By Timothy Prickett Morgan
According to Boston’s AMR Research, the big name in tracking what the enterprise application software markets are up to – worldwide revenues derived from the sale of Unix implementations of ERP applications held steady at $2.93bn during 1998, the same sales level during the prior year. Unix-based ERP sales were half as big again as Windows NT-based sales, which hit $2bn during 1998. That’s the good news. The bad news is that Windows NT ERP sales were up 79% from the prior year’s $1.12bn. In 1997, Unix-based ERP software license sales, driven primarily by the big three Unix variants – AIX, Solaris, and HP-UX – accounted for 54% of the total $5.4bn in ERP license sales. That was about the same level as 1996.
But last year, due mainly to the growth of the AS/400 (up 35% to $1.34bn) and Windows NT markets, the Unix portion of the ERP pie slipped to 44% of the $6.71bn in worldwide license sales. In 1998, NT-based ERP sales accounted for 30% of license revenues. License sales were up across all categories by 24%. The DEC OpenVMS market has all but vanished with a mere $21m in license sales, and the IBM/PCM mainframe market grew by a slim 8% to $115m. Other environments accounted for $309m in sales, or 5% of the total market.
This is the first year we’ve seen Unix begin to drop, says Jim Shepherd, vice president of research at AMR. Windows NT is climbing at the expense of everyone else. What is immediately clear from these numbers is that Unix vendors, many of whom sell Windows NT servers as well, have not been as persuasive in peddling Unix ERP platforms as they have been eager to go at each other’s throats in the small and medium business market with NT-based solutions where Unix is unquestionably a better, if not as popular, choice. As has been the case for years, IBM, HP and Compaq have always been a little too eager to drop back to an NT solution when the going gets tough (caused mostly by their inflated Unix system prices) rather than get the customer to go with a more reliable solution.
Nonetheless, Shepherd believes that during 1999 and into 2000, the growth rate
for NT-based ERP solutions will decline a bit and that the shrinkage for Unix-based solutions will level off. I don’t think Unix will drop to 30% or 35% of license sales next year, says Shepherd, adding that although it will gain market share, NT won’t have parity with Unix for another two to three years, at which time it may pass Unix. The main reasons for the delays in NT’s ascendancy are the continuing delays in Windows 2000 Server, especially the high-end data center edition that is supposed to be a credible alternative to hardened Unix implementations, and the growing popularity of Linux as an alternative to both Unix and Windows NT.
AMR estimates that the total ERP market, including license, service, training and implementation costs, rose 39% to $16.6bn in 1998. If you throw in all the third party services, hardware, databases and networking supporting that ERP software, then total ERP infrastructure sales were $70bn. That $16.6bn in sales was significantly higher than the $14.8bn AMR was predicting for 1998 back in August, and the $70bn in ERP infrastructure is considerably higher than the $42bn it predicted at the time. Obviously, companies were in a hurry to implement ERP packages, and they paid handsomely for it. That said, AMR expects that the ERP market will grow to $50bn by
2002, a slightly slower pace than it expected last year when it predicted total ERP sales would hit $52bn by then. The company’s latest estimates say ERP sales will grow by an average of 32% per year between 1998 and 2003 to $66.6bn.
Nonetheless, AMR doesn’t expect sales in 1999 to reach much beyond $20bn, a meager 22% growth over 1998’s levels. This is a considerable slacking off in a market that saw six consecutive quarters of 50% or higher growth in 1997 and early 1998. Analysts at AMR are still optimistic that during the latter half of 1999 and throughout 2000, ERP sales will pick up the pace to about 37% growth. This is excellent news for ERP software vendors, who are probably the biggest drivers behind the Unix server business and who have been hammered by poor financial results in the past few quarters.
Three drivers will push the continuing expansion of the ERP market, says Shepherd. First, companies who have budgets for software in 1999 will spend that money this year rather than lose it altogether, but won’t begin implementing that software until they are well into 2000. There will never be a better time to haggle about prices with software vendors, says Shepherd. Second, ERP software is being modified and adopted by industries outside of the traditional manufacturing and distribution operations that first adopted this software technology. If the Y2K problem did nothing else, says Shepherd, it convinced a lot of organizations that they don’t want to build applications any more. We think the ERP vendors are going to clean up. The third factor driving the ERP market will be expanded use of ERP software within companies.
AMR estimates that only from 10% to 20% of users at companies with ERP software installed actually use it, and that over the next four years that penetration will grow to 40% to 60% of total users. Even still, between 2000 and 2003, AMR expects ERP sales growth to gradually drift down to 30% year-on-year growth. The company is not willing to venture a guess on what platforms will support the bulk of that software, however. Unix vendors have to get in gear now if they don’t want it to be Windows 2000+ underneath all that code.
