Solutions Market Set for Rebound

AMR: Economic upswing prompts renewed interest in enterprise apps

Tempe, AZ  April 17, 2002  The market for enterprise software, down for most of 2001, saw renewed activity beginning in December and carrying through the first quarter, indicating that solutions sales could start picking up by midyear, according to a new report from technology consultancy AMR Research.

"Following a long hiatus, end users are beginning to seriously evaluate enterprise software again," AMR wrote in the debut edition of a report called The Street Corner, intended to be a quarterly update on the state of end-user demand for enterprise software.

Boston-based AMR said that because it advises numerous enterprises on hundreds of software purchases every year, the consultancy's analysts often are able to gauge demand for solutions before the suppliers themselves see it.

"During the first quarter of this year, AMR Research observed a strong uptick in software evaluation activity, a leading indicator for software spending," the consultancy wrote. "Deal flow was sluggish for most of 2001. However, in December, there was a notable uptick in activity that continued through the end of March."

AMR attributed the upswing to the overall improvements in the economy. "End users are starting to see some light at the end of the economic tunnel," the consultants wrote. "As such, they are beginning to explore ways that enterprise software can be leveraged to assist in the recovery."

In the absence of a fresh economic downturn, AMR predicted that the enterprise software market should see an upswing by mid-year: "Based on our street-level visibility into end-user demand, evaluation cycles and negotiation cycles, we believe that a sustainable pickup in demand should commence in late June or early July."

The consultancy found that the sales cycle for enterprise software has fallen to a seven-month low, indicating that companies are becoming increasingly willing to invest in solutions that can address the business pain points they would like to eliminate in the short term. "Our data suggests that deal closures should begin to surge in early Q3," the analysts wrote, noting that more end users are moving beyond the "tire-kicking" stage to actively negotiating deals.

Furthermore, AMR predicted that deal sizes should begin to increase, too. "As the economy shows signs of recovery, end users are starting to realize that large projects also carry large returns on investment (ROIs)," AMR stated in its report, adding, "We expect that larger deals will continue to trend up as the perceived odds of success increase."

In terms of the various categories of software, AMR said demand for enterprise resource planning (ERP) is bouncing back more quickly than other categories, with a slow second quarter likely to be followed by a better third quarter. Supply chain software is also seeing fresh interest among end users, AMR noted.

Customer relationship management (CRM), on the other hand, has not seen the same degree of interest, which may indicate that companies are focusing more on increasing efficiency within their internal operations rather than on sell-side projects at this time. AMR cautioned, however, that its software selection projects are concentrated more in the manufacturing and retail verticals rather than in such sectors as finance and telecom, where CRM is stronger.

Industry-wise, AMR said it saw the greatest interest in the retail and consumer packaged goods (CPG) sectors, with automotive and pharmaceutical companies lagging.

All that said, AMR warned that while mid-level managers apparently are ready to negotiate deals for enterprise software packages, a key factor in whether this interest translates into signed agreements will be "whether they can put together the business case to get projects approved by senior management."