AMR Sees Weak Euro Apps Market Through 2003

As spending picks up, large solution providers to benefit by selling into current customers, consultancy predicts

London  September 30, 2002  The overall market for enterprise applications in Europe will remain weak through 2003 but will pick up the following year and hit $21.3 billion by 2006, according to a report from technology consultancy AMR Research.

In its European Market Analytix Report for 20012006, AMR makes predictions for the supply chain, customer relationship management (CRM), and sourcing and procurement segments, as well as for the total enterprise applications market.

The report stated that the European market began buoyantly in 2001 but quickly stalled, forcing suppliers to reassess and realign their cost structures in order to weather an extended economic downturn.

"As companies enter the new budget cycle, it is clear that spending will not increase in 2003," said Tony Friscia, CEO and president of AMR Research. "In the medium- to long-term, however, the outlook must be brighter. Suppliers that survive the current downturn and can still invest in research and development will be in a good position when organizations start spending."

The majority of suppliers experienced a slowdown in license revenue and an increase in service and maintenance, according to AMR. In addition, the report indicated a trend toward fewer, large, low-risk suppliers having a larger proportion of market share. Market conditions favor established suppliers that can sell into current customers as they continue to invest in research and development.

AMR predicted that the European core enterprise resource planning (ERP) market for traditional manufacturing and financial applications will decrease from an expected $6.1 billion in 2002 to $5.5 billion in 2006. The report indicated that the battle for ERP company dominance in Europe will be waged in strategic extension areas like supply chain and customer management.

The consultancy said it believes the European supply chain management (SCM) market will reach $3.3 billion in 2006, up from $1.5 billion in 2002. The report stated that a few large solution providers continue to dominate the market, which will leave growth rates for 2002 and beyond dependant on these leading vendors. Further consolidation is expected within the smaller supplier market, which is predicted to improve only gradually through 2003.

The CRM market declined in 2001, with license and total revenue down by 3 percent as the economic downturn bit into this market, but the future looks brighter. AMR said it expects the European CRM market to grow rapidly, with a five-year compound annual growth rate (CAGR) of 27 percent, reaching $8.7 billion by 2006. The current focus is on shorter, tactical projects, with the ultimate goal being the achievement of a quick return on investment.

Finally, the European market for procurement and sourcing solutions totaled $466 million in 2001, an increase of 31 percent over 2000. However, the market stalled mid-year as companies spent smaller amounts of money and pursued "quick hit" pilots. AMR expects this market to maintain a 16 percent CAGR over the next five years, reaching $977 million in 2006.

For its report, AMR surveyed leading enterprise software suppliers that are actively pursuing business in Europe. The consultancy measured each supplier on total European revenue, European license revenue, software revenue type, applications segments, vertical markets and customer size.