The BASDA (Business Application Software Developers Association) quarterly survey of the finance and accounting software industry shows that in the second quarter of 2002 the long-term growth in the business application software market finally began to slow.
“A lot of companies are in trouble,” says Dennis Keeling, director of BASDA. “Now year 2000 and the euro are behind us, there doesn’t seem to be any compelling business or technology reason for people to change their software. People are just adding bits to cover the cracks. Everybody is looking for e-commerce solutions, but nobody has decided to buy.”
The UK accounting software market has always been very fragmented, with estimates of the number of players ranging as high as 800 five years ago.
BASDA estimates that this number is now down to 200. For example, Microsoft has purchased Navision, which had previously acquired Damgaard. Microsoft adds these two to its Great Plains purchase, which had already acquired Solomon Software.
Microsoft’s move into the application market is controversial. Originally, the company was a key partner to accounting software vendors, such as Sage, providing programming tools, operating systems and databases, and helping them integrate their products with Microsoft Office. However, Microsoft now has the potential to become Sage’s biggest competitor, especially since it will be able to argue that Microsoft accounting systems will have the best integration with other Microsoft products.
John Tate, chairman of Tate Bramald, a research company and reseller, wonders whether small, country-specific vendors can survive in the face of global competition. “Companies such as Exchequer, Access Accounts and SquareSum have good products, are nimble and good at marketing,” he says.
“It is a question of whether there is a role in five years for country-specific applications if Microsoft starts to bring out global products and Systems Union has a product you can buy and run in 20 or 30 languages.”
This may be a quiet period in the software market, but it could be the lull before Microsoft sets out to swamp its competitors, both with conventional boxed software and software as a service, as part of its .Net strategy.
The consolidation that has begun will have an increasingly dramatic impact over the next few years.
A small Dutch ERP vendor that shot to fame when it won a major account with Boeing. It has since established a strong position in the engineering sector and moved into others, partly because of the speed at which it could be implemented. After management and reseller problems, it was acquired by automation and controls giant Invensys. Famously successful as BTR, both the group and the company hit financial problems and are still in recovery mode.
Coda has always concentrated on its highly regarded best-of-breed financials and it pioneered the unified ledger. It has recently extended into procurement and assets, and provides integration with core business systems. Having been pulled from the clutches of Invensys and Baan by Science Systems, a major reseller, it is making a strong come-back,and has recently launched an analytics package for corporate performance management and a consultancy practice. CODA’s research shows that 87% of companies will not be ready in time to comply with the IAS deadline in 2005.
Exchequer launched Enterprise 5.0, a good package for SMEs, in March 2002. It incorporates workflow, rules-based accounting and automatic alerts.
Offerings include reporting and analysis, commercials, service and distribution, financials, integration and customisation and e-commerce and internet technology.
The company struggled after the initial retirement of Ed McVaney, its founder and chief executive officer. He came back for a period, but Bob Dutkowsky took charge at the beginning of 2002. The company has re-branded its OneWorld software as JD Edwards 5. JD Edwards had its origins with World Software on the IBM AS/400 platform, now the iSeries. It still has a significant user base on this platform and is picking up new customers, but it needs to tempt them into an upgrade to JD Edwards 5 with new functionality. Its biggest challenge is to show that there is life after Ed McVaney.
Microsoft Business Solutions
Microsoft has set up a new application division, called Microsoft Business Solutions. It is currently working on plans to fully integrate the Solomon, Great Plains, Navision and Damgaard product groups and organisations.
At the time of writing, the company says it is “not able to communicate its integration plans and product strategies” – but the objective of the new division is global leadership in business applications for small and mid-market customers. Over time, it expects to be able to target research and development and marketing on areas where each product is strongest, by customer size, geography and industry.
In the vacuum that Microsoft has created, rumours abound. Some suggest the company is merely buying market share, which is not a strategy it has pursued before. Another rumour is that the company will use the combined expertise of the new software engineers it has acquired to write a single product. The separate user bases could be migrated to it and it would be marketed globally.
