Enterprise Applications review

2006 saw a great deal more consolidation in the Enterprise Applications market, making for impressive headline growths for Infor (an estimated annual growth of 160%) and Oracle's Applications division (about 65% growth in annual license revenue). However, much of this perceived growth was fuelled by acquisitions. Taking into account Oracle's acquisitions of Peoplesoft and Siebel, its proforma license revenue growth is closer to 11%. However, even accounting for acquisition-related growth, there is still significant organic growth - for example, Infor claims to have won 1,000 new customers in the past year.

Cambashi's tracked group of the top Enterprise Applications vendors grew by around 12% during 2006 to more than $21bn. For global companies, the decline of the $ relative to the € during 2006 makes a $-based growth figure a slightly flattering view of underlying business performance. Of this group, SAP accounted for nearly $12bn, also growing by about 12%, thereby maintaining its share of the market. However, in its heartland of Europe, SAP grew slower than the group of tracked companies for the first time in a number of years. SAP grew 4% to €4.7bn, while the tracked companies - excluding SAP - grew more than 7%. Between 2001 and 2005, only in one quarter had SAP grown slower than its group of peers in Europe, whereas in 2006 only in Q4 did SAP outgrow the market - see figure 1.

Figure 1

The outlook for 2007 depends very heavily on economic conditions in Europe and the US, but we expect a number of trends to continue. SAP and Oracle will continue to look for a greater share of customers' IT budgets by expanding their range of offerings and by selling additional functionality to their user base. Much of their new-name business is likely to come from sales to mid-sized companies - another of their focus areas. The mid-market vendors will continue to expand into the niche industry sectors where they have an advantage over both the large vendors and the small vendors. The mid-market leader, Infor, will likely continue its acquisition strategy, which also enables it to compete for more of its customers' IT budgets.

One of the strategies for attracting mid-market business is the concept of "software as a service" or SaaS. Although revenues are still small, most of the vendors have a SaaS offering and specialist vendors, like salesforce.com, are growing market share. A recent survey by Merrill Lynch found that many CIOs intend to roll out Service Oriented Architecture (SOA) technologies in 2007, which may mean that companies are intending to upgrade their ERP platform technologies to make them SOA compatible.

Most of the ERP vendors have a stated aim of increasing sales in the APAC region, especially the fast-growing market of China. However, this will need to be a long-term strategy requiring a good deal of time spent nurturing relationships with local resellers and partners. A more immediate return could result from addressing the fast-growing areas in the new EU states - particularly Poland, Czech Republic and Hungary.

Some vendors believe there could be significant growth from companies that upgraded systems for Y2K seven years ago and are now ready to upgrade their investment in ERP technology. Added to other drivers for ERP investment, such as globalisation, compliance reporting, and control of partner collaboration, it is unlikely that the ERP growth engine has run out of steam

Dan Roberts

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