Three-legged race

As Oracle and SAP slug it out at the high end of the ERP market, some of the more significant moves among mid-tier ERP vendors tend to be overlooked.

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By  Colin Edwards Published  July 30, 2006

|~|infor200.jpg|~|Jim Schaper, Infor’s chairman and CEO|~|SAP continues to lead the enterprise software applications market with revenues of about US$10 billion. Oracle follows in its wake with $5 billion of its $13 billion revenues coming from applications. And that is about it in the tier 1 ERP space – well it is until Infor’s acquisition of SSA Global Technologies goes through later this year. Then there will be a third force.

The acquisition will be Infor’s 20th in three years and will bring together more than 30 legacy and client-server ERP vendors under one roof. These include the likes of BAAN, MAPICS, BPCS and Infinium Software – all leading solutions in their day. The combined companies represent an estimated $1.6 billion in revenues.

“With this acquisition, Infor will become the third largest enterprise software provider,” said Jim Schaper, Infor’s chairman and CEO.

Infor’s and SSA’s specific strengths in the process and discrete manufacturing, distribution and supply chain areas would make it a formidable challenger for the third spot, but it does have weaknesses in other areas. So while third it might stand in revenue terms, analysts at Forrester Research say SAP and Oracle will still stand alone as tier 1 global ERP vendors.

“For Infor to ascend to the top tier it must do more than just grow larger and expand on its position in supply chain execution and planning capabilities. It must also develop a next-generation SOA strategy and a comprehensive, integrated solution spanning finance, HR, operations and customers,” said Forrester’s Ray Wang and Paul Hammerman in a Quick Take report on the takeover.

As they pointed out in an earlier report on the progress Oracle and SAP are making in SOA, enterprise customers demand business agility in their new applications. Both vendors intend to use SOA to create their next-generation suites. This will see features exposed via web services and built using a combination of transaction management and workflow patterns.

Currently, SAP and its partners have demonstrated more success than Oracle in this area by providing more than 150 xApps - SAP’s brand name for composite applications.

When it comes to Infor and SSA Global, Forrester believes SSA’s echnology architecture to be considerably ahead of Infor’s SOA strategy. The combined entity faces long-term convergence and interoperability challenges.

“Infor’s long term challenge depends on how adoption of IBM WebSphere as the application platform chosen by SSA reconciles with Infor’s open approach to platform support,” said Forrester.

IBM, in fact, is very much a common factor in both companies. Each has close ties with Big Blue that are likely to remain especially as IBM wants to see its database maintain its significant share of the enterprise market. That share is under pressure now that Oracle’s next-gen applications suite, based on the former People Soft JD Edwards and Siebel solutions, will run only on the Oracle database. IBM can be expected to continue courting Infor.

IBM would also like to see fewer SAP customers automatically considering Oracle as the database of choice for the ERP. SAP too, given increasing opposition in the applications space from Oracle, would like to see itself less dependent on the Oracle database among its client base, but it is saying nothing publicly.

With the continuing IBM links, Forrester recommends companies looking for manufacturing and distribution software to keep Infor/SSA on their shortlists. But if it is a potential tier 1 ERP that CIOs want, then it says there are one or two other prospects waiting in the wings – namely Sage and Microsoft.

Sage Software would be the nearest enterprise applications competitor to an expanded Infor. It has annual revenues of about $1.3 billion and is also on the acquisition trail. It is due to buy Bäurer, a German business management software vendor. Bäurer adds over 2,000 mid-market customers to Sage’s five million base – 5,000 of whom are in the Middle East.

Bäurer also brings revenues of around $30 million to make Sage a major challenger for that tier 1 third spot, especially as it intends to target Bäurer’s base to sell more of its software and services. “Acquiring Bäurer strengthens our market position in Germany by providing advanced and industry-specific solutions for mid-market customers. Sage's customer service and marketing expertise will enable us to sell more software and services to Bäurer's customer base,” says Paul Walker, Sage chief executive.

Sage also has the financials and HR solutions that Forrester says Infor lacks. It sees Sage surpassing Infor by the end of the year – “unless Infor continues to grow by acquistion or it achieves synergies in cross-selling”.

And then there is Microsoft. “In the long term the most likely candidate to move up to tier 1 is Microsoft Dynamics (formerly Microsoft Business Solutions), with its aggressive next-generation applications strategy and massive marketing campaign around its new product line,” says Forrester.

Microsoft rolled out one of these aggressive moves last month by switching to per-user pricing for its four, still-converging ERP lines – the old Great Plains Axapta, Navision and Solomon that are now called Dynamics GP, AX, NAV and SL.

Instead of pricing the four lines per module, Microsoft offers three tiered “suites" of each product line. The entry level ERP comprises the most common modules such as general ledger, accounts, fixed assets. The top level is an enterprise class ERP with more complex and comprehensive features.

The simplification of its suite offerings is backed by aggressive pricing and more flexible support competing head on with SAP and Oracle. Pricing, before volume discounts, has been quoted as $2,250 and $3,980 per user for the entry and mid tiers, with the top tier being priced per server. Equivalent SAP Business One pricing around $3,750 while Oracle ranges from $2,000 to $3,995 per named user.

Microsoft has also upgraded maintenance and support through its Enhancement Plan. Microsoft maintenance will cost 16% of list price compared with 22% and 17% of licence cost charged by Oracle and SAP respectively.

But when it comes to delivering a next generation unified product portfolio, Microsoft still lags. Where SAP plans to deliver by 2008, with Oracle following in 2009, Microsoft is still looking to 2010 and possibly even beyond that.

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