The Enterprise Applications 'Arms Race' To Be Number Three

Event Summary

In the enterprise resource planning (ERP) world there is fierce competition to be number three (after SAP and Oracle). The leading contenders are Infor, Lawson Software, and SSA Global. For a detailed discussion of Lawson, see New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions).

This is Part One of the series The Enterprise Applications "Arms Race" To Be Number Three.

Even those who still believe that weapons of mass destruction (WMDs) will be found in Iraq (or in North Korea or Iran) should by now have realized that the number one position in the enterprise applications space will ultimately be decided in the inevitable showdown between SAP and Oracle (and their accompanying platform and partner ecosystems). Certainly, this does not imply that either of those will ultimately dominate the tier two or high end of the tier three market segments per se. Thus, the "arms race" for the number three spot is no less exciting (and is maybe even breathtaking), given that the revenue rankings snapshot for SSA Global, Lawson Software (soon to merge with Intentia), and Infor may change at any time, depending on which vendor has most recently announced yet another acquisition. One should also note that Infor, Lawson, and SSA Global have no illusions of dominance in the tier one segment, since that battle will already have been decided between the two aforementioned giants.

One should also not ignore Microsoft Business Solutions (MBS) or Sage Group, in light of their total applications revenues, but these two archrivals are still fighting in the lower end of the market. Their respective significance remains, however, especially given Sage's recent acquisition of Adonix (which certainly has many larger midsized customers), and the fit of Microsoft Dynamics AX (formerly Microsoft Axapta) to like-sized enterprises, although this product is impeded by its nascence. Also significant are Epicor Software (with its recent acquisition of CRS Retail Solutions), and China-based CDC Software (with its ongoing digestion of the globally renowned Ross Systems, IMI, and Pivotal brands; its recent acquisition of JRG Software; and vacillating plans to nab Onyx Software), but they are still at a safe distance, revenue-wise, from the tier two echelon.

Recently, we have given due attention to the Lawson-Intentia combination, and to the rivalry between MBS and Sage (see The Market Impact of Two Powerhouses), so the time has come for a comparative analysis of the remaining two foes: SSA Global and Infor. Executives of these two vendors would be genuinely (or not so genuinely) insulted at any mention of similarities between the two entities, and although the two do have mutually distinct characteristics (which will be tackled further on), the two vendors do indeed have many similarities.

Similarities

For one, besides their similar size, similar geographic coverage, significant industry overlap, close partnerships with IBM, and so on, both are, after all, aggressive acquirers (being more or less strange conglomerations of over a dozen enterprise products). This is in distinction to "organic growers," which SAP, QAD, IFS, or IBS largely remain (if one disregards their occasional smaller, complementary acquisitions to fill some functional gaps). Other so-called organic growers include Oracle (prior to their acquisition of PeopleSoft/J.D. Edwards, and Siebel), and pre-merger Intentia and Lawson (see Rapidly Consolidating Enterprise Applications Market: The Worlds of 'Organic Growers' and 'Aggressive Consolidators').

Both vendors vehemently object to anyone characterizing them as aggressive consolidators, since the term gives the negative impression that acquisitions serve the purpose of farming maintenance revenues without any commitment to developing new solutions. SSA Global contends that it is much more than a consolidator, as it has been espousing and executing a well-defined convergence strategy. On the other hand, Infor claims to be a sort of organic grower of the businesses that it has assembled—adding close to 1,000 new customers annually.

Related to this is the similar youth of the companies, which are both around toddler age. We know them now as SSA Global and Infor respectively, but via their progenitor companies, they can each boast about thirty years of market existence and industrial experience.

For example, from bankruptcy (with about $130 million [USD] in revenues and a cash hemorrhage of $16 million [USD]) in late 2000, SSA Global generated almost quintuple revenues of $637.8 million, with a net income of $20 million (USD) for the fiscal year ending July 2004. This was accomplished via nine acquisitions from April 2001 to August 2004. For fiscal year 2005, revenues totaled $711.8 million (USD), not including the last three acquisitions, which will be discussed later. With about 5,000 jittery customers in 2000, SSA Global now has over 13,000 active customers in 90 countries and 121 offices worldwide. The company, which also went public in May 2005, spends on average 15 percent of its annual revenues, or over $100 million (USD), on the research and development (R&D) of new solutions and enhancements.

