Y2K giveth, and Y2K taketh away. The Year 2000 problem was a bonanza for the major enterprise resource planning (ERP) software vendors in 1997 and 1998, as many companies replaced their noncompliant legacy software with new ERP systems. But that windfall petered out in 1999. Many companies even established a so- called Y2K lockdown, vowing not to purchase more financial software until the problem had run its course.
“The number of new ERP deals is down 70 percent compared with 1998, primarily due to [Y2K],” reports Timothy Tow, analyst for Gartner Group Inc., a Stamford, Connecticut- based technology advisory firm. “We believe this market is in semihibernation and will rebound between 2001 and 2002.”
But if ERP was dormant in 1999, E-commerce was roaring. As a result, the past year saw massive changes in the financial software industry, so much so that some analysts have been heard to utter the phrase “ERP is dead.” The back-office vendors at the top, such as SAP, Oracle, and PeopleSoft, are running hard to catch up with the demand for Web-enabled front-office applications. Almost every ERP vendor is working one or more of the following:
- E-commerce. Customers need to be able to place orders via the Internet; to do so requires tapping into a company’s pricing software and inventory software.
- Customer relationship management (CRM). This includes software that can provide sales- force automation, keep track of all customer interactions, and make appropriate views of each customer’s data available online to salespeople, accounting staffers, and the customer itself.
- Supply-chain management (SCM). This enables the automation of distribution and logistics from suppliers’ warehouses through manufacturing and deliveries, and permits customers and suppliers to track orders online through the company’s ERP software.
While the larger financial software vendors can afford these massive investments, their smaller, cash-poor brethren have been striving just to stay in business. At Computron Software Inc. and Ross Systems Inc., a top priority in 1999 was simply to hold on to their existing customers. Clarus Corp. and JBA International were bought by Geac Computer Corp., while Prestige Software, once an independent business unit of Computer Associates International Inc., was absorbed into Interbiz, CA’s new E-business applications division.
Here’s a longer look at how these and other high-end accounting software vendors fared in 1999, and how they plan to rebound in the new millennium.
Second In Erp, First In Internet: Oracle For one vendor, the mood in 1999 was decidedly upbeat. Oracle Corp. posted 1999 ERP revenues that were higher than the previous year’s, solidifying the Redwood Shores, California- based company’s hold on second place in the industry.
Oracle now has the lead in offering Internet- based products and in integrating those products with back-office systems. “Oracle is a year ahead in Internet focus,” says David Dobrin, an analyst at Benchmarking Partners Inc., in Cambridge, Massachusetts. “Its CRM and E-procurement products could do with some improvement, but it’s ahead of SAP and everyone else.”
“It’s also made a number of functional improvements, such as in project accounting, where there were gaps,” adds Daniel Sholler, an analyst at Meta Group, a technology consulting firm in Stamford, Connecticut. “Two years ago, Oracle was perceived as lagging, but now it’s perceived as equivalent or ahead.”
New And Old: SAP
For the industry leader, SAP AG, embracing the Internet has been a very different kind of challenge, because of the nature of its software. SAP’s ERP software, R/3, is a monolithic, highly integrated system, not easily given to integrating with other applications, including Internet ones. In 1998, the vendor announced several Web-based technologies, collectively referred to as New Dimensions, that run independently of R/3.
“The SAP Supply Chain Management, SAP Business Intelligence, and SAP Customer Relationship Management initiatives are based on R/3 core technology, but they are genuine stand-alone solutions,” says CEO Hasso Plattner.
This lack of integration could grow to be a problem for users of the “classic” R/3 system, according to Bobby Cameron, an analyst at Forrester Research Inc., in Cambridge, Massachusetts. “The accounting and human- resources processes are well-known, stable processes, and SAP has a home run in those areas,” he explains. “But the Internet economy requires companies to implement the entire process–the whole order-to-cash cycle– through accounting, manufacturing, and distribution.” Although the New Dimensions environment is evolving rapidly, says Cameron, “it’s clear that SAP has no intention of making a radical transformation of R/3 accounting technologies. All the supply-chain and CRM activity is completely outside of the R/3 environment.”
SAP has smoothed over this separation with marketing and packaging, changing the name of its product from the colorless R/3 System to the chic mySAP.com, which encompasses both the R/3 modules and the CRM and SCM products. But the mySAP.com initiative is aimed more at SAP’s existing customers than at new ones, says John Hagerty, an analyst at AMR Research Inc., in Boston.
“The analogy I would use is that SAP is entering a stage comparable to that of the mainframe vendors in the early 1990s,” says Hagerty. “They now have to defend their customer base against encroachment from other people, rather than just focus on new revenue.”
Culture Shock: PeopleSoft
PeopleSoft Inc.’s search for a CRM solution ended with its October 1999 acquisition of Vantive Corp., whose products manage sales forces and monitor customers. The difficult process of integrating the acquired software into PeopleSoft’s back-office financials and human resources is under way.
Generally, it’s been a difficult year for PeopleSoft. License revenues for the first three-quarters fell more than 50 percent from the previous year, though they rebounded strongly in the fourth quarter. In January 1999, hundreds of employees were laid off in a corporate restructuring–quite a shock to the fun-loving, layoff-resistant corporate culture nurtured by PeopleSoft founder Dave Duffield. An outsider, Craig Conway, was hired as president and chief operating officer last May; he became CEO in September, with Duffield continuing as chairman.
As the vendor’s interest in the Web and the front office has increased, the investment in manufacturing software will probably remain steady, according to Gartner’s Tow. “They’re no longer planning to be a mini-SAP,” he says. “Instead, they’re focusing on education, financial services, and public-sector companies. We think they’re going to retrench on their ERP capabilities, and stay in the narrow area of discrete manufacturing, especially for high-tech firms.”
Dobrin of Benchmarking Partners agrees with this assessment, asserting that PeopleSoft made some mistakes when it moved into manufacturing software. “They hired inexperienced programmers to develop manufacturing products, and figured they could enter that market on the cheap,” he says. However, the problems are getting fixed, adds Dobrin, and the products are still good. “I’ve been through their manufacturing products with a fine-tooth comb, and they’re not bad at all,” he says. “PeopleSoft has always had something more than meets the eye, and its architecture is well designed and thought out.”
Turned Inside Out: Baan
Baan Co. NV’s move to CRM began in 1997 with its acquisition of Aurum, a sales-force automation vendor. When financial irregularities at Baan forced a management reorganization in 1998, the vendor tapped Mary Coleman, formerly president of Aurum, as its new president. After Baan posted losses for several quarters, Coleman was appointed CEO, in June 1999. Then, last month, Coleman suddenly resigned.
“It’s a pretty shocking blow to Baan,” says Rod Johnson, research director, enterprise application service, at AMR Research. “We really saw her as the [force] that was driving Baan in rebuilding its business.” After Q4 ’99, which is expected to result in a significant loss, Baan will have posted six consecutive quarters in the red.
The company must stabilize its management immediately, says Johnson, and ponder whether it still makes sense to keep all of its recently acquired businesses–including Coda Software, a vendor of financial software, and CAPS Logistics. “They’re talking about breaking down the company, and I see Coda as a good candidate to be sold off,” says Laurent Lachal, an analyst with Ovum, in London.
Johnson believes it’s a good opportunity for Baan to spin off Aurum. “As long as it’s under the wings of Baan, the company is being undervalued,” he states. He says Baan needs to refocus on manufacturing, supply chain, and E- commerce applications. “CAPS Logistics and Coda don’t make sense at all,” he declares. The trouble is, Baan has to be careful it doesn’t run out of money, “and Coda is bringing in some money,” observes Lachal.
Can Baan restore the confidence of its customers? Johnson thinks so. “It’s still the fifth-largest ERP company in the world,” he points out. Gartner Group’s Tow predicts that while Baan ERP will still have a strong market presence, particularly in aerospace and defense, the company “will focus a lot more on CRM and E-business. Aurum had a strong market presence before being acquired, and we expect Baan’s sales in CRM to be double what they’re going to be in ERP.”
Regaining Momentum: J.D. Edwards
Yet another vendor counting on E-commerce and CRM is J.D. Edwards & Co. The company successfully managed the transition from the IBM AS/400 platform to Microsoft Windows NT and Unix; its product, OneWorld, runs the same on all three. However, “JDE has suffered dramatically from the ERP slowdown, partly because of early problems with the OneWorld product, most of which have now been fixed,” says Meta’s Sholler.
To help regain momentum, J.D. Edwards bought two firms: Premisys Corp., which sells sales- configuration software, in February 1999; and Numetrix Ltd., which sells supply-chain planning software, in June 1999. The company also established partnerships with Ariba Inc., for E-procurement, and Siebel Systems, for sales-force automation and CRM.
MRP Dreams: Lawson
Lawson Corp.’s products have been Internet- enabled since 1996. In addition to offering core financials, Lawson has been targeting health care, retail, and professional-services markets with a variety of advanced capabilities, such as E-business, supply-chain management, human resources, balanced- scorecard measurement, and, most recently, CRM.
“Lawson continues to have good products and a good vertical strategy,” says Sholler. “They’ve had a slowdown like everyone else, but they’re doing a reasonable job.”
Privately held Lawson is planning an initial public offering, which raises some concerns, according to Tow. “They want the money in order to expand their verticals and become a global ERP and human-resources player,” he says. “But they don’t yet have a strong manufacturing package with MRP. They have to build up from scratch for each new vertical market, and that takes time. We’re concerned they may lose focus.”
Multiple Personalities: Interbiz
Another high-end vendor, Computer Associates (CA), has displayed multiple personalities with its accounting software offerings during the past decade. This continued in 1999, when its Prestige Software division was renamed InterBiz.
In the early 1990s, CA’s strategy was to create a family of accounting products sharing a common code base, with Masterpiece at the high end and Accpac in the midrange, so that both could take advantage of CA’s object- oriented technologies. But when this strategy proved too ambitious, CA placed the two products into separate business units, creating Accpac Software International in 1996 and Prestige Software International in 1997.
Now, both the Masterpiece and Accpac products are being pulled back into the company. The name change reflects the inclusion of new Internet-based product technology. “We’re taking advantage of CA’s Jasmine [object- database technology], Unicenter [network management], Neugents [neural networks], and other CA technologies,” says Klod Ghez, a senior vice president at InterBiz.
However, Masterpiece has little mindshare outside of CA’s manufacturing customers, and the name change isn’t likely to make much difference, says AMR’s Hagerty. “At least before, they had separate brand names. Now, by throwing everything together into InterBiz, it’s just a portfolio management strategy, and we don’t expect any benefit from it.”
Shopping Spree: Geac
Like Computer Associates, Geac has developed a portfolio of products through acquisition. It became a major player in accounting software after acquiring all of Dun & Bradstreet Software’s accounting products, in 1996. These included the Millennium and Expert systems, mainframe software; and SmartStream Financials, a client/server system. Geac’s SmartEnterprise Solutions division markets all of these products.
Last year, Geac collected two more firms: accounting software vendor Clarus and ERP vendor JBA. Clarus was added to the SmartEnterprise division, while JBA is being marketed in a separate, ERP division. The latter represents a significant increase in the size of the company.
“Geac’s been playing a scavenger role,” comments Forrester’s Cameron. “It hasn’t been very successful with SmartStream to date, and when it has a potential customer, it’s usually an existing Geac customer using one of its mainframe products.” (Indeed, the Millennium and Expert systems still have more than 3,000 customers.) Buying Clarus and JBA gives Geac a stronger product portfolio. “Geac wants to leverage all these product lines by developing new capabilities that all the products can use,” says Cameron. “These products are not going to be a dead-end for customers, since Geac is still making some investments in them, but they’re not going to be leading edge.”
Unfortunately, the acquisition of JBA may not be good news for JBA users, says Dobrin of Benchmarking Partners. “[It] cuts out the heart of their strength, because they’re getting rid of the JBA people, to stop the loss of money. They may have arrested the money dive, but development is in disarray, and it’s hard to see how the acquisition benefits JBA itself.”
Health Concerns: SSA
The absorption of JBA–and the financial troubles of System Software Associates Inc. (SSA), another formerly rising ERP vendor–are disturbing to some analysts. “It’s baffling how these companies can almost disappear in just five years,” says Ovum’s Lachal. SSA “can hardly sell their software. They have no influence.”
However, there are opportunities that come out of these troubles, says Dan Miklovic, an analyst at Gartner Group. “These vendors are likely to be good tactical choices,” he explains. “If you buy into them, then you should consider them to be stopgap solutions that will last three to five years.” He says that since these companies are troubled, they may be willing to give shoppers a bargain- basement deal. “It’s not that the products are bad; it’s the vendor’s financial health that’s of concern,” says Miklovic.
Niche Player: Ross Systems
According to Miklovic, Ross Systems fits into the category of tactical choice, too. “Ross is a niche player in two primary areas: process manufacturing, especially pharmaceuticals, and hospital administration districts, where a municipality has to run several hospitals and related services. [Ross] had been making some recovery, but the most recent release of their software has had some bugs, and now we’re telling people to wait until they fix the bugs in the next release.”
