Epicor Software Corp.: Completing Painstaking "e"Volution Part 2: Evaluating Epicor
2: Evaluating Epicor
Epicor Software has been striving to complete its evolution
from a vendor of financial accounting software to a provider of holistic
business performance solutions, including integrated front office, back
office and e-business capabilities. This promotes it as one of the first
vendors and possibly the only mid-market vendor with ability to natively
embrace customer and supplier activities tied to a core transactional
back-office system. The only remaining question is how far Epicor has
got in executing its strategy.
generated $219.8 million in revenue in fiscal 2000, which ranks it amongst
the twelve largest ERP vendors in the world. By the end of 1999, Epicor
had more than 10,000 enterprise customers worldwide, including manufacturers,
technology, financial services and hospitality organizations. Additionally,
Epicor has more than 20,000 customers of its Windows- and DOS-based financial
accounting solutions. Epicor's solutions are sold through a hybrid distribution
channel, which comprises over 30 branch offices and business partner channels
worldwide, and is designed to meet the needs of small-to-medium enterprises
2001 will prove to be very challenging for Epicor Software and we believe
the next 18 months will be the company's make-or-break period.
is a two part note; the first
part focuses on Epicor's history, how it fits in its market, recent developments
of interest, and the direction the company is headed.
part contains specific analyses of Epicor's strengths and challenges along
with bottom line predictions and recommendations for the company and users.
and Product Profiles appear in both parts.
has become a prominent and possibly the largest vendor with a sole focus
on the mid-market from the early days. The company has long demonstrated
a deep understanding of the dynamics of the ERP mid-market, which requires
inexpensive products and good service. These requirements have traditionally
been entry barriers for Tier 1 vendors. Furthermore, Epicor's hybrid
distribution channel (direct sales to larger mid-sized enterprises and
through VARs for smaller organizations) may provide additional flexibility
in addressing the unique needs of the mid-market sub-segments. On the
ASP/hosting side, although somewhat belated with the initiative, Epicor
by providing most elements of an ASP business along with a readiness
to accommodate some degree of customization of its outsourced applications,
may reduce customers' initial reticence to venture into the uncertain
land of ASP.
continues to enhance its line of integrated e-business/portals, customer
relationship management (CRM), advanced planning and scheduling (APS),
and business intelligence components with its core ERP solutions. This
promotes it as one of the first vendors overall and possibly the only
mid-market vendor with the ability to natively embrace customer and
supplier activities tied to a core transactional back-office system.
Having evolved from the combined Platinum Software, with a long history
in the sales force automation (SFA) market, and DataWorks with its long
ERP expertise, Epicor is not an overnight, 'me too', ERP turned CRM
vendor. Its CRM offering, eFrontOffice powered by Clientele, enables
companies to gather, organize, oversee and share customer-related information.
By providing over 60 detailed sales & marketing process reports out
of the box, the product helps clients pinpoint the issues like sales
performance or any system sluggishness. The product is also componentized
and can be used as a whole solution or piecemeal, which may be attractive
to technology shy smaller organizations.
- In addition
to the above-mentioned product enhancements, Epicor has long developed
strong back-office and discrete make-to-order manufacturing functionality,
with recent initiatives to deliver sharp-focused vertical solutions.
Particularly, its native APS, data collection, flow manufacturing, product
configurator and the field service features of its back-office suites
are recognized as possibly the strongest in its target niche.
- The company
has achieved worldwide geographical coverage. Its product has traditionally
exhibited strong multi-national capabilities in terms of languages and
currencies support. Its large customer base, many of which are still
on outdated DOS-based legacy systems, and strong widespread global presence
should provide Epicor a sustained service and support revenue, and possibly
a new license revenue stream in the future.
has been very competitive in speed of implementation, total cost of
ownership (TCO), and its global service and support capabilities. As
a display of a high level of self-confidence in its fast and successful
implementations, the company has raised the bar for cost competition
by offering a genuine Up-Front Guarantee program, which pledges a fixed
implementation timeframe and that implementation services costs will
not exceed a certain percentage of the list price of the software.
Epicor has also been proactive in service & support cost reduction by
enabling users to access consultants via videoconferencing for significantly
less cost than that of an on-site visit. Epicor's array of professional
services enables users to gain better understanding of what Epicor's
products can do for them.
acquisitions have made Epicor one of the largest mid-market ERP vendors,
they have also burdened it with a long list of diverse products running
on diverse platforms to be incorporated into a clear product strategy,
to be stabilized, or to be discontinued. Unlike most vendors in the
ERP space, Epicor maintains multiple manufacturing and non-manufacturing
products, targeted at a variety of vertical markets. Continuation of
inevitably unfocused, multi-product and multi-technology strategy in
the markets with diverse dynamics could multiply and overstretch sales,
R&D, and service & support resources jeopardizing the chances its products
could stand a chance of long-term success in their respective niches.
