SMBs' Rising Backbone: The Global ERP Market
The global enterprise resource planning (ERP) market is on the rise and likely to continue through 2009, with SAP and Oracle leading the revenue stream, according to a new report by AMR Research. "Market Analytix Report: Enterprise Resource Planning, 2004-2009" shows that overall global growth was 14 percent in 2004, with 16 percent in North American, 12 percent in Europe, and 19 percent in Asia Pacific. However, when discrepancies in currency rates are taken into account, organic growth was closer to 8 or 9 percent, according to David O'Brien, vice president of quantitative research. Additionally, the report found, the European market is expected to grow from $8.8 billion in 2004 to more than $12 billion in 2009.
Vendors are selling more to existing costumers, O'Brien says. "ERP traditionally has been sold to large organizations. That market is essentially totally penetrated. To continue to be competitive you focus on the install base. They're selling more to existing accounts. Sixty to 65 percent of SAP's revenue comes from existing accounts." SAP increased worldwide revenues by 17 percent in 2004 and license revenues by 20 percent, bumping its ERP market share to more than 40 percent, which the report forecasts will increase to 43 percent in 2005.
Consolidation continues to change the industry as Oracle--the number three vendor in terms of revenue share, with 10 percent--nearly doubled the size of its application business through acquiring PeopleSoft, which ranked second with 12 percent of the market. As a result, Oracle is predicted to capture 19 percent in 2005. In 1999 the top-five vendors (Baan, J.D. Edwards, Oracle, PeopleSoft, and SAP) accounted for 59 percent of the industry's revenue. AMR predicts the top-five vendors in 2005 (Microsoft, Oracle, Sage Group, SAP, and SSA Global) will account for 72 percent.
O'Brien also attributes the rising interest in the ERP market to companies targeting the SMB space. "Inevitably, it's about growth. When companies go global you can't manage the resources of your organization on Excel spreadsheets....it's vastly insufficient," he says. "You need to standardize business processes regardless of where it's located. Having a single backbone for your company for analyzing information helps a business make sound business decisions. An ERP system is supposed to help you better manage an organization. That comes through loud and clear when you talk to SMBs."
What's preventing SMBs from investing in ERP is the cost, paired with the risks involved because the decision will affect their entire business, unlike enterprise companies that can try it out in a particular division or region, O'Brien says. The way to get around those fears is through on-demand. One of the comments you'll always get [from SMBs] is they don't want to make that upfront investment," he says. "Software-as-a-service is a way to manage that. Every vendor needs to have a strategy around software-as-a-service, on-demand."
Still, it's not as simple as it sounds. "There's an inertia. Companies are used to doing business a certain way. Even if it's really dated, it works," he says. "[They ask] 'Do we really want to spend six, seven figures on a software implementation?' There's huge risk and uncertain rewards."
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