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Ten More ERP Trends: Open Source and Pricing Pressures

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Posted January 26, 2011 By Drew Robb     Feedback

The rise of open source ERP and new startups is pressuring big vendors like Oracle and SAP.

Last month, Enterprise Apps Today wrote an article on the top ERP trends. As it turns out, there's a lot more going on in this vibrant $20 billion market than could be squeezed into one article. So here are 10 more major trends in enterprise resource planning (ERP).

 

ERP license sales decline

Forrester Research reports that the global recession sent new ERP license revenue diