The Future of ERP, Part II

Clouds, SaaS, Enterprise 2.0, Modules, Analytics, Enhancements, Fusion, Business ByDesign, Leo, Larry -- Oh My! In CIO.com's continuing analysis of the ERP market, we look at the future of ERP: Companies struggling to make sense of all their enterprise information, the rush to uncover ERP and BI analytics data, and the supervendors' future.

1 2 3 Page 2
Page 2 of 3

High-tech juggernauts Microsoft, IBM, SAP, Oracle and HP (collectively known as "MISOH") have reshaped the enterprise software industry with bold, strategic and expensive acquisitions that have led to massive consolidation. As a Forrester Research figure below shows, in the ERP space, SAP and Oracle outpace the other vendors

Forrester Research figure

Oracle, in particular, has never shied away from making a splashy purchase (leading one financial industry observer to call Oracle the New York Yankees of the enterprise software industry). With $8.8 billion in cash on hand and "good deals" still to be had, one can expect Larry Ellison & Co. to make more shrewd acquisitions.

Forrester principal analyst Paul Hamerman, in the report The State Of ERP 2009: Market Forces Drive Specialization, Consolidation and Innovation (subscription required), is confident the consolidation trend will continue for Oracle and its peers. Here's why: To boost recurring revenues (from new customers and maintenance fee streams); to eliminate the competition (see: Oracle's hostile PeopleSoft acquisition); to establish a presence in new markets (to get into new industries, vertical plays, customer segments or geographies); to complement platforms and services (in which IBM would buy ERP applications); and to find "technology gems" (i.e. "undercapitalized software firms with valuable intellectual property"), Hamerman writes.

Are there still enough enterprise software firms out there to acquire? While the number has dwindled since the turn of the millennium, there are still more than a dozen targets available. (See Forrester figure below.)

Forrester Research figure

Acquisitions aside, how will the cadre of ERP vendors approach the future? Like those robots in the Transformer movies, the "MISOH" cartel and other traditional ERP entities will have to change their "shapes," and alter their strategies to stay with the times (and already have, to some degree). That means embracing—rather than resisting—on-demand and SaaS-based computing software-delivery models. And you can bet you'll be seeing fewer and fewer "cloud computing" rants from Big ERP execs, like this one that Oracle's Ellison gave in fall 2009.

For example, in an odd 2008 interview with ZDNet, Lawson Software CEO Harry Debes proclaimed that the SaaS industry would "collapse" in two years. In the interview, Debes also noted that Lawson was a happy Salesforce.com user. In fall 2009, during an interview with CIO.com, Debes stands by his comments, saying that the feedback from Lawson's customers at the time, which was that they did not want a SaaS solution, "was compelling." That's changed. And today, Debes says, "I'm a very big fan of cloud computing," though his on-premise business still has a bright future, he contends.

Industry leaders SAP and Oracle are feeling the heat—from NetSuite, Workday, Salesforce.com and other vendors offering solid alternatives. SAP's on-demand Business ByDesign mid-market offering has, for all its technological promise, been a bit of an enigma. SAP stumbled out of the gate, at least from a marketing perspective—execs either overpromised and underdelivered or did a poor job of managing customers and partner outsized expectations: limiting the service to a relative few of its customers. That said, SAP has added new features and enhancements (integrating tools from its Business Objects acquisition, for instance). If all goes according to plan, 2010 will be the "coming out" party for Business ByDesign.

For Oracle, its next-generation Fusion Applications Suite is either going to be a competitive game-changer or a money pit for its customers. But again, like Business ByDesign, questions still surround Fusion Apps as we enter into 2010. According to a recent report by 451 Group analyst China Martens, those include: How will Oracle price Fusion Apps licenses? Oracle has said the apps will be "SaaS ready," but what does that actually mean? How will the Sun Microsystems acquisition impact Fusion Apps? And what will happen to Oracle's existing customers who choose not to go the Fusion Apps route? (Oracle declined numerous requests for an interview about the future of Oracle's ERP offerings.)

"Each time Oracle or SAP talks about their SaaS ERP endeavors, it's as though they're putting a little more meat on the bones of their projects," writes Martens in her November report on SAP and Oracle. "There's plenty more fleshing out to do before it's possible to judge whether we're looking at swans or turkeys."

1 2 3 Page 2
Page 2 of 3
Security vs. innovation: IT's trickiest balancing act