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

• The ongoing demand for extended enterprise resource planning (ERP) functionality beyond the user enterprise's four walls, and the ability to integrate business systems with business-critical processes currently not captured by such systems.
  
  
• Increasing requirements for user-friendliness (e.g., zero training), but with unimpeded inherent reliability of systems (see Easy ERP: A Challenge to Conventional Thinking).
  
  
• The growing users' desire for platform independence (no particular vendor's lock-in) for both the client and server side.
  
  
• The proverbial need for specifically designed solutions for the particular vertical sector.
  
  
• The quest for lower total cost of ownership (TCO) and enhanced users' cost control of systems (see New Approaches to Software Pricing).
  
  
• Modifiability (adaptability) of customers' existing processes—almost on the fly, so that operations do not necessarily have to be ineffectively adapted to rigid systems (see What's Wrong With Application Software? Business Changes, Software Must Change with the Business.). Also, while companies may have many business processes seemingly similar to one another, it is the subtle variations in those processes, the ability to keep the data in those processes current and accurate, and the user authorizations and permissions associated with those processes, that give one company the competitive edge over another.
  
  
• Bundling in document or content management and associated workflows that supports internal processes (see Business Process Management: A Crash Course on What It Entails and Why to Use It and Integrating All Information Assets).
  
  
• Increasing regulatory compliance requirements, such as to the International Financial Reporting Standard (IFRS) or the US Sarbanes-Oxley Act (see Joining the Sarbanes-Oxley Bandwagon; Meeting the Needs of Small and Medium Businesses).

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.