May 12 2014, 3:44pm CDT | by Forbes
The worldwide Enterprise Software Market (ERP) market grew just 3.8% in 2013, a slight improvement of 2.2% growth in 2012 yet not nearly enough to sustain the large, complex cost structures of existing market leaders. The recent report, Market Share Analysis: ERP Software, Worldwide, 2013 published on May 5, 2014 by analysts Chris Pang, Yanna Dharmasthira, Chad Eschinger, Kenneth F. Brant, and Koji Motoyoshi provides an excellent overview of the current state of the ERP market. I work for cloud ERP provider Plex Systems.
Relying on maintenance revenue streams is how nearly every enterprise software company that sells on-premise software survives today. While this business model is very profitable, it breeds complacency and a tendency to procrastinate about innovation. These market growth figures from Gartner in part reflect complacency on the part of market leaders to make the hard decisions and follow through with excellent execution. SAP’s many challenges in the leadership and product areas show just how hard it is to transform a massive organization, as Oracle’s -.2% drop in ERP revenues last year reflect their challenges in growing this area of their business.
Growing In A Flat Market Requires Thinking Like A Customer First
Many ERP vendors too small to be in the Gartner analysis are playing a defensive game of protecting their maintenance revenue streams at the expense of pushing themselves out of their comfort zone to build applications that attract new customers in new markets. Gartner mentions that Workday, Workforce Software, Cornerstone OnDemand and NetSuite are the five fastest-growing ERP vendors worldwide from 2012 to 2013. Each of these are cloud-based vendors who have a rapid development and delivery approach to new feature enhancements and major new releases. Each of them can also scale quickly to changing business model shifts with their customers, are elastic in how their pricing and resource allocation models work, and must deliver value to keep their subscription revenue streams growing.
Peel away the hype of cloud ERP and you find a business model that must deliver value daily to earn subscription revenue now and in the future. There’s no time to be complacent when a customers’ human resources department needs your app to come up and work perfectly every day with new features promised to them in the latest release. Or the manufacturing centers and their plant floors who rely on cloud ERP systems to guide orders from initial capture to fulfillment, complete with tooling instructions daily.
Bottom line: Impatient for results and systems that can deliver them, the high growth areas of the ERP market are being driven by companies who see cloud-based systems as more agile and responsive to their changing business model needs. Legacy systems designed for business models long gone yet still on maintenance are being extended today with cloud-based systems capable to keeping pace with an entirely new level of performance companies need to survive and grow.
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