With a number of disparate applications and with each client having
different needs, the delivery of a "plain vanilla" solution is virtually
impossible. Connectivity from disparate back end systems to front office,
e-business and external marketplaces becomes a monumental task. Therefore,
Epicor's 'one-stop-shop' mantra seems dubious at this stage. The problem
also lies in confusion over its product set positioning, very often
even within its own sales force. Epicor still sells its point solutions
under their respective banners, which contradicts its 'e from Epicor'
strategy as an integrated player.
- The company
has eroded its financial position for the last 18 months due to the
combined effects of decreased revenue, merger and restructuring costs
and ongoing R&D work in progress (see Figures 1 & 2 - Epicor Software
Corp. - Annual & Quarterly Results Chart). Epicor's available assets
and stock equity are significantly diminished compared to the levels
at end of fiscal 1998, while its market capitalization of $65 million
is notably less than its annual revenue. The blending of different corporate
cultures has compounded the difficulties. Any hiccups and delays in
its product development execution, possibly bundled with continued poor
sales execution, may put further significant strain on the company's
has recently adopted Microsoft's proprietary technology and integration
standards (BizTalk) as its product technology standard, which
may be an impediment for future scalability, interconnectivity with
other vendors' components and/or existing UNIX-based users migration.
The company may therefore also been overlooked in selections for high-end
customers. Much like during the days of EDI, if a company was interested
in conducting business with, a bank or manufacturing company, for example,
it was required to endorse EDI forms to transmit data. This meant configuring
their data to an agreed standard in order to transact business. Digital
Market Places and e-business transactions follow a similar path.
Epicor faces a challenge of overcoming the notion of suppliers adapting
to multiple standards in order to support multiple customers. Moreover,
different marketplaces may (and do) describe their transactions differently.
Additionally, Digital Market Places cover different verticals and industries
(Chemdex vs. Ariba vs. GM). Therefore, Epicor's
claim to connect to "any digital marketplace" remains largely open-ended
seems to have undertaken too much at once and, thus, it faces the challenge
of delivering its colossal undertaking (integration of its only recently
Web-enabled front-office suite to all its back-office suites and delivery
of vertical solutions) as planned.
Any product integration requires a painstaking effort, and part of it
is still in various stages of progress throughout the Epicor product
suite, with major plans to deliver e-Commerce direct procurement and
eCommerce Link for XML and EDI transactions soon. Executing these initiatives
with its ever-thinning resources is a challenge. The blessing in disguise,
however, is that its mid-market customers are traditionally not aggressive
early adopters of new technologies. To that end, the strategy of some
of its competitors like Great Plains and NavisionDamgaard,
which have decided to deliver their capabilities in manageable chunks,
seems to have paid off even though their offerings are narrower than
possibly the greatest challenge will be to defend the territory against
Great Plains' aspired onslaught on the global small-to-mid-market boosted
by its recent acquisition by Microsoft (for more information, see Microsoft
And Great Plains - A Friendship That Turned Into A Marriage) but
also by Tier 1 vendors that are looking for additional revenue and market
share growth (for more information, see SAP
Claims Big Gains In The Low-End Battleground and
Joins The Hunt For SMEs). Epicor's reliance on Microsoft's technology
makes it vulnerable given the fact that Microsoft through its Great
Plains division is also becoming Epicor's archrival.
Epicor's requirement of exclusivity for its resellers has caused its
indirect channel to dwindle and has reduced its ability to attract new
resellers. While exclusivity might create deeper commitment and expertise
in its reseller channel in the long term, we believe that the timing
of the initiative was poor. As a result, new license revenues have been
constantly declining, in contrast to many direct competitors, which
have been maintaining immaculate relationships with their respective
2001 will prove to be very challenging for Epicor Software Corporation
and we believe the next 18 months will be the company's make-or-break
period. We predict flat revenues as the best scenario, with a return
to profitability only in the second half of fiscal 2001 (40% probability).
will deliver its eCommerce Link for XML and EDI transactions, with translators
for many leading XML standards by the end of 2001 (60% probability).
We also believe that, within the next 12 months, the company will have
to announce an alliance with a vendor whose products would provide it
B2B e-commerce for vertical marketplaces capabilities (60% probability).