On the other hand, from its first (hardly ever publicized) acquisitions in 2002, Infor has thus far acquired 18 companies, and estimates are that it has become a nearly $780 million (USD) company. This includes projections for the latest, partial acquisition of Geac Computer Corporation, and the complete acquisition of Datastream Systems, which will also be analyzed later on. It now has more than 3,100 employees in over 50 global offices, with earnings before interest, tax deduction, and amortization (EBITDA) currently around $140 million (USD), or a projected $190 million (USD) after the above acquisitions. The company is privately held, but remains refreshingly open about its finances, which is another similarity with private-era SSA Global. Another similarity is that both companies are far from being finished with their acquisition streaks—both are keeping watchful eyes around the clock on several dozen possible acquisition targets. However, eager candidates can also click designated buttons at these vendors' Web sites and offer themselves up to "chief acquisition officers" (or whatever their titles might be).

Both SSA Global and Infor will sooner rather than later reach the magic $1 billion mark in revenues. As a matter of fact, both vendors are occasionally frustrated at being branded by analysts as mid-market-only providers simply because their revenues do not match up those of SAP and Oracle. In fact, many of their customers are multinational corporations with multibillions in revenues. Another striking similarity is that a lot of due diligence and integration takes place before any acquisition is publicly and officially announced; there is no confusion amongst their ranks about who is staying in which capacity, and about who has to move on. Also (at least at a mid-managerial level), there is a tradition of meritocracy in both houses, whereby incumbent employees do not necessarily have a "free ride" advantage over newcomers—many employees from acquired companies have actually climbed far up the corporate ladders.

So Similar, Yet So Different (and Vice Versa)

However, there are certainly somewhat different philosophies underlying the current state of affairs for SSA Global and Infor. Being the first to start the acquisition streak, SSA Global had initially shown (at least to lesser-informed outsiders) something of a scavenger nature, by acquiring struggling peer companies that typically had products written off by many as technologically outdated has-beens. But in hindsight, there was at least some underlying method and consistency to these acquisitions: all the products were technologically similar (based either on Unix or IBM iSeries [AS/400]); they were mostly aimed at related discrete and process manufacturing sectors; and they quickly became cash-generating businesses within SSA Global.

On the other hand, with every acquisition, Infor has attempted to solve essential, industry-specific challenges faced by its (by now) more than 17,500 customers (26,700 after the impending acquisition) and implementations in 70 countries. Also, each acquisition has had the role of helping to develop deep vertical expertise within the targeted supply chain management (SCM) and ERP solutions, and within certain regions (for example, Infor has succeeded in becoming the mid-market automotive supplier leader in Germany). The addition of Datastream, a prominent enterprise asset management (EAM) provider, reveals a lot about Infor's strategy to acquire leading brands that round out the entire solution footprint, and that provide compelling combinations to compete against the larger horizontal players like SAP and Oracle.

Certainly, SSA Global has been less focused so far on capturing certain industries with its acquisitions per se, than on acquiring ERP and SCM vendors to grow market share and share of wallet (SOW) by broadening its product footprint. Consequently, nowadays SSA Global develops, sells, and services enterprise applications software, which encompasses ERP, customer relationship management (CRM), SCM, financial management, procurement, project management, human capital management (HCM), business intelligence (BI), and product lifecycle management (PLM).

Even without an initially deliberate focus, SSA Global offers its applications to companies in a number of vertical markets, with a concentration on manufacturing industries (which represent about 80 percent of revenues, at least prior to the Epiphany acquisition; but this acquisition has shifted the revenue balance to about 64 percent, with the remainder coming from the service industries). The company offers its applications to companies in various industries: aerospace and defense (A&D); automotive; chemicals; consumer packaged goods (CPG); industrial machinery and equipment; general process manufacturing; high-tech and electronics; medical products, devices, and equipment; and pharmaceutical. To that end, its SSA ERPLN product is targeted at companies in the A&D, high-tech and electronics, and industrial machinery and equipment sectors, and includes specific functionality for companies in those sectors. SSA ERPLX has a similar focus on batch process companies, in sectors such as pharmaceutical, and food and beverage. Prior to the addition of Epiphany (via eclectic acquisitions such as Infinium or Computer Associates' Masterpiece), SSA Global had widened market penetration by adding business services, financial services, government and education, health care, hospitality and gaming, and retail vertical markets to its traditional manufacturing stronghold. Its strategy has been to add strategic solutions that allow customers in targeted industries to support end-to-end business processes with integrated applications from a single vendor.

What the two vendors have since been doing with their acquired portfolios highlights additional similarities and differences. As for similarities, the bedrock policy for both vendors is that no product will be sunset (i.e., "killed," "stabilized," or discontinued) for as long as the customers want to use the products and pay for maintenance and support (which, incidentally, Infor has not increased, contrary to the customary actions taken by other acquisitive peers).

