ERP and Hosting Vendors Spur Market Shifts
The enterprise applications market will grow $17 billion, from $47.8 billion in 2004 to $64.8 billion by 2009, according to a report from AMR Research. The report also indicates that ERP powerhouse vendors like SAP and Oracle are leading the way, having steadily snatched market share in CRM and supply chain management (SCM). Seventy-five percent of ERP vendors' revenue in 2004 was derived from core ERP systems, compared to 87 percent in 2000. ERP vendors' revenue derived from CRM applications has doubled from 6 percent to 12 percent in the past four years.
According to "The Enterprise Applications Global Forecast, 2004-2009," ERP vendors' influence will be even more evident in 2005, as the software applications industry adjusts to Oracle's acquisition of Siebel. "The shift in market share can be attributed to widespread consolidation and the decision by large ERP vendors to make strategic investments in traditional best-of-breed territories, such as CRM and SCM," says Tony Friscia, president and CEO of AMR Research. "The availability of add-on modules from suite vendors prevents best-of-breed vendors from commanding premium prices as they did when they created these markets."
In addition to the burgeoning power of Oracle and SAP, the success of hosted applications from companies like Salesforce.com are changing the pricing model of the software industry, according to the report. The low upfront costs and predictable monthly fees of the hosted delivery model are attractive to small and medium businesses with small IT budgets. And while sales to large enterprises (with $1 billion or better in annual sales) have slowed, the overall growth of the enterprise applications market lifted due to increased sales to the SMB segment. The hosted applications market is expected to grow through 2009 to the tune of 22 percent each year.
Also driving prices down is the availability of open source, or "freeware" software, the report states. In addition, new markets in China, Japan, India, and parts of Southeast Asia should improve growth in the Asia-Pacific from 2005-2009. Overall, the Asia-Pacific's share of the applications market will increase from 10 percent in 2004 to 13 percent in 2009, though growth will be inhibited due to lack of experienced resources. "We should look for these markets to improve over the next several years as investments in software development centers increase as more Western companies set up manufacturing and sourcing operations in these regions," Friscia says.
In terms of other individual markets, AMR found:
The CRM market grew by some 10 percent in 2004 and is expected to grow by 7.6 percent through 2009. The hosted delivery model has lead to faster implementations, improved ROI, and easy customization. The market has become increasingly top-heavy, with the top 10 vendors accounting for 50 percent of market revenue in 2004.
After two years of market contraction, the SCM market grew 4 percent in 2004 and is expected to grow by less than 1 percent in 2005. Through 2009, growth should exceed 4 percent. Warehouse management and other applications like Radio Frequency Identification (RFID) are growing in importance.
Finally, market consolidation is having a strong impact among ERP vendors. In addition, hosting continues to gain traction among the BPO market, as many providers are hosting their own applications and charging for the use of their software as part of their monthly service fees.
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