The potential alliance candidates are Peregrine, Elcom,
Remedy, or Viador.
service & support revenue will contribute more than 70% of its total
revenue within the next four fiscal years (60% probability), based on
the Company's readiness to integrate its products with other 3rd party
products and Internet exchanges. Within the same period of time, we
believe the 'e from Epicor' product will contribute 70% of its license
revenue (60% probability) assuming that it will approach marketing its
non-core products (e.g., Impresa) only opportunistically. We also believe
that within the next three years more than 80% of Epicor CRM license
revenue will come from its existing customers.
favorably low market value, we believe that Epicor is an unlikely candidate
for acquisition by a competitor within the next 2 years due to its awkwardly
broad functional scope and recent restructuring activities (30% probability).
We also believe that Epicor will remain among the Top 12 ERP vendors
within the next 2 years (60% probability) assuming successful mining
of its large customer base. Within the next 3 years, more than 25% of
Epicor's revenues will come from outside the North American market (60%
should further entrench itself within the global ERP mid-market in the
business in its existing customer base, by upgrading older versions
of software and by offering new extended ERP components.
more focused and pre-configured vertical solutions for industries,
and offer application outsourcing to make its products attractive
to resource-constrained enterprises.
must remain committed to new product introductions and/or enhancements
like Web and wireless enablement and take more decisive steps regarding
the B2B e-commerce vertical applications delivery, preferably through
ongoing cost and organization scrutiny and identify opportunities for
further improvements. In fiscal 1999, the research & development personnel
count, as a percentage of a total number of employees, was one of the
lowest in the industry, 17%, compared to the industry average of 25%.
This may not be sufficient for its ambitious product development endeavors.
Moreover, Sales & Marketing and General & Administrative costs as a
percentage of net sales in 1999 were at exorbitant 56%, whereas the
industry average was 38%.
- We encourage
the company to conduct a serious 'soul searching' and justification
of its target markets and respective product lines. A speedy return
to profitability would be of the utmost importance. Epicor plans to
market its bundle of integrated components under the brand name 'e from
Epicor' (having Vantage and Platinum ERA as its manufacturing and non-manufacturing
core ERP products respectively) and has created separate divisions for
its Avante, Platinum for Windows, Vista and Impresa product lines. Giving
each division profit and loss responsibility should help Epicor weather
the impending stormy period.
- We generally
recommend including Epicor in a long list of an enterprise application
selection for mid-market companies (with $10M-$500M in revenue) within
the following industries: dot-coms, hospitality & food service, financial
services, software & computer services, metal fabrication, capital equipment
manufacturing, and electronics.
from industries not mentioned above may benefit from evaluating some
stand-alone Epicor product components (e.g., CRM, APS, e-commerce, and
business intelligence application suite) on an opportunity-by-opportunity
basis. This as well as obtaining Epicor's implementation guarantee could
be leveraged against other vendors in the selection. Pay due attention
to the guarantee's "fine print" since it can very likely attempt to
exclude any modifications and/or business process reengineering work.
Perhaps Epicor can define areas of expertise or identify an integration
partner responsible for implementation.
users of Epicor Windows- and DOS-based financial accounting solutions
as well as back-office products that face stabilization and/or discontinuation
may benefit from querying the company's future product migration path,
service & support, and/or scalability strategy.
- As for
the newly added and/or anticipated functionality through product alliances,
users are advised to ask for firm assurances on the availability and
future upgrades timeframes, and a more detailed scope of combined product
functionality. Any organization evaluating Epicor 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 and forthcoming new product introductions.
The product integration and/or Web-enablement should be validated during
the technical review sessions as a part of a thorough selection process.
Moderate caution should be exercised now and a watchful eye should be
kept on the company's future financial performance.
interested in Epicor's assistance in connecting them to digital market
places (Internet exchanges) should have answers to the following questions:
Which specific market places does (or will) Epicor connect with? What
methodology does (or will) the company prescribe to? Will Epicor map
customers' schemas to those of the marketplace? With suppliers talking
to manufacturers, customers and sales people interacting via the network
and a back end solution "keeping up" with all of it, what "lowest common
denominator" network configuration is recommended by Epicor?
of Part 2
This concludes a two part note on Epicor.
1 focused on Epicor's history, how it fits in its market, recent developments
of interest and the direction the company is headed. Part 2 contains specific
analyses of Epicor's strengths and challenges along with bottom line predictions
and recommendations for the company and users.