Epicor's Mid-Market Pitch Becomes Higher For (One) Scala
Part Five: More Challenges & User Recommendations
Epicor Software Corporation (NASDAQ: EPIC) and Scala Business Solutions (formerly Euronext: A.SCALA), an Amsterdam, the Netherlands-based provider of collaborative enterprise software for mid-size enterprises and subsidiaries of global corporations, have completed a merger that began in late 2003. The merger creates the largest independent global mid-market provider of collaborative ERP, customer relationship management (CRM), and supply chain management (SCM) applications based on Microsoft's .NET platform and Web services, with approximately $250 million (USD) annual revenues, nearly 1,500 employees, and with over 20,000 customers. The combined company hopes to expand its global presence with worldwide coverage of sales, consulting, and support for mid-market and large multinationals as well as local enterprises, offering a broad suite of integrated solutions.
The situation may become even more complex in Epicor's Manufacturing Solutions Group, which contains 6,500 of Epicor's 20,000 customer base, and which, as mentioned earlier on, features Vantage (for new business opportunities), Manage 2000, and Avant as its major mid-market ERP products and Vista for smaller discrete manufacturers. As for specialization, Vantage remains the preferred system for MTO, job shop enterprises, while Avant, which has not been actively marketed in the U.S. since 1999, leans towards complex manufacturing and project work environments as well as towards repetitive manufacturing with one of its product variants; Vista, on its hand, is the low-end product for much smaller discrete manufacturing enterprises.
However, even with this simplified product set, Epicor still has a substantial rationalization and abridging job to do. For example, the vendor has to utilize open database technology to provide flexible, yet integrated enterprise business applications. Namely, Vantage and Vista, developed on a single framework, are designed for Progress Software Corporation's Progress RDBMS, but they are also available on the Microsoft SQL Server .NET Enterprise Server platform, while the Avant product leverages UniData (a.k.a. U2) open database technology from IBM Corporation.
Thus, the above-described product roadmap strategy within Vantage 8.0 calls for a common platform that has a single layer of business logic and multiple UIs that sit on top, letting manufacturers migrate from their current installations at their comfortable pace. Epicor first delivered on the new roadmap with the early 2003 announcements that its Vista 6.0 and Vantage 6.0 enterprise systems now share that common platform, with UIs and workflows tailored to the markets they serve (see Epicor Reaches Better Vista From This Vantage Point). At the same time, Epicor rolled out the product strategy and roadmap to all of its manufacturing customers, thereby sharing the vision of how all products (Avant, DataFlo, Manage 2000, and ManFact) would fit into the future constellation, including plans to continue development on those solutions releasing new upgrades every 12 to 18 months based on customer feedback. Logically, Vantage and Vista have taken the front seat as the solutions for new business, owing to their sexier technological foundation.
While the long awaited porting of Epicor's flagship products onto Microsoft SQL Server and Progress as well as continued focus on .NET framework should significantly relieve the company's R&D burden (the vendor spends 12 percent of its revenues on R&D, and has over a quarter of its total headcount in R&D), create incremental revenues opportunity in coming years and improve its general competitiveness, the remaining work of delivering single .NET compliant application framework remains major. At best, 80 percent of current install base will be covered by the first release of Vantage 8.0—namely, the earlier users of Vantage and Vista, whose migration (or mere "cherry picking" of new Web service-based enhancement) should be reasonably painless.
Still, the remaining 20 percent of 6,500 manufacturing customers, might sooner or later want to migrate from current non-.NET applications, although Epicor is committed to supporting these customers indefinitely (these customers are currently provided with new upgrades every 12 to 18 months based on the input the vendor gets from customers with regard to the enhancements they would like to see), which will in turn draw on its multiplied R&D and support resources. One should imagine the magnitude of the effort when the Avant and Manage 2000 (Epicor acquired ROI Systems in mid-2003, bringing this midsize discrete manufacturer and hybrid manufacturing and distribution environment enterprise solution to the fold) instances, some with extensive customer bases on non-Microsoft technologies, should follow the path. Epicor indicates that these customers will be offered a migration to Progress or IBM DB2 database from U2 (only in the second generation of Vantage/Sonoma), but acknowledges that the migration will virtually be another full-fledged implementation, which might mean some customers' defections.
As for Scala, room for functional enhancements beyond ERP and product delivery work in progress remains too. Namely, despite the elaborately thought out transition between the products (the upgrade path from Scala 5.1 to iScala 2.2 is reportedly no more complex than that between service releases of Scala 5.1), Scala does not intend to immediately withdraw Scala 5.1, as there are still existing customers who are in the middle of a roll out of the product and as not all languages have been implemented in the initial releases of iScala.
Further, the company has to build the hospitality and pharmaceutical functionality into a forthcoming new release of iScala 2.2. The partnership with Microsoft for CRM might also be dubious in the long run, given the temptation to utilize the home' product Clientele, particularly for some larger enterprises where Microsoft CRM scalability is yet to be tried and true.
This is Part Five of a five-part note.
Part One detailed the event.
Part Two discussed how Scala complements Epicor.
Part Three presented the market impact.
Part Four covered merger synergies and challenges.
Incidentally, the competition is also flying from many directions since the parent company now competes in many diverse markets, and it now has a number of competitors that vary in size, target markets, and overall product scope. The primary competition comes from ISVs in three distinct groups, including
1) The above-mentioned large, multinational tier one ERP vendors that are increasingly targeting midsize businesses as their traditional market becomes saturated (see PeopleSoft Revamps World for Its Mid-Market "Express" Conquest and SoftBrands to Institute Fourth Shift for SAP Business One Manufacturing Work-Plan).