In fact, Ross is focusing a lot of its resources on its existing customers to move them to the new release, says Ann Wyatt Browne, vice president of industry marketing. “There’s always been a five-to- seven-year turnover in our markets,” she says, “and at the end of five to seven years, customers are always looking for something new, and we want to say, ‘You can stay with us.'”
Going With The Flow: Computron
Another company that’s been allocating additional resources to its existing customer base is Computron, according to Rick Hartung, Computron’s senior vice president of sales and marketing, North America. It’s not that customers are unhappy, says Hartung, “but we want to make sure that our installed base is protected from poaching by competitors, and we want to make sure that our customers know what our new products are.”
Computron had been operating in the red but is now significantly reduced in size, thanks to spin-offs of some unprofitable noncore businesses. “When we’re done with those, we’re automatically in the black,” Hartung says.
Computron’s workflow software, which has always been closely integrated with its financials, is key to the vendor’s Internet strategy, says Hartung: “Workflow is the backbone of our E-commerce capabilities.”
Back To The Future: Infinium, Walker, QSP
Like Computron, Infinium Software Inc. is shucking off some unprofitable businesses, although as a whole it has managed to remain profitable during the downturn. In doing so, the company is following a “back to the future” strategy. At a time when nearly every software vendor on the planet is adapting its products to the Windows NT platform, Infinium is abandoning its NT product and focusing all its resources on the platform it started on– the AS/400. Reason: the Internet.
“An Internet product has to be server- centric,” explains Veronica Zsolcsak, Infinium’s CFO, “with an ultrathin client, scalable, reliable, and functionally rich. And that describes our AS/400 products.”
Also sticking to their legacy platforms–in this case, mainframes–are Walker Inc. and QSP, although both continue to offer NT-based systems. “We’ve seen a resurgence of the mainframe,” says Walker president Paul Lord. “Companies with large NT and Unix server farms are rehosting them on the mainframe.”
Gordon Quick, vice president of marketing for the U.S. division of U.K.-based QSP, admits that a company is unlikely to buy a mainframe financial system unless it already has other mainframe software. However, he claims to see “a market shift, especially in organizations that are continuing to grow under E-business models. A mainframe solution gives them the security to handle the large number of transactions.”
Miss And Hit: Systems Union And FlexiInternational
Unlike many vendors, Systems Union Inc. did very well in 1999, posting growth of nearly 22 percent. How did it sidestep the Y2K slowdown? “Our strength is our ability to deliver product in many countries in the world, and that’s reflected in our revenue growth,” answers CEO John Pemberton. “In some countries, there’s been a slowdown due to Y2K, but not in others.”
In North America, Systems Union has been targeting five vertical markets: pharmaceuticals, oil and gas, hospitality, management services, and “dot-com companies,” says Pemberton.
Meanwhile, FlexiInternational Software Inc., like a number of other financials-only vendors, was hit very hard by the Y2K lockdown. “The last year has been difficult for most people in our business, and we’ve been taking advantage of this breather to fix some problems,” says CEO Stefan Bothe.
According to Bothe, the company has been improving the stability of the product, adding Internet functionality, and refocusing on certain markets, such as financial services and insurance. “Also, we’re looking at many of the dot-coms that don’t need the power of the larger systems today, but will have to scale up in a year or two,” says Bothe.
An E-Commerce Boost: Tecsys
Tecsys Inc. is a Canadian vendor whose revenue is 95 percent U.S.-derived. The company “provides financials from manufacturing down to the shipping dock,” says president and CEO Peter Brereton, but Tecsys is finding its project-management module is becoming more important, because of the Internet.
“For example, a company may sell a transformer for $15,000, including bundled assistance,” explains Brereton. “Now, a customer can buy that transformer over the Web for $12,000, so the distributor has to unbundle the services. Straight distributors and manufacturers are suddenly running a consulting arm, and need to track hours and rates. So the project- management side of the business is more important.”
Software Of Norway: Agresso
Finally, Agresso Group ASA is a Norwegian vendor that entered the North American market two years ago, and combined its U.S. and Canadian operations a few months ago. According to Neville Tencer, president and CEO of the North American division, Agresso has a strong public-sector business in Norway, and is concentrating on three markets here: construction/engineering firms, higher education, and local governments. The product is very flexible and easy to configure, says Tencer. “We never have to change the code to customer; we have just one set of source code around the world.”