“There are very few companies with the resources to take on any major development at the moment,” says BASDA’s Keeling. “A new international product would be based on the latest web services technology and .Net strategy, and could be ready in two years. Solomon, Great Plains, Navision and Damgaard were all leaders, so it would be a significant product compared with anything we have seen so far. Microsoft could transform the industry.”
Oracle seems to have brushed aside a profits warning and is on a roll. Version 11.0, known as “eBusiness suite”, has been a long time in development and is now stable. Its web-based architecture with a browser front-end seems to be hitting the right spots and it has won some big deals over the past year. However, it is a major upgrade from the previous version.
The company now has 500 customers accessing hosted software over the internet. They pay per month for hardware and infrastructure, but have to purchase a full licence.
Oracle’s flamboyant founder and driving force Larry Ellison will attempt to win the right to challenge for the America’s Cup this autumn. If he succeeds, he will renew his rivalry with SAP’s Hasso Plattner, who is sponsoring the New Zealand defender. Customers will have to hope that Ellison can maintain focus on the business during such a long campaign.
The leader in human resources software has expanded its product range organically and through acquisition. It has had considerable success through strong industry sector marketing. PeopleSoft Financials 8.4 was released this year and includes a “virtual close” function. This process “shortens month-end close cycles by making information about bookings, revenue, order status, margins and expenses available to management on-line and in real-time”.
Sage has grown a massive user base around the world through acquisition and now markets 70 products, of which 39 are core. Its strategy has given it a dominant position in the UK small-to-medium-sized company market, particularly since it acquired Tetra and TAS Software.
Tate Bramald has argued for years that, because Sage has to develop each product independently, it doesn’t get economies of scale. “If a mid-market vendor is ever successful globally, Sage will be under threat,” says John Tate. “It has always been exposed, but its competitors have never got their act together.”
Clearly Microsoft is the obvious threat, although its products only overlap with Sage’s high-end Sage Line 500. Interestingly, in May, Sage called for a European Commission ruling on Microsoft’s purchase of Navision, saying that the takeover would give Microsoft an unfair advantage across Europe.
Sage says it can compete well on a level playing field, but at a local operating level it wanted to raise issues around potential anti-competitive practices. Meanwhile, it has signed a deal with IBM to make Sage Line 500 available for the Linux operating system.
Following the acquisition last year of Interact Commerce, Sage now sells Act!, a well-known contact manager, and SalesLogix, a CRM product, alongside its own Contact Manager for Sage Line 50. Hopefully, this will be more successful than Telemagic, a respected contact manager it purchased many years ago and has since handed over to its US business.
The software industry is notorious for companies losing their way after founders leave. SAP will hope to buck this trend as Hasso Plattner, the last of the five former IBM managers who started the company 30 years ago, prepares to move to the supervisory board. He will leave day-to-day running to Henning Kagermann, who has been joint CEO for four years.
Kagermann was formerly head of SAP’s accounting programs. He says that he believes in long-term customer relationships. “I want to be able to look my clients in the eyes two years on from a deal,” he says.
SAP has traditionally been dominated by software programmers. It is perceived to be changing its culture in order to catch up with Oracle and PeopleSoft, which have concentrated more on sales and marketing. Last year, SAP’s American head of marketing, Marty Homlish, was the first non-German to be appointed to the extended management board.
SquareSum was founded by industry veteran Philip Taylor, an ex-managing director of Coda. SquareSum’s respected Dream product uses a single unified ledger. Version 3.0 will be launched in October, in conjunction with Microsoft.
Ex-SquareSum marketing director Richard Pierce has since purchased PS Financials from Rebus. This is a product based on an earlier version of Dream that was licensed to Peterborough Software.
SunSystems code has been steadily upgraded from Cobol, Btrieve and DOS into the Windows, open systems, client/server, object oriented and Web platforms, without losing its reputation for stability. Its mid-market functionality has been comprehensive and it has long been a favourite with accountants.
The product has a single unified ledger, first class multi-currency and good international versions. The company has always had good international presence and support. But it has suffered from the perception that its product is old and has never quite realised its potential to become a global mid-market leader.