2) Midrange ERP vendors, including Lawson Software, SSA Global, IFS, Intentia, and MBS.
3) Established best-of-breed or point solution providers that compete with only one portion of Epicor's overall ERP suite, including Sage/Best Software, Systems Union, Unit 4 Agresso, or Geac for financial accounting; HighJump Software, Prophet21, RedPrairie, or Manhattan Associates for distribution and WMS; QAD, MAPICS, SYSPRO, Lilly Software, Encompix, Adonix, or Made2Manage for manufacturing; and Onyx, Siebel Systems, Pivotal, FrontRange, Salesforce.com, or SalesLogix (owned by Best Software) for sales force automation (SFA), customer service, and support. The list of the competitors in the above markets is by no means exhaustive.
Also, a leaner company with a large customer base and a palatable market capitalization remains an attractive acquisition target in this seismically consolidating market, with possibly unwanted attention of predatory competitors. At least, the Scala acquisition with its organizational and products' merger might also deter the acquisition-spotting vultures for the time being, in addition to an existing rights plan for a heftily higher price per share than the current one.
Epicor's financial stability and its ability to enhance its products (both in-house and via acquisitions) and its determination on executing product and technology strategies deserve commendation. Current users are advised to follow Epicor's new product introductions and keep an eye on its future product strategy. The positive sign is the company's more manageable and narrower focus, as demonstrated by its most recent results. Mid-market companies with up to $1 billion (USD) in revenues that are within the parent Epicor's industries of focus (i.e., Epicor Vantage for capital equipment, fabricated metals, electronics, instruments and controls, and consumer packaged goods [CPG], and Epicor Enterprise for enterprise services, financial services, non-profit, hospitality, and entertainment) and companies with a need for a single-source functionality beyond core ERP scope, should benefit from including Epicor in the short list of potential candidates for the enterprise applications selection.
Enterprises should nevertheless monitor the consistency between the announced strategy and the company's actions in continuing to support all of the former products strategically. While Epicor has continued to support all products from Dataworks since 1998, and pledges to continue to support all its products, existing users of Epicor products that face stabilizatio or discontinuation may benefit from querying the company's future product migration path, service and support, and scalability strategy. As for the newly added or anticipated functionality, users are advised to ask for firm assurances on the availability and future upgrades timeframes, and more detailed scope of enhanced product functionality. They should also inquire about any possible impact (or benefits) of migrating towards more advanced offering. Taking stock of current resources' Progress, VBA, and C++ skill sets and assessing the effort to train these into VB.NET and C# is highly recommended at this stage.
Although the path to Vantage 8.0 (Sonoma) is an evolutionary path, the first release will offer functionality that is equivalent to, or a superset of, the functionality in the current releases of the Vista and Vantage products. This first release also meets the requirements of most Manage 2000 and DataFlo customers. By the second release and higher, Sonoma' will be equal to, or a superset of, anything customers have in place, including Avant and ManFact, which would be only some time after 2005.
Scala's target market, general multisite and multinational enterprises with up to $1 billion (USD) in revenues and their divisions with up to 200 concurrent users per site, should consider the company's value proposition, and we generally recommend including Epicor Scala in the long list of vendors considered for an enterprise application selection by the upper-end of mid-market companies that are a mixture of regional business, divisions and semi-autonomous operations, each with its own autonomous requirements and business processes. These companies generally are rapidly growing and agile, but have a limited regional IT budget or staff, and less intricate discrete or batch process manufacturing, CRM, and e-commerce collaboration requirements.
The product is also the system of choice for many lower midrange companies where the primary language requirement is not English, and where there might be a need for integration to SAP in the corporate office. Technologically, the product may be the most suitable as a solution for global midsize enterprises, worldwide dispersed, with strong requirements on distributed infrastructure, security and with private trade exchange (PTX) or collaborative role-based portal solutions strategy and delivery. The industries that would most likely benefit from using its products are those from Scala's proven core target sectors—including telecommunications, hospitality, pharmaceutical, and food and beverage.
Large global corporations with a centralized management philosophy looking for strong global corporate financial and HR modules, for a highly scalable cross-platforms solution, and for much broader functionality beyond traditional ERP boundaries (e.g., more intricate CRM, PLM, or complex project and ETO functionality) from a single vendor may benefit from evaluating other products at this stage, bearing in mind what might come from Epicor's side in the future. For more on the pros and cons of unified corporate-wide enterprise solution deployment, see Standardizing on One ERP System in a Multi-division Enterprise.
Scala users should meet the new owners and talk with the new management to make certain they know existing customers' expectations and plans. Measure the vendor's commitment to support your technology for a specified time. Keep a close eye on its actions, given that product enhancement and service and support strategy can sometimes change after an acquisition, although Epicor seems committed to actively selling and enhancing the product at this stage. Also try to understand the product strategy and look for opportunities in the new prospective product portfolio.
On a more general note, existing and prospective enterprise software users need to understand every vendor's strategy toward them. While you should talk to sales people and vendor executives, also look for more than mere words. Ask about why certain items you think you need are not available as standard offering. Ask about headcount changes, product release schedules, release contents, partnership programs, the future of exiting OEM third-party products, etc.
Finally, very detailed information about Epicor Scala, Epicor Vantage and Epicor Enterprise products is contained in the ERP Evaluation Center www.erpevaluation.com.