Also, for new and more avant-garde customers wanting to migrate to more contemporary technologies and the broadest and deepest contemporary functionality, both vendors have embarked on the development and delivery of next-generation products. In the case of SSA Global, this means converging several technologically close legacy products into the SSA ERPLN or SSA ERPLX next-generation ERP offerings (see SSA Global—The Right Product Strategy). In theory, these offerings will draw on the best functional characteristics of all individual acquired products, in addition to new, internally developed (on an ongoing basis) functional capabilities.

Building Ecosystems of Extended ERP

Both SSA Global and Infor have also been building ecosystems of extended ERP, consisting of complementary products that they can peddle (up-sell or cross-sell) to their installed base (and even to new customers in a stand-alone manner), to keep clients on maintenance and sustain them as a source of revenue for many years. Such a strategy has been particularly successful for SSA Global, since in the maturing market for ERP systems, new license sales have long become more difficult to achieve, and increasing revenue from existing customers is thus becoming more important.

On the other hand, although user companies want new functionality, they are quite reluctant to undergo a wholesale "rip and replacement" of functioning legacy ERP systems, if extended functionality from the incumbent vendor is likely to be "good enough" (or even better). These factors have led to the philosophy that a vendor's revenue model might depend less on constantly finding new customers, and more on sustaining a large installed base of existing customers, including sales of complementary products and services for integration with the user's installed system.

Shifting from an initial focus on "portfolio collection," SSA Global has recently been focusing instead on a product convergence strategy, which means developing interfaces between its main applications and its acquired products. The vendor tends to offer an upgrade path to either the iSeries or the UNIX code bases via their respective SSA ERPLX and SSA ERPLN products. Recently, especially on the supply chain execution (SCE) side, it has acquired add-on best-of-breed point supply chain management (SCM) solutions such as CAPS Logistics (from former Baan), Arzoon, and EXE Technologies (and very recently, Epiphany for CRM and Boniva for HCM capabilities, which will be discussed later). SSA Global has been selling these ERP extensions (which in the SCM and SCE applications case are for all ERP products from the separate strategic SCM unit) primarily, but not necessarily to its existing ERP customer base (see SSA Global Forms a Strategic Unit with an Extended-ERP Savvy). The Epiphany acquisition has resulted in a new strategic CRM unit too. The integration of SSA Global's acquired products in areas such as SCM, supplier relationship management (SRM), and CRM should benefit SSA Global customers seeking suite-level integration.

SSA Global Warehouse Management System and Transportation Management System Focus

This benefit might be particularly apposite for customers that increasingly are feeling the pressure of doing business in a complex global supply chain where rising transportation costs have a major impact on business performance and profits. To that end, since the EXE acquisition in 2004, the vendor has delivered a swath of warehousing enhancements dealing with regulatory compliance, integration with ERP counterpart products, event management, radio frequency identification (RFID), voice interface, and so on. Thus, SSA WMS (Warehouse Management System) 2000 5.5 and SSA WMS 4000 3.10, both from former EXE, provide a better user interface (UI), as well as compliance and warehouse operations facilities, with some industry-specific capabilities. Meanwhile, SSA TMS (Transportation Management System) 6.2, bolstered by new development since the Arzoon acquisition, provides more functionality for international air cargo transactions.

The array of enhancements slated for 2006 (for example, wave planning, agent-based network fulfillment execution, labor and task management, event management, and a multiwarehouse visibility platform) is no less impressive (see SSA Global finds Little Known SCM Gems in Filling Out its Solution Portfolio and Who Needs Warehousing Management and How Much Thereof?). All these enhancements come with the concept that users obtain deeper insight into their customers' demands to better match supply with available product, based on flawless demand-driven supply chain and production operations ideas.

SSA has recently had strong momentum and organic growth, especially in the WMS arena: sales of WMS Solutions grew in 2005 from 2004 levels, to now reach EXE's peak revenue levels of 2001. Acting as a stand-alone, best-of-breed SCE supplier rather than an ERP supplier, globally SSA Global has been regaining significant customer share. Basically, by closing well over 100 significant customer transactions with WMS solutions in 2005 (with more than half involving brand new accounts), the vendor may be dispelling any lingering perceptions that it is a mere ERP scavenger. In fact, compared to the pure-play WMS leaders, Manhattan Associates and RedPrairie (including recently acquired MARC Global), SSA Global is more global, since most of its SCE customers come from outside North America. As for industry segments, retail and wholesale distribution was the largest vertical for SSA Global's high-volume WMS transactions, with transportation and logistics being the second-largest vertical.

