Despite declining revenues for top-tier ERP (enterprise resource planning) software vendors, this may not necessarily signal the death of the software business, according to industry experts.
The ERP market has experienced phenomenal growth over the past few years, but recent revenues for various business applications software vendors are plunging. ERP vendors such as SAP have reported slower growth in profits and earnings, while others such as Baan and PeopleSoft are struggling with revenues.
The Asia-Pacific ERP market, however, seems to present a contrary scenario. It is estimated to have been worth $US1.33 billion last year, and projected to have a compound annual growth rate (CAGR) of 26.1 per cent, according to Selinna Chin, country manager of IDC Malaysia.
"The penetration rates of ERP packages in Asia-Pacific countries are so low that there is room to grow," Chin said.
The driving factors for ERP adoption in Asia-Pacific include the need to reduce operational expenses or costs; gain a competitive advantage; improve customer service; and achieve Y2K compliance, according to an IDC user survey of 1300 respondents across six Asia-Pacific countries earlier this year.
"For Asia-Pacific, the government, telcos and financial institutions have made substantial progress with their ERP systems, but the manufacturing sector has a long way to go for their systems to be competitive," said Warren Harding, a Deloitte Consulting Partner and leader of Deloitte's Enterprise Application Services in East Asia.
A slump in demand for ERP systems is expected this year, as demand levels off for new application packages as businesses have already installed year 2000-compliant systems, said Kamal Sharma, CEO of JBA Asia-Pacific, a mid-market ERP vendor.
As companies get closer to the year 2000, the less likely they are to invest in a Y2K-compatible ERP system that will not be completed in time, said Sharma. "We expect a surge in interest for ERP systems in the first quarter of the year 2000."
The big ERP vendors have ridden the wave of Y2K, expensive price tags and very long implementation times, said Sharma. "They have become lost in a plot called marketshare, and need to change their service models," Sharma added.
Andy Kang, information systems manager at NEC Semiconductors Singapore, agreed. "The ERP concept is becoming over-blown, as major vendors sell it as a miracle cure," he said. "IS departments are looking for functional requirements from an IT offering, and not a miracle cure."
The current slowdown for top-tier ERP vendors may also be caused by the fact that many new sales are going to smaller companies, which adds up to less revenue for large ERP vendors. SAP has recently announced a series of client wins in the retail industry, which included a series of mid-sized companies like NTUC, Shop N Save, and CK Tang. Other top ERP vendors like Oracle and JD Edwards have also announced a series of bundled ERP applications with hardware and services, clearly targeted at the mid-market.