the impact
of technology on industry. He can be reached at Olin@ProcessERP.com
Jakovljevic is a research director with TechnologyEvaluation.com
(TEC), with a focus on the enterprise applications market. He has over 15 years
of manufacturing industry experience, including several years as a power user
of IT/ERP, as well as being a consultant/implementer and market analyst. He
holds a bachelor's degree in mechanical engineering from the University of Belgrade,
Yugoslavia, and he has also been certified in production and inventory management
(CPIM) and in integrated resources management (CIRM) by APICS.