American Software Has Been Starving While Delivering Innovations

Event Summary

In August, American Software, Inc, one of the leading mid-market enterprise applications vendors, reported results for the first quarter of fiscal year 2001, ended July 31, 2000. Total revenues for the quarter were $22.0 million, a 22% decrease from the same quarter last year. Software license fees were $2.5 million, a 60% decrease from the same period last year. Services revenues were $13.3 million, a 16% decrease from the same quarter last year. Maintenance revenues were $6.3 million, a 1% increase from the same period in fiscal 2000. Net loss was approximately $3.7 million compared to a net income of $904,000 for the comparable period last year (See Figure 1).

Figure 1

"American Software recognizes that its post Y2K sales recovery has been slowed by limited distribution channels," said James C. Edenfield, President and CEO of American Software. "We are aggressively executing a strategy that focuses on expanding global distribution channels for our comprehensive suite of solutions and services and we are confident that this will improve our performance. As a result of this initiative, we are pleased to announce our recent agreement with Labat Technologies, LTD to distribute our products in Africa."

During the first quarter, the Company announced that e-intelliprise, its fully web-based ERP solution with complete front-to-back office integration, has been expanded to include wireless markup language (WML) capability and a business intelligence portal. The addition of wireless access will allow users to conduct business transactions via any device that supports WML wireless technology. This allows users to be instantaneously notified of events and take immediate action.

The Business Intelligence Portal provides secured role-based views of key performance indicators (KPIs) that can be customized to support any user in the supply chain. The Business Intelligence Portal is the second element of American Software's Enterprise Portal Strategy, following the recently released Intelligent Trading Portal. During the same period of time four companies selected AmQUEST, the Company's wholly owned Managed Hosting Provider (MHP) unit, to host and monitor mission-critical IT operations.

Market Impact

American Software, the Atlanta-based enterprise software applications vendor, is yet another Tier 2 vendor that has been affected by the Y2K-caused pinch. Like its brethren, the company is now in for a draught while it continues to deliver new products and grab a piece of land for itself. Its situation has been additionally exacerbated by its late arrival to the ERP party and consequently, low market visibility and number of global reference sites.

Nonetheless, American Software seems to have grasped the requirements of its potential customers that need both order capturing and ERP backbone order fulfillment functionality within a single source. To that end, in December 1999, the company announced its e-Intelliprise e-Business solution, with full integration between front and back-office systems. This Web-enabled global ERP product suite also features alert-enabled business intelligence and integrated corporate and trading portals. e-Intelliprise is a Web-enabled reincarnation of Intelliprise, which the company launched in 1998 as a brand new enterprise resources planning (ERP) suite that can support multiple modes of manufacturing, in addition to having full supply chain functionality and Internet connectivity. The product has been written from scratch and exhibits an advanced architecture, which is crucial for deployment of e-business products.

As witnessed in the latest announcements, American Software continues to enhance its suite of e-Business solutions with the latest attractive features like Wireless Markup Language (WML) support for not only outbound messaging via e-mail, cell phone, voice mail, or personal digital assistant (PDA), but also for inbound queries via the same devices. Its Flow Manufacturing suite that can either be integrated into e-Intelliprise or used as a stand-alone package is still a landmark product and is currently leading the market with its functionality (although the competition from Oracle and PeopleSoft has been catching up).

We believe American Software will continue to enhance its portal strategy and e-Intelliprise's ability to facilitate collaboration between trading partners. We also believe that the company should swiftly pursue alliances with vendors that can provide more intricate sales force automation (SFA) and customer relationship management (CRM) applications to the suite. The company should also pursue alliances with vendors that would benefit from embedding some of American Software's superior products like flow manufacturing (the agreement with Geac being a good example). However, the company still faces the challenges presented by a dismal mind share and market visibility as well as continued sharp revenue decline and poor financial performance (See Figure 1). Only time will tell whether the innovative products will result in sufficient traction.

User Recommendations

American Software's traditional target market - multi-national manufacturing and distribution companies with annual revenues between $100 million and $800 million may benefit from evaluating the company's value proposition. The e-intelliprise suite has a broad scope of functionality that may satisfy the needs of most discrete mid-market manufacturers. Given the fact that e-intelliprise is a new product, written entirely from scratch and with only a few dozen clients so far, a rigorous reference checking is recommended. Organizations seeking a Web-based solution and out-of-box functionality with little or no re-engineering effort may benefit from evaluating American Software's ASP offering. Support, connectivity, ease of use, security, acceptance, and scalability are only a few regular considerations.

Current and potential users may want to inquire about the company's plans regarding Internet marketplaces in their respective industries. Which specific market places does (or will) American Software connect with, what methodology does (or will) the company prescribe to are some of the necessary inquiries in that regard. Furthermore, companies outside of above-mentioned industries may benefit from evaluating the company's non-core ERP product components on a stand-alone basis for their e-business needs and leverage that information against other vendors in the selection.

Any organization evaluating American Software should consider existing functionality only, and, in the case of final selection, should inquire and negotiate incorporation of new applications' components now at negotiated license fees, given its recent increase in new product introductions. Future clients are also advised to request the company's written commitment to promised functionality, general availability date, price, length of implementation, and seamless future upgrades, particularly for recently announced partnered offerings. Moderate caution should be exercised now and a watchful eye should be kept on the company's future financial performance.