There’s a dog fight taking place in the mid-market ERP sector resulting from the bubble bursting at the high end of the market. Furthermore, The high-end ERP market won’t snap back until after customers recover from the Y2K transition, warns George Gilbert, enterprise application investment analyst at Credit Suisse First Boston.
Vendor problems with Y2K issues, in addition to long ERP implementation cycles, have begun to dog vendors such as SAP, Oracle, PeopleSoft and Baan causing a general slow down in sales at the enterprise level. And if analysts such as Gilbert are correct, then the upturn won’t appear until next year when Y2K conversion projects have been completed. There is therefore a growing urgency for these vendors to look to new markets to sustain growth rates this year. The mid-market, (those companies with revenues less than $500 million), has been singled out as a new growth engine for SAP et al who have all tailored their respective ERP applications to meet mid-sized customer requirements in the last year.
The result has been increasing pressure on those companies that have traditionally played in the mid-tier such as JD Edwards, QAD and Platinum Software, and the early shoots of consolidation have begun springing up to fend off competition from above. Platinum Software’s acquisition of DataWorks for $84 million in October was a direct result of increasing competition from the ERP heavy hitters. Prior to the DataWorks acquisition we were a $100 million company competing with billion dollar powerhouses [SAP, Oracle, PeopleSoft, Baan]. We had to team together to attack the mid-market, says Mike Pennel, VP of product marketing at Platinum.
Certainly, DataWorks in particular, had been feeling the strain of competing in an increasingly competitive landscape. Its share price had collapsed to $7 from a $25 -$30 high a year earlier, leaving it a cheap acquisition target for any rival keen to shore up market share against the threat from the high-end players. As one of the more fiercely acquisitive ERP vendors, Platinum Software was an obvious candidate to buy the company. It also managed to buy the $150 million Dutch vendor for a mere $15 million over book value due to the frail nature of its stock.
It is now two months since the deal was sealed and Platinum has amassed an installed base of 6,000 customers and revenues of $250 million, with plans to reach $310 million by the close of fiscal 1999. But while Platinum is in an undoubtedly stronger position than it would have been pre-DataWorks, the transition has not been painless. As Platinum has trimmed the combined product portfolio in a bid to reduce the overhead associated with selling and supporting a double digit product line, DataWorks customers have borne the brunt of rationalization.
When the company announced its post-merger product plans at the beginning of the month, it committed development resources to only two out of six DataWorks products. The others are on ‘limited customer-driven development plans’ as Platinum terms it. The products Platinum plans to can are ManFact and DataFlo, DataWork’s next-generation NT-based flagship ERP package, Impresa and Impresa for MRO (maintenance, repair and overhaul).
The number of customers that will be affected by this rationalization are not insignificant. ManFact and DataFlo, DataWorks’ products for mid-sized discreet manufacturer engineer- to-order applications, have 355 and 413 customers respectively, while Impresa for MRO had an installed base of 60 companies. While ManFact and DatFlo users will not be entirely abandoned, since Platinum will offer maintenance release for as long as there are customers using the product, the rational behind the product strategy is clear. Platinum wants to upgrade these customers to Platinum ERA, its Microsoft-based ERP suite for discrete manufacturing and is offering customers data conversion and migration tools to lure them to upgrade.
Impresa for MRO customers face an equally uncertain fate. Platinum is
currently in the process of talking to companies with a view to selling the product line and customer base by the end of this quarter. However, the termination of development work on Impresa for BackOffice will have a less dramatic effect as the product had not been officially launched and was a year away from release, according to Platinum executives.
One of the few bright spots for DataWorks customers will be that Platinum plans to continue developing Vista, a manufacturing application for the low-end of the market which is targeted at companies with less than $10 million in revenues. Platinum plans to tie the unit into Clientele, its own low-end manufacturing unit which sells through VARs and telesales. The Vista business is very profitable and we will continue to invest in it, says Pennel. The company also has a distribution and financial package, Platinum for Windows, which will be integrated into Clientele in December to provide a financial, distribution and manufacturing package for small businesses.
While Wall Street will no doubt embrace the speed with which Platinum has addressed the multiple product concerns raised with the merger, the picture that has emerged for the DataWorks customer base if far less positive. Furthermore, there are additional concerns that Platinum’s decision to develop its entire ERP suite on Microsoft technology will make it less able to compete with the very vendors it is trying to take on at the high-end of the market. The depth of manufacturing functionality required by the $100 million to $500 million market plays better for the top five ERP players and points to a tough competitive landscape for Platinum during 1999, concludes a report by AMR Research.