InformationWeek
Defining The Business Value Of Technology
December 14, 1998
Most Important Products Of 98
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For most of this decade, midmarket companies with revenue between $50 million and $500 million naturally gravitated to midmarket enterprise resource planning vendors like Great Plains, Platinum Software, QAD, and Symix.
But for the last year, the big players, including Baan, Oracle, PeopleSoft, and SAP, have gone out of their way to attract smaller businesses, and thus increase their market share. After all, most of the high-end market is already saturated. Analysts say there are thousands of midsize companies in North America ripe for ERP technology, which could represent about $15 billion to $20 billion in potential software licenses over the next five years, according to AMR Research Inc.
The large vendors are not taking this market lightly. They are aggressively introducing new products, methodologies, and pricing strategies to attract midmarket companies. During the last 12 months, they have all introduced quick implementation and training programs, such as AcceleratedSAP, Baan-on-Board, Oracle Fast Forward, and PeopleSoft Select. They are also starting to deliver a preconfigured system with a bundled operating system, database, and hardware platform that will allow the user company to get going on the implementation as quickly and cheaply as possible.
The big vendors are also offering software outsourcing programs to attract small to midsize organizations that typically cannot afford to implement ERP applications or do not have large enough IT departments to support the software.
The idea is that the applications, and the servers and databases needed to support them, are hosted and maintained at a remote data center. Users connect to the software via a Web browser. They pay for the service on a per-usage basis. Consulting firm the Meta Group expects the ERP outsourcing market to rise from about $1 billion this year to between $6 billion and $8 billion within the next three to four years.
So far, smaller companies seem to like the idea. Simpson Industries Inc., a $450 million auto supplier in Plymouth, Mich., signed a five-year contract with IBM Global Services in early 1997 for the outsourcing of J.D. Edwards' World software. "For us, operating the hardware and other computer operations were nonvalue add work," says Dick Lefebvre, director of IT at Simpson. "We figured the operation could be done better, faster, cheaper if we shut down our technical facility and gave it over to someone else."
He adds that he would have had to hire four or five more people just to monitor the J.D. Edwards system on a daily basis--an expense he wasn't eager to pay.
"We still haven't seen the germination of this outsourcing concept," concludes Bruce Richardson of AMR Research. "But it could prove huge for the big vendors in the midmarket. They are the ones taking charge of this concept."
--Tom Stein
next product: Transaction Management
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