InformationWeek
Defining The Business Value Of Technology
April 12, 1999
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Although the ERP vendors have made a valiant push into new markets such as supply chain and customer management, they have continually been upstaged by the more entrenched, best-of-breed vendors such as i2 Technologies and Siebel Systems. These vendors are winning the vast majority of deals and continue to grow at record rates, thanks to their better functionality. For 1998, i2's revenue grew 69% to $361.9 million; total revenue in 1998 for Siebel was $391.5 million, an increase of 89%.
Even the ERP vendors' recent focus on E-business applications such as online procurement has failed to bear fruit. Industry leaders such as Ariba Technologies and Commerce One continue to sign million-dollar deals with the likes of Visa and General Motors. Baan, PeopleSoft, and SAP, meanwhile, have promised products in this area, but they haven't delivered. That's a big loss for the ERP industry: Giga Information Group says online procurement will be a $375 million market by next year.
The Internet poses another enormous challenge. "The old idea that a single ERP system can solve all your needs is decaying under the weight of the Internet," Dobrin says. The functionality now provided by the ERP vendors, Dobrin says--such as payroll processing and transportation management--could gradually be usurped by scrappy Internet companies that will each provide a separate set of features and that will all be linked together on one interconnected network.
Dobrin adds that while ERP is still far from dead, another threat is the rise of application integration vendors such as Tibco, TSI, and Vitria. The major ERP players still promote the need for an integrated suite of applications. But with improved middleware, companies are better able to mix and match applications, eliminating the need for a single, all-encompassing ERP system.
Turnover Troubles
A more immediate concern for ERP vendors is the spate of management turnover and the exodus of development talent from the industry. SAP America recently lost Jeremy Coote as president (now a VP at Siebel Systems); before that, CEO Paul Wahl departed for an Internet security startup. Dave Duffield of PeopleSoft is rumored to be stepping down as CEO and has announced he is searching for a new president, while his brother Al, who heads the sales division, will retire this year. PeopleSoft's CIO just left for a startup, as did Baan's chief technology officer. Baan also recently changed CFOs. And Oracle lost senior VP Robert Shaw, who is now CEO of USWeb.
Many suggest the moves are related to compensation. "ERP stocks are down, while there are so many startups who are well-positioned for an IPO and offering stock options," says Anil Gupta, a former Baan executive who is now marketing director at Silicon Valley startup Niku Corp. "And with people leaving, it makes it difficult for the vendors to stay focused on any particular initiative for a long period. It's a real problem."
The ERP players are determined to remain relevant--Oracle, for instance, is betting a lot on its new supply-chain offering. But it will be a long road. Rockford Corp., a Tempe, Ariz., maker of high-end sound systems for the automobile industry, implemented Oracle's core financial and manufacturing applications in 1995 and is now shopping around for supply-chain functionality. "What Oracle has shown us is a lighter version of the i2 product," says Rockford CIO David Richards. "Oracle's product does not look as sophisticated, but it might be cheaper and easier to use." Still, he's also seriously considering i2's competing software.
Indeed, many analysts believe vendors like Oracle and SAP face a tough battle in this market. "I think companies are finding that the sum of two robust packages is better than, say, SAP plus APO," says analyst Dobrin. SAP's supply-chain product--and seemingly Oracle's, too--is still two years away from shipping, and it offers limited constraint-based planning and no true optimization. "The idea that you can get a mediocre product to market fast might not be good enough. Why would anybody want to use it?" asks Dobrin.
And while Oracle has made some progress with its sales and marketing application, Oracle Front Office, the product has so far failed to sufficiently impress users and analysts. Oracle claims about $50 million in sales from front-office applications, but analyst Jeff Golterman says the vendor has not been involved in any major deal. "Oracle is still lacking in areas like contract accounting and opportunity management," he says. "They recently acquired a call center and a product configurator, but they haven't been able to integrate all those pieces. That makes it difficult to compete against the likes of Siebel."
"Oracle is new to front-office apps, and they have room to grow--they're not at the level of some of their competitors," says Steve Hallet, CIO of National Pen Co., which is implementing Oracle's sales and marketing applications mainly for the integration benefits with its other Oracle apps.
Most ERP executives downplay the scope of their problems. Kevin McKay, CEO of SAP America, faults the financial community for artificially pumping up the stocks of most ERP companies with unrealistic expectations, then abandoning the market at the first sign of weakness. "Because growth rates are not what they were in the past, the financial community likes to assume the early demise of the ERP industry," he says. He admits the industry has hit a "large speed bump," but he adds that companies are being more conservative in starting new ERP projects as Y2K approaches. He says customers are also taking time to digest their original ERP implementations before pressing forward with new software initiatives.
Signs Of Life
Howard Gwin, senior VP at PeopleSoft, agrees. He says companies will continue to need ERPbecause it is the price of entry for running a business and has become the platform for all other apps. "The market is flat now, but it will get back to its regular buying powers," he says. "We don't know when that is, but in the meantime we are looking at incremental ways to drive license revenue. But I do worry about how we can be quick enough to take advantage of emerging markets and give our backbone play."
And Ron Wohl, senior VP at Oracle, says 1999 is a transition year, with many companies finishing up installations or holding steady. "But we are also seeing permanent change around new technologies, namely the Internet," he says. "Money is moving away from simple ERP and toward more interesting business areas, like online procurement." He says Oracle is moving in that direction and is well positioned for the future.
"I don't believe ERP is dead," says Dan Sholler, an analyst at the Meta Group. "But I don't think we'll ever get back to the days when these packages were practically walking themselves out the door."
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