ERP Market: Good Things In Small Packages?

New software license revenue for ERP systems dropped by 9 percent in 2002 to $5 billion from $5.5 billion in 2001, Gartner reported.

Much like other software makers, ERP vendors are suffering from a shift in buying patterns toward applications that reduce costs within a specific business activity, such as reducing the number of faxes and telephone calls in moving purchase orders between companies. In the ERP market, many companies followed erroneous forecasts in the boom years and bought far more capacity than is needed today.

"With ERP, the big bang implementation that was going on in the late 1990s tainted the user experience," said Gartner analyst Chad Eschinger. "So within that market, you're definitely working on selling bits and pieces of functionality to augment what users already have."

Nevertheless, the market did better than expected, given the current state of world economies, Eschinger said. The revenue figures were helped a bit by the strong Euro, which meant vendors like SAP AG that report in the currency would have shown higher revenue in U.S. dollars.

SAP remained the clear leader, with 25.1 percent of the market. Oracle was a distant second with 7 percent, followed by PeopleSoft, 6.5 percent; Sage, 5.4 percent; and Microsoft, 4.9 percent. SAP, Sage and Microsoft increased market share slightly, while Oracle and PeopleSoft declined a bit.

Faced with a shrinking market, ERP vendors have been forced to merge as the only sure way to increase their customer base and create a large pool of prospects for their smaller business applications. This was a factor in PeopleSoft's recent agreement to acquire J.D. Edwards, which sparked Oracle's hostile takeover bid for PeopleSoft. The proposed mergers are still pending.

"They need to gain mass at this point," Eschinger said of ERP vendors. "It's a game of hoarding as many customers as you can to ride out this economic downturn."

Oracle, PeopleSoft and Sage have an additional disadvantage: that of being between two gorillas--SAP on the high-end of the market and Microsoft on the low end--making it even more difficult to find new customers, Eschinger said.

All segments of the ERP software market declined in revenue in 2002. Financial management software declined the least at 8 percent. Manufacturing and human capital management experienced the largest decline with 12 percent and 10 percent, respectively.

This story courtesy of Techweb.com.