While the top tier suppliers of enterprise resource planning (ERP) software have enjoyed the best of times in recent years, for some of their second tier rivals, it has not been so easy. Analysts are forecasting that the less financially secure of these may be squeezed out of the market. For the smaller vendors of business applications software, the challenge is clear: Grow fast, find a niche, or be acquired. The troubles can be seen in the fortunes of several companies. Marcam, for example, was once in the leading pack as a supplier of software for both the process and discrete manufacturing industries. But pressure from SAP and Baan, and its slow response to sudden demand for open, client/server-based systems, resulted in a revenue slowdown, losses, and the departure of founder Paul Margolis. His successor, Michael Quinlan, has been forced to embark on a radical restructuring which involved splitting the company into two in 1997. Marcam, listed on Nasdaq, now concentrates on process industries, while Mapics, now privately owned, concentrates on discrete manufacturing software. Both companies now concentrate on providing specialist software, and are attempting to avoid head-to-head competition with the big, general purpose vendors. Marcam’s rival, Ross Systems, has also had difficulties, and is still attempting to carve out a stable niche in process manufacturing after a long-running lawsuit created a slump in sales growth.
Success stories
But not everyone is suffering. With the big suppliers now integrating human resources software into their packages, and with Peoplesoft proving the fashionable supplier in this sector, Infinium, once called Software 2000, appeared to finding the going tough. But it has diversified beyond its AS/400 base, and its specialty in human resources, and now supplies a range of financial and management software on both the AS/400 and Windows NT. The strategy is working, with Infinium reporting license revenues up 57% in its latest quarter. In the financial software field, two UK suppliers have opted for different long-term strategies. Coda, a supplier of midrange financial systems, saw the upheaval that was coming and invested heavily in new products and acquisitions. But its strong revenue growth was accompanied by low profitability, and it has agreed to be taken over by Baan, its big Dutch owned rival, which needed better financial software. Meanwhile, QSP, another British based supplier, has decided to fight its ground in the accounting software market. It argues that there will always be demand for a high-end, high function, non-integrated accounting system such as its modularized Millennium system. It is also attempting to build up an outsourcing business offering corporate accountancy services. After losses in 1996, the company is now growing again and back in profits. Another UK company, the Sage Group, has a completely different strategy. It built its business on the supply of PC- based accounting software, and has since made acquisitions in several European countries. In each case, Sage picks successful suppliers and makes no attempt to internationalize or integrate the software with its other packages. This is a strategy that works well at the low end, where customers do not seek integration with manufacturing or human resources systems, and where internationalization is not so important. Earlier this year, Sage paid $263m for the profitable US supplier of PC accounting software, State of the Art. The acquisition means that Sage is likely to report revenues of more than $300m in 1998. The best known European suppliers of integrated business software are SAP, Baan and JBA. But Intentia of Sweden, listed on the Swedish stock exchange, has been growing fast in the past several years, and is much larger than its low profile suggests. In its last financial year, it reported sales of $213m, five times its revenues in 1993. This year, it is set to turn over $250m. Another Swedish supplier of distribution and logistics software, IBS AB, is also thriving, with revenues up 21% in its last fiscal year, to $130m.
Computer Business Review.
