Vendor
Summary
Epicor Software Corporation, formerly Platinum Software, is possibly the
largest provider of integrated enterprise and e-business applications
exclusively for mid-market companies as well as divisions and subsidiaries
of larger global corporations.
Founded
in 1984 with headquarters in Irvine, CA, USA, Epicor generated $258.1
million in revenue in fiscal 1999, which ranks it among the ten largest
ERP vendors in the world. Approximately 64% of the company's sales come
from consulting, maintenance, and other support services, while approximately
28% of its total revenue is derived outside of the US market. Its flagship
product, 'e' for Epicor (formerly called Platinum ERA) software suite,
automates business processes for sales, customer service, e-commerce,
accounting, distribution, and light manufacturing. Epicor also offers
a number of different back-office software applications (e.g., Vantage,
Vista, Avante, etc.) geared for small and mid-sized manufacturers, and
customer relationship management (CRM) software. The company more than
doubled its size with its 1998 acquisition of DataWorks, a rival US ERP
vendor.
Gerald
Blackie, a former CEO of bankrupt software maker Heritage Computing, and
two former associates founded platinum Holdings in 1984. In 1985, they
introduced the Platinum line of financial accounting software. Platinum
expanded by creating partnerships with Arthur Andersen in 1987 and IBM
in 1989.
In
1992, the company went public and changed its name to Platinum Software.
In 1994, Platinum revealed that it had misstated its earnings by reporting
some sales before they had been closed. The company paid $17 million to
settle a class-action lawsuit and reorganized itself by recruiting George
Klaus as CEO in 1996. With him at the helm, the company expanded into
ERP applications through a number of acquisitions. In 1997, it bought
CRM software developer Clientele Software and manufacturing and distribution
software provider FocusSoft. These moves helped Platinum to a profitable
fiscal 1998, its first in six years.
In
late 1998, it bought larger rival DataWorks Corporation (a mid-range manufacturing
ERP supplier which with a history of acquisitions of its own, had a diverse
set of products for different markets and/or company sizes), cut 15% of
its workforce, and changed its fiscal year to December.
In
1999, the company settled a trademark lawsuit, which was filed in 1997,
with Platinum Technology (now part of Computer Associates), and changed
its name to Epicor Software.
Vendor
Trajectory and Strategy
Epicor 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.
The company has three primary areas of focus for its software products:
- Front
Office applications, which include Clientele and Platinum ERA (Enterprise
Ready Applications) sales force automation (SFA) and customer service
& support applications for small and medium-sized companies
- General
Service applications, which include Platinum ERA Financials, Platinum
ERA Distribution, and Platinum for Windows, designed to satisfy the
requirements of distributors and service organizations
- Manufacturing
applications, which include Platinum ERA Manufacturing - an ERP suite
designed for assemble-to-order (ATO) and light manufacturers, Avante
- an ERP solution for mid-sized manufacturers of discrete and highly
engineered products, Vantage - an integrated solution for engineer-to-order
(ETO) and job shop manufacturers, Vista - a Windows-based desktop business
management system specifically designed for the needs of small job shops
and make-to-order (MTO) departments of larger enterprises, and Impresa
- an ERP system specifically designed to manage the unique business
requirements of Maintenance, Repair and Overhaul (MRO) organizations
In February
2000, Epicor announced 'e by Epicor', its next generation flagship e-business
product suite for the mid-market. It is envisaged as a comprehensive line-up
of solutions tailored to empower mid-market organizations seeking to take
advantage of the Internet. 'e by Epicor' delivers financials, budgeting,
distribution, manufacturing, sales & marketing, and customer service solutions
into an integrated suite of following six applications: Epicor eCommerce,
Epicor eFrontOffice, Epicor eBackOffice, Epicor ePortals, Epicor eIntelligence,
and Epicor eIndustry. It currently incorporates Epicor's Platinum ERA
(for non-manufacturing applications), Vantage (for manufacturing customers)
and Clientele suites.
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 (SME). Platinum ERA and Clientele
are sold through a combination of direct sales representatives and exclusive
value added resellers (VARs). Avante, Vantage and Impresa are sold through
direct sales representatives and supplemented by select VARs. Platinum
for Windows is sold exclusively through authorized VARs. Vista is sold
through an internal telesales organization.
We expect
Epicor to continue its focus on the ERP mid-market (companies with $10
million - $500 million in revenues), by rounding-up the functionality
of its 'e by Epicor' solution. The product will be enhanced also through
3rd-party alliances in the area of Human Resources/Payroll, Warehouse
Management Systems (WMS), budgeting & reporting, and e-Procurement. We
also expect the company to pursue alliances for business-to-business (B2B)
e-commerce and supply chain collaboration within its industries of interest.
Additionally, Epicor will invest more aggressively in sales and marketing,
international business expansion through distributors, and will seek to
become more vertically oriented, concentrating on the number of industries
(See "Industry Focus" in the sidebar company information).
ANALYSIS
Vendor
Strengths
- Epicor
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 ERP mid-market dynamics and requirements
of inexpensive products and good service, which have traditionally been
entry barriers for Tier 1 vendors. Furthermore, its hybrid distribution
channel (direct sales to larger mid-sized enterprises and through VARs
for smaller organizations) may provide additional flexibility in addressing
unique needs of the mid-market sub-segments.
- Epicor
has gradually introduced a 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 ability to natively embrace customer and supplier
activities tied to a core transactional back-office system.
- In addition
to the above-mentioned product enhancements, Epicor has long developed
strong back-office and discrete ETO 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.
- Epicor
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.
Vendor
Challenges
- While
acquisitions have made Epicor one of the largest mid-market ERP vendors,
they have also burdened it with a long list of diverse products to be
incorporated into a clear product strategy, to be stabilized, or to
be discontinued. Continuation of 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 each client having
different needs the delivery of a "plain vanilla" solution is almost
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 12 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 cash resources
of less than $7 million are significantly diminished compared to $22
million at the end of the fiscal 1998, while its market capitalization
of $176 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 performance.
Figure 1.
Figure 2.
- Epicor
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, e.g., a bank or manufacturing company, 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.
- Epicor
faces the challenge of delivering its ambitious undertaking (integration
of its front-office suite to all its back-office suites and delivery
of vertical solutions) as planned. Any product integration requires
a painstaking effort, and most 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 by
the end of 2000. Executing these initiatives with its ever-thinning
resources will be a notable challenge.
Figure 3.
BOTTOM
LINE
Vendor Predictions
- Fiscal
2000 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. We predict
flat revenues as the best scenario, with a return to profitability in
fiscal 2001 (40% probability).
- Epicor
will deliver its eCommerce Link for XML and EDI transactions, with translators
for many leading XML standards by the end of 2000 (60% probability).
We also believe that, within the next 6 months, the company will have
to announce 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.
- Epicor's
service & support revenue will contribute more than 65% of its total
revenue within the next 4 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.
- Despite
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 10 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%
probability).
Vendor
Recommendations
- Epicor
should further entrench itself within the global ERP mid-market in the
following ways:
- Expand
business in its existing customer base, by upgrading older versions
of software and by offering new extended ERP components.
- Deliver
more focused and pre-configured vertical solutions for industries,
and offer application outsourcing to make its products attractive
to resource-constrained enterprises.
- Epicor
must remain committed to new product introductions and/or enhancements
and take more decisive steps regarding the B2B e-commerce vertical applications
delivery, possibly through product alliances.
- Conduct
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%
(See Figure 3). 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.
User
Recommendations
- 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.
- Users
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.
- Existing
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 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.
Moderate caution should be exercised now and a watchful eye should be
kept on the company's future financial performance.
- Customers
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?