Similar Infor Focus

It is interesting to note that the Infor supply chain planning (SCP) group is acting in a similar manner, selling to several of its ERP install bases within all geographic regions. The group currently has estimated annual revenues of $35 million (USD), more than 135 employees, and over 450 customers—more than 75 percent of these customers have come from a competitive customer base (meaning that only one quarter of these have come from an Infor ERP product instance). SCP modules featuring industry focus and deep domain expertise include inventory planning and replenishment (including strategic inventory planning and inventory optimization), demand planning (including demand forecasting and scenario analysis), supply planning (including manufacturing planning and supply optimization), production scheduling (including process and discrete manufacturing scheduling), distribution planning (including deployment and distribution optimization), and sales and operations planning (S&OP) (including S&OP reporting and supply chain optimization).

Somewhat differing from SSA Global's comprehensive convergence of products, Infor's "assembler" strategy for its major business units (discrete manufacturing [automotive, industrial equipment and machinery, high-tech and electronics, metal fabrication, and so on]; process manufacturing [food and beverage, specialty chemicals, pharmaceuticals, life sciences, and the like]; and wholesale distribution for durable goods [paper, plumbing and heating, industrial supply, building materials, electrical supply, and so forth]) is to acquire solutions and to skim off the potential "superbreed" modules, which it can then sell to users of its own ERP solutions as well as of other ERP solutions, while not losing sight of the vertical focus. Also, the collective domain knowledge and some acquired best-of-breed products will be (or already have been) transformed into evolutionary superbreed products for use across multiple divisions.

The best example, in addition to the aforementioned newly formed Infor SCP division (which stems from the SCT Process and Mercia acquisitions), is the SupplyWEB supply replenishment product for automotive suppliers, which has already incorporated the best functionality from former Future Three and Brain (see The Pain and Gain of Integrated EDI Part Two: Automotive Suppliers Gain), and which has meanwhile been rewritten in Java and is available for all ERP products. Further examples include the Infor eCommerce (formerly bizLinx), eStorefront, and eCatalog products from the Infor distribution division, and VISUAL WMS, from former Lilly VISUAL.

As a result, Infor has been able to integrate the collective industry-specific functionality and savvy of the products and people it assembles, as exemplified by Infor .NET's upcoming Center of Excellence which will join the forces of the former Lilly VISUAL and MAPICS SyteLine product development teams in the discrete manufacturing unit. Consequently, VISUAL WMS is being offered to Infor SyteLine customers, initially as a service offering, whereas the VISUAL Quality Management module is to be offered to both Infor SyteLine and Infor XPPS (formerly Brain XPPS) customers. As an independent entity, MAPICS had already linked the SyteLine CRM product to Infor XA (formerly MAPICS XA), well before its acquisition by Infor; this product will soon be sold to the original Infor COM users and later to Infor VISUAL users. The forthcoming accounting and trading management product ACmanager is anticipated as a new global superbreed product, together with eStorefront (from the distribution group) for SyteLine and COM, and the enhanced demand planning product Mercia Links for XA, SyteLine, and COM. The vendor is also currently analyzing the possible product candidates for superbreeds in performance management, PLM, and CRM.

Over the last 12 months, Infor claims to have gained nearly 1,000 name customers, mostly as a result of the above superbreed products and the COM (primarily in Europe), SyteLine (globally), and VISUAL (primarily in North America) ERP products (VISUAL's new license sales reportedly rose 50 percent year over year in the first two quarters after the acquisition). Users are showing confidence rather than consternation after the new owner's appearance. The automotive sector has been a particularly successful vertical for Infor: a reported 73 percent of tier one and two automotive suppliers were already using Infor solutions, generating $80 million (USD) in revenues. Additional areas focused on by Infor are wholesale distribution and the make-to-order (MTO) discrete manufacturing business, as well as process manufacturing, including chemicals, and food and beverage, which will be detailed later.

Not to be completely outdone by Infor when it comes to vertical focus, SSA Global has been adding industry-knowledgeable people to its marketing teams, to contribute to delivering solutions addressing certain customer needs or pain points. The vendor will not build different product versions for different vertical industries (this is in order to maintain the simplicity and effectiveness of the two core ERP applications, which will converge multiple product, multi-code functional footprints), but will rather deliver optional feature packs tailored for certain industries. Needless to say, one would expect customers to apply them as a matter of course. Service packs are not optional (in that they correct bugs), but most simply roll up a number of previous changes. Conversely, some feature packs may contain more features for one industry than another, and it is quite possible that SSA Global might launch a feature pack for one industry, followed by a feature pack for another industry. That, along with the notion that success breeds success, has contributed to the fact that approximately 10 percent of SSA Global's total revenues currently comes from new licenses (although not necessarily from as many new name accounts as in Infor's case).

This concludes Part One of the six-part series The Enterprise Applications "Arms Race" To Be Number Three.