Scottsdale, AZ — June 12, 2003 — Technology consultancy AMR Research took advantage of its recent spring executive conference to release its latest market forecasts for the enterprise applications market, predicting long-term growth of 6 percent, reaching $48.6 billion in 2007.
In the near term, AMR sees slight growth this year over 2002, with the market size expected to hit $36.9 billion by the end of 2003, against $35.8 billion last year (and $36.7 billion in 2001).
While the overall forecast is modest, Boston-based AMR describes the outlook as "positive," attributing its optimistic outlook to an improving economic climate, pent-up demand for new application projects and the increased penetration of major enterprise resource planning (ERP) vendors in markets like supply chain and customer relationship management. Nevertheless, AMR foresees the emphasis in enterprise application investments shifting away from "Big Bang" implementations and toward smaller, incremental purchases.
Discussing the return to the "small is beautiful" approach to software-buying, John Bermudez, a vice president of research at the consultancy, points to the "double-whammy" of a more-pervasive-than-anticipated "Y2K hangover" — in which companies are still trying to implement the systems that they bought in the late 1990s in the run-up to the millennial roll-over — combined with the recent down economy, in which fixed IT costs have continued to rise, further constraining discretionary spend.
As a result, Bermudez said, many enterprises have returned to the strategy of years past, when they implemented applications to solve specific business problems. Oftentimes, this has meant going with ERP extensions, that is, additional functionality offered by their primary ERP vendor. Those vendors, Bermudez said, often can afford to offer their extensions at a lower price point than independent, "best of breed" solution providers, who can find it difficult to make their case with business leaders.
At the Scottsdale conference, AMR released market projections for the major application categories it tracks, the forecasts for which point to slower long-term growth than expected and overall consolidation and maturity in many markets.
Key highlights within each market segment include:
- ERP Market: AMR predicted that the ERP market will grow from a projected $20.6 billion in 2003 to $21.6 billion in 2004. ERP's traditional messages around integration, internal controls and cost savings have been well received in the current economic environment, according to AMR. The analyst firm sees continued market consolidation, as larger ERP vendors and investment firms make acquisitions to increase the size of their customer base (witness the recent Oracle-PeopleSoft-J.D. Edwards mêlèe á trois — see related story) and expand into new horizontal, vertical or geographic markets.
- Customer Relationship Management (CRM) Market: The CRM market struggled in 2002, and dipped 1 percent. The corporate mantra of cost savings took a heavy toll on newer generation products like online sales, marketing, and analytical applications. More traditional products like Sales Force Automation (SFA) and customer service/call centers tended to fare better over the past year. Long term, AMR Research expects 9 percent annual growth, with the market reaching $10.8 billion in 2004.
- Supply Chain Management (SCM) Market: AMR predicted the SCM market to grow to $6.0 billion in 2004, up from a predicted $5.6 billion in 2003, fueled by a continued focus on cost savings and the increasing complexity of corporate supply chains. Products from the major ERP vendors should enjoy healthy growth on the supply chain planning (SCP) side. Overall, however, the highest growth is expected in supply chain execution applications like order fulfillment and inventory management.
- Sourcing & Procurement Market: Macro-economic malaise and the bells tolling for some best-of-breed vendors dragged the sourcing and procurement market down 9.5 percent in 2002, according to AMR. But high return on investment (ROI) and the trend toward integrated supply management support will fuel 10 percent growth during 2002-2007, the analyst firm believes. AMR estimates this market to grow from $1.8billion in 2003 to $2.0 billion in 2004.
AMR bases its annual enterprise market forecasts on surveys with more than 1,000 software vendors representing ERP, procurement, SCM, product lifecycle management (PLM) and CRM platforms. The analysis consists of end-user surveys that measure the spending and penetration within each application area, and metrics are based on total revenue, product type, software revenue, applications segments, operating environment, regional market, customer size, vertical industry and sales channel.
Interestingly, AMR said that while software spending growth has lagged of late, in the historical perspective spending on applications as a percentage of total U.S. commercial capital investment in IT goods and services has risen fairly steadily from just 3 percent in 1981 to 16 percent in 2002.