J.D. Edwards - Creating OneWorld of Mid-sized ERP Users

J.D. Edwards - Creating OneWorld of Mid-sized ERP Users
P.J. Jakovljevic - September 1st, 1999

Vendor Summary

J.D. Edwards & Company is a leading global provider of enterprise business software for distribution, finance, human resources, manufacturing and supply chain management. Founded in 1977, with headquarters in Denver, CO, J.D. Edwards is the fourth-ranked ERP vendor with $934 million in revenue in 1998 (approx. 6% of the global ERP market). The Company has a history of solid growth, with an average of 45% annual growth since its inception (see J.D. Edwards & Company Annual Results chart). J.D. Edwards began by customizing accounting and other business software for companies using IBM mid-range computers, particularly the IBM AS/400 platform. The WorldSoftware version of application suites for use on the AS/400 first shipped in 1988, and accounted for substantially all of the Company's revenue until the most recent two fiscal years. As IBM began de-emphasizing its mid-range systems, J.D. Edwards, after three years of development, released in 1996 an object-based, cross-platform ERP product called OneWorld, which is regarded as one of the technologically most advanced ERP products. The Company has successfully transformed itself from a supplier of host-centric mainframe software to a supplier of open systems, which operate in multiple computing environments and are Java and HTML enabled. J.D. Edwards enables its Idea to Action concept (an ease with which customers can put their idea into action) with ActivEra, a collection of tools and technologies that extend J.D. Edwards SCOREX and AIMX supply chain solutions, and OneWorld and WorldSoftware ERP software. The Company distributes, implements and supports its products worldwide through 50 offices and more than 270 third-party business partners, with approx. 35% of its revenue coming from the international market. By the end of 1998, the Company had more than 5,000 customers with sites in over 100 countries. J.D. Edwards & Co. went public in 1997 and currently trades on NASDAQ.

Fig. 1

Vendor Strengths

• Well-established leading global position in Small-to-Medium Enterprises (SME) and lower-end top-tier segments of ERP market, with large customer base and developed channel; Strong long-term track record and very good reputation for honest and fair treatment of customers, and for prudent acquisitions and/or true strategic partnerships with other leading vendors.

• OneWorld is regarded as one of the best and the most comprehensive core ERP products for SME market segment at this stage, particularly in terms of functionality, total cost of ownership and product architecture that promotes flexibility and ongoing post-implementation system agility.

• Continuous focus on product quality and customer satisfaction, very efficient R&D and service departments in terms of their respective average revenues per employee (see enclosed charts).

Fig. 2

Vendor Challenges

• Increasingly competitive and shrinking market caused the Company to stumble in the first half of fiscal 1999 and to post $10.4 million loss in the last quarter. J.D. Edwards revenue growth in 1Q99 and 2Q99 has been driven primarily by maintenance, with significant deceleration in license revenue (down 12%) and only slight increase of total revenue (11%) compared to the second quarter of the last year (see J.D. Edwards & Company Quarterly Results Chart).

• Due to its late expansion into the UNIX and Windows NT world, and because its product portfolio is not scalable for mega-user environments (2000 users and more), the company is still struggling for recognition beyond its own customer base and is often overlooked in discussions of top-tier ERP suppliers.

• Late entry into CRM, business intelligence and E-Commerce markets, with a narrow offering of internally developed modules in these areas. The Company has developed partnership agreements to resell respective third party products (Siebel, Ariba, etc.),which will demand integration efforts and not necessarily result in desired revenue growth (Siebel is also in similar partnerships with SAP and Great Plains).

Fig. 3

Vendor Predictions

• 1999 will be challenging; We predict significantly reduced annual revenue growth (15-30%). While overthrowing PeopleSoft from the 3rd position in ERP market share is not a likely scenario within 1999 (20% probability), it is achievable within the next 2 years (65% probability).

• No major acquisitions are expected in the foreseeable future (80% probability); The focus will be on integrating recently acquired Numetrix and Premisys products and on interfacing Siebel's and Ariba's respective applications, as well as on expanding its own product functionality and offering new vertical industry solutions (see Vendor Recommendations).

• Non AS/400 products will contribute 50% of total license revenue within the next 2 years (70% probability); At the same time, 30% of total software revenue will be generated through indirect channel distribution (75% probability).

Fig. 4

Vendor Recommendations

• Further entrench leading position in Small-to-Medium Enterprises (SME) market segment in following ways:

  • Use direct sales force to expand business in existing customer base, by upgrading older versions of software and by offering enterprise applications beyond core ERP solutions (Front-Office, Business Intelligence, Supply Chain, E-Commerce) and Vertical Industry-Specific products.

  • Expand further into SME market, particularly into its lower-end that is still out of reach of the other Big 5 ERP vendors, by offering "Small Business Solutions (SBS)" and "Genesis Channel", either by leveraging strong indirect channel network or through "Network Application Services (NAS)" outsourcing option.

• Promptly attend to resolution of system instability and missing functionality issues that some early users of OneWorld software have experienced (see "J.D. Edwards ERP not all-in-one", Computerworld, 5/24/99).

• Remain committed to new product features/enhancements introduction (e.g. transportation and project module) and to new industry solution offerings (e.g. communications, paper and wood, etc.), as well as to enhancing CRM, Business Intelligence and E-Commerce offerings. These articulated endeavors are very ambitious, and the current R&D workforce percentage of 18% of total workforce should be increased to at least the industry average level of 22%.

Fig. 5

User Recommendations

• We generally recommend that J.D. Edwards be included on an enterprise application selection long list for mid-market and low end tier 1 companies (with $100M-$2B in revenue), based on its broad product portfolio and very good service and support.

• J.D. Edwards should always be included in the long list of an application selection within following industries: automotive; consumer packaged goods; electronics; manufacturing & distribution.

• J.D. Edwards should be included on the selection short list within SME market where manufacturing, logistics and financial modules are the main pillars of an enterprise application.

• Any organization evaluating J.D. Edwards should consider existing functionality only, and, in case of final selection, should negotiate incorporation of new applications components now at negotiated license fees, in expectation of J.D. Edwards increase in new product introductions.