By Michael Burns
*This is an expanded version of a column that appeared in the August 2003 issue.
It's that time again to share with you the results of our survey of accounting and ERP systems. This year we have added many new vendors to our charts, including J.D. Edwards, SunSystems, ACCPAC Simply Accounting, and QuickBooks, and updated the charts for changes during the year.
 We now have about 50 products, grouped into five tiers according to cost and target market. Costs range from a few hundred to a few hundred thousand dollars.
|
|
Tier 1 |
Tier 2 |
Tier 3 |
Tier 4 |
Tier 5 |
|
Customer revenue |
> $250M |
> $100M |
> $25M |
> $5M |
< $5M |
|
Licence fees |
> $350K |
> $250K |
> $50K |
> $5K |
> $100 |
|
Implementation fees : licence fees |
> 2:1 |
>1.5:1 |
>1:1 |
>.5:1 |
<.5:1 |
Consolidation and price wars
A lot has happened since last year's survey, the most obvious being the consolidation of accounting and ERP vendors. At the time of writing, the sale of J.D. Edwards, Baan, and Made2Manage had just been announced. By the time you read this, even more consolidation will probably have occurred among vendors.
There has also been a change in prices as vendors scramble to attract new customers using big discounts as incentives. Since many accounting and ERP vendors now generate the bulk of their revenue from existing customers, it makes sense to attract new customers just for the implementation, support and upgrade fees.
These price wars and consolidation efforts have been triggered by a number of causes, including a soft economy, uncertainty about technology, a cynical attitude about ERP benefits, lack of opportunity except in the middle market, ASPs (Application Service Providers) and the threat of Microsoft.
According to Forrester Research, "Technology spending expands only when nominal GDP growth exceeds 4.5% per year." When times are tough, most companies hold back on IT investments even though that might be the best time to improve business processes, since there is more time to allocate to a new system.
Technology uncertainty is in part caused by the hype related to web-based XML/Web services. Web services allow different systems to communicate with each other using standards that define data. XML (eXtensible Markup Language) is the key component of Web services. A Web-based product needs only a browser to operate, so it offers big benefits in terms of remote access and reduced costs and administration. Microsoft and many other vendors have touted the huge benefits of the new technology only to tell you it won't be ready for a few years. Therefore, many would-be purchasers prefer to sit tight with older technology and wait until the new versions are out.
At the same time, companies are no longer making huge investments in technology to remain competitive. You need an ROI to justify an ERP expenditure and this is hard to come by. Today, companies tend to invest in a new ERP system only when the existing system is no longer supported or there has been a significant change in the business.
The tier 1 vendors (SAP, PeopleSoft, Oracle, and J.D. Edwards) have realized there are only 500 Fortune 500 companies and that most, if not all, have no plans to convert to a new system anytime soon. So they have focused their attention on the middle market, which has many definitions depending on who you talk to. We use revenue between $25 million and $250 million as an indicator of a mid-market company. These companies have seen a significant increase in competition -- not just from the tier 1 vendors but also tier 5 vendors such as QuickBooks and Simply Accounting, which continue to add more features and offer the ability for more users to access the system simultaneously.
There is also competition from vendors that offer you their systems using the ASP (Application Service Provider) approach. With an ASP, data is stored on a central server/computer operated by the ASP. A customer accesses the data over the Internet for a monthly fee. The only software needed on the client's computers is a browser such as Microsoft's Internet Explorer. ASPs offer a compelling business case – low monthly rental fees and no need to invest in equipment or resources to manage the system.
And then there is Microsoft, which typically dominates any software market it enters. The company's splash into the mid-market pool with the purchase of Great Plains and Navision is still making waves. Microsoft's next-generation .NET products (its version of Web services) have the potential to drown the remaining ERP vendors. Microsoft's competitors have no choice but to merge forces with other vendors or pick a small niche and focus all marketing, sales and R&D there.
It is a turbulent time in the world of ERP, with seismic shifts occurring as vendors collide. For the nimble company, this may be the best time for a new system — rock-bottom prices, and time to devote to business process improvement.
Michael Burns, MBA, CA, is president of 180 Systems (http://www.180systems.com), which provides independent consulting advice in the selection and implementation of business systems. Michael can be reached at 416-963-1296 at mburns@180systems.com
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