Are Hosted ERP Systems Ready For Mainstream Market Adoption?
On-Demand ERP (Enterprise Resource Planning) Executive Summary
|ERP and CRM (Customer Relationship Management) systems compliment each other like yin and yang. The efficient integration and sharing of company-wide information between back-office and front-office business systems provides competitive advantages for those organizations who succeed in achieving enterprise wide business systems. This most recent survey attempted to measure the hosted ERP landscape and identify both benefits and obstacles in achieving front to back office systems utilization in a hosted model.
The Hosted ERP software overall survey conclusions are as follows:
Hosted ERP applications
have not evolved nearly as fast as hosted CRM systems. The number and
depth of hosted ERP systems is significantly less than in the comparable
The few existing hosted
ERP applications have narrowly defined footprints and target markets.
The existing hosted ERP systems generally cater to slightly different
There is no established
leader in the Software-as-a-Service (SaaS) ERP market. The hosted ERP market
is without enough representation and completely wide open. It is anybody's
guess who will eventually take a lead role.
NetSuite and Intacct were the SaaS ERP systems most referenced in the survey responses. iCode was also mentioned. Although these on-demand ERP systems overlap, they also seem to stack up in terms of the markets they best serve. NetSuite seemed to appeal most to small businesses; somewhat comparable to QuickBooks in an on-premise environment. iCode appeared to best accommodate the SMB market who needs more than a QuickBooks type solution, however, isn't prepared for a mid-market product. Intacct seems bent toward decentralized organizations with multiple operating units - a typical requirement of middle market organizations not as well suited to NetSuite.
While the survey results are not particularly flattering, the takeaway is that until the SaaS ERP market incurs new entrants, expands and matures, most users are taking a wait and see attitude.
Comparing Survey Results to Market Research
The survey responses were largely in line with analyst research. Just as survey respondees indicated a surge in ERP growth, AMI-Partners recently reported that 19 percent of small business organizations (those with fewer than 100 employees) plan to deploy an ERP application in 2005, compared to 4 percent in 2004. Similarly, 24 percent intend to implement a CRM solution, surging 20 percentage points from 2004.
The size and projected growth of the ERP market, as illustrated in the two diagrams below from AMR Research and AMI-Partners, is significant and gives indication that several software publishers will be required to satisfy the market and ultimately move these wait and see organizations into production ERP systems.
AMR Research’s July 2005 report on the state of the Enterprise Resource Planning (ERP) market revealed that ERP market revenues increased 14% in 2004. The report indicates that approximately one-third of the growth in the overall market was due to fluctuations in currency exchange rates.
While the ERP market has grown in revenue, consolidation continues to change the industry. In 1999, the top five vendors (J.D. Edwards, Baan, Oracle, PeopleSoft, and SAP) in the ERP market accounted for 59% of the industry’s revenue. AMR expects the top five vendors in 2005 (SAP, Oracle, Sage Group, Microsoft, and SSA Global) to account for 72% of ERP vendors’ total revenue.
The report revealed several trends that affected the ERP market in 2004, including:
- The ERP market is entering another major technology transition phase. Service Oriented Architectures (SOA) may have the same disruptive effect that other technologies have had on the market, such as the emergence of client-server systems had in the 1990s.
- The pace of acquisitions shows no sign of slowing down. Oracle’s purchase of Retek and vendors like Sage Group, SSA Global, Infor Global Solutions, and Epicor have all been very active in the M&A space and have grown more rapidly than the overall ERP market.
- The midrange ($50M - $1B in annual revenue) and SMB (less than $50M in annual revenue) markets continue to be a major focus area for many of the ERP vendors. Midrange solutions and channels are critically important for penetrating China, India, Eastern Europe, and Latin America.
- ERP buyers have moved away from large, upfront purchases. Now most tend to license user seats and functional ERP modules incrementally as they deploy a product. Along with widespread discounting, this has led to smaller average deal sizes.