Client Issues for ERP Software Vendors and the Investment Community

Transcription

1 Research Brief Client Issues for ERP Software Vendors and the Investment Community Abstract: Enterprise resource planning software vendors continue their struggle to maintain license revenue and market share. Investors endeavor to gain insight in their holdings. By Chad Eschinger Recommendations Software vendors must focus on the global and regional market trends, forecasts, segment growth projections and pricing models to ensure optimized growth from aligned strategies and plans. Investors in enterprise resource planning (ERP) software vendors must focus on vendor and market performance on new license revenue. They also must look for opportunities in detail of the ERP's application segments and subsegments to find opportunities for higher growth targets. Publication Date:8 December 2003

2 2 Client Issues for ERP Software Vendors and the Investment Community Client Issues for ERP Software Vendors and the Investment Community ERP software application vendors are faced with significant challenges caused by increased merger and acquisition activity and significant decline in license revenue during the past 5 years. The market is hitting the bottom in 2003 as forecasts for the ERP market are negative 6.9 percent in 2003, with positive growth resuming in 2004 at 2.3 percent, continuing in 2005 at 3.3 percent. While 2004 is showing signs of emerging with positive year-over-year growth, it is forecast to be minimal as the ERP market hasn't experienced double-digit new license revenue growth since Despite a growth spurt of 5.8 percent growth in 2000, new license revenue for ERP software is down 38 percent from Investors in ERP software vendors also have challenges because of the numerous drops in total company revenue, which has negatively affected the valuation of many software companies. Most of the vendors have realized decreases in value during the past two years, yet for those investors that look closely, there are higher growth opportunities in specific areas of the market. Gartner Dataquest is highlighting the top issues of ERP software vendors and the investment community. These issues are derived from primary research, through inquiries, consulting work and discussions at events. The top issues, along with a preview of our intended research, are described below to help the software vendors and investors approach these major challenges and opportunities. Research is available on the following client issues, with more detail available through inquiry, event presentations and audio conferences Why Will the ERP Market Experience Slow Growth Through 2007? Knowing the size of the ERP application software market is key in planning new products and setting new strategies. Investors must understand the potential growth estimates of the market, while the vendors must align their product, sales and merger strategies to the demand potential. Gartner Dataquest publishes annual reports, which identify the market size and license revenue performance of leading ERP software providers. We also publish a forecast and trends report highlighting the drivers and inhibitors of market growth, as well as a fiveyear forecast. These reports are available in a worldwide format, as well as detailed country level in regional reports for Asia/Pacific and Europe Gartner, Inc. and/or its Affiliates. All Rights Reserved. 8 December 2003

3 Which Regions and Vertical Industries Are the Hottest ERP Software Markets? Opportunities abound in specific regions and vertical industries within the ERP software market. Knowledge of recent performance and movement by vendors in these segments is valuable in sales strategies and planning. Gartner Dataquest publishes research on market performance in the top 14 industries and 6 regions, as well as forecasts for future growth trends. The market statistics and forecast and trends reports contain detail on these segments, and more information is published in regional reports, including Europe and Asia/Pacific. What Types of Pricing Models Are Being Used in the ERP Software Market? Pricing used to be simple. Today, it has become an increasingly hot topic, especially when deep discounting has become rampant during the past several years. Common questions for validation include what types of pricing models are used by known and unknown competition, what type of pricing models are successful in today's market and are there new models available which we haven't pursued? Gartner Dataquest researches and monitors pricing models from many vendors and can assist in analyzing current models and exploring new ones. What Is the Trend for Maintenance and Support and Services Within the ERP Software Market? Today, with scant opportunities for large license sales, many ERP software vendors have needed to increase their focus on maintenance and support, as well as services, to offset the drop in new license revenue. We have witnessed an increase during the past three years in vendor-generated maintenance and support, as well as in custom development services, to counter the fall in license revenue. In this difficult environment, many vendors have crossed the ratio line by having much more revenue in services and maintenance than in license revenue. What Is Causing the Gain or Loss in License Revenue With the ERP Software Vendors? Software vendors must monitor the performance of their competition in direct and indirect markets. As an investor, monitoring the comparative performance of new license revenue reveals significant value for investment. Understanding the root cause for a vendor's performance is even more valuable, and can arm sales teams with important information for competitive positioning. In performing market analysis of the ERP software market, we gain not only the quantitative data on vendor performance, but a qualitative perspective as well Gartner, Inc. and/or its Affiliates. All Rights Reserved. 8 December 2003

4 4 Client Issues for ERP Software Vendors and the Investment Community Gartner Dataquest Perspective What Markets Other Than ERP Are Integrated Enterprise Application Suites Gaining Share? The ERP market has undergone an incredible evolution of product development and assimilation. During the past few years, leading ERP market share software vendors have successfully challenged other market incumbents, becoming market share leaders in several peripheral markets. By expanding their application portfolios beyond ERP, these "suite" vendors offer applications spanning multiple enterprise functions, such as business intelligence, supply chain, product life cycle and customer relationship management. Yet, many ERP best-of-breed vendors have found successful niches in HR or financial management. Many of these best-of-breed vendors are achieving steady growth in their own specialty areas and will likely continue to do so. Which Software Vendors Are Having Financial Viability Issues? There are varying aspects to a vendor's financial health, and recent performance of new license sales is a key indicator to beginning the assessment of a vendor's viability. Gartner Dataquest's research delves into new license performance of leading software vendors in the market. Many vendors, especially those targeting mid-market enterprises, are having significant challenges and are experiencing financial viability issues. Our market statistics reports break down two years of vendor license revenue performance within the ERP software market, detailed to regions, industries, top functions, platforms, company size and other segments. What Are the Opportunities and Impacts of Merger and Acquisition Activity Within the ERP Market? The impact of merger and acquisition activity is significant and rampant in today's software markets. The ERP market is saturated with established vendors and mature functionality, giving opportunity for new entrants and successful incumbents alike to enter the ERP market or increase existing market share. Merger and acquisition activity has and will continue to impact market share and the future of the ERP market, and understanding the share and direction of ERP vendors is key. Our trends and forecast research has delved into the impending drivers and inhibitors for several years. Stay Tuned on Sensible Issues With restrained optimism, the prospect of future license revenue growth within the ERP market during the next few years will continue to be lean for ERP providers. The vendor landscape varies greatly compared with a few years ago and will differ greatly by ERP providers will need to continually adapt to changing buyer behavior and requirements. While it won't be the last reinvention, for some, it will likely contain the most significant changes undertaken Gartner, Inc. and/or its Affiliates. All Rights Reserved. 8 December 2003

5 In this weak economy, vendors must maintain solid signs of viability, not only for potential clients but also for investors and financial analysts. Viability has become a major data point in the selection process for users. When a vendor's viability becomes questionable, sales cycles lengthen or evaporate, creating serious difficulties for the vendor and the market as a whole. ERP software vendors would do well to ensure that these client issues are incorporated in their strategies and tactics. Investors in ERP software vendors can gain value beyond the traditional financial performance data, and seek out hot opportunities within the market. By understanding the client issues of the vendors and the investment community, Gartner Dataquest designs its research agenda to deliver relative information of high value to the real issues at hand. 5 Key Issue What client issues should Gartner research address? 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 8 December 2003

6 6 Client Issues for ERP Software Vendors and the Investment Community This document has been published to the following Marketplace codes: SOFT-WW-DP-0156 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice