Software Survivors

As buyers look for smaller technology investments, a few solution providers shine

Tempe, AZ  September 16, 2002  Even as enterprise software companies struggle for sales in the current down market, buyers of enterprise solutions are taking an incremental approach to building their application infrastructure, according to a report from technology consultancy Aberdeen Group.

Large enterprise solution providers saw their license fees drop by up to 25 percent in the second quarter compared to the year-ago period, according to the Aberdeen report, titled "Survivor 4: The Enterprise Applications Software Market?" Smaller companies offering point solutions saw even greater drops, ranging from 50 percent to 75 percent.

A few of the winners from Q2 included major players such as PeopleSoft and SAP, whose success the consultancy attributed to their large installed based and their strong balance sheets. Another winner, FreeMarkets, bucked the trend in the supply chain solution market by earning a profit for the quarter.

Part of the challenge facing the software companies is that their potential customers are themselves dealing with reduced budgets. "[Buyers] are struggling with reduced capital budgets and grappling with a crisis of expectations surrounding their investments of the last five years," Aberdeen notes. "The benefit streams have been slower to materialize than they had expected. And it has been harder work than they ever imagined. They are slowly recognizing that the technology is the enabler, but not a silver bullet."

These circumstances have forced buyers to rethink their information technology strategies. "Buyers are clearly behaving differently," Aberdeen writes. "Their unit of purchase is being scaled back. This is enabled by the emergence of more modular software that can be implemented with more granular units of investment, combined with increasingly sophisticated integration technology."

Buyers are recognizing that "big bang" software implementations take too long and have produced questionable results. In response, the large enterprise resource planning (ERP) system players have worked to "unbundle" their applications in a bid to capture business from the "best-of-breed" solution providers.

Meanwhile, software customers are looking to integration technologies, including enterprise application integration and business-to-business integration (B2Bi), to help them take a more modular approach to enterprise solutions. "Enterprises must build a core application infrastructure stack that includes EAI and B2Bi, as well as trading community content and document exchange standards and software," Aberdeen recommends.

In addition, buying organizations are seeking greater assistance to help them realize the full benefit of new technologies, making services an increasingly important component of any application implementation.

What does all this mean for the solution providers? Aberdeen predicts that the "rich will ultimately grow richer" as buyers turn to large ERP players with their comfortingly strong balance sheets. A chosen few of the point solution providers, such as FreeMarkets and, are likely to buck this trend, while other providers that have proved particularly innovative or that have successfully specialized in a particular niche (Aberdeen cites PrintCafe, Manhattan Associates and Retek as examples) are also likely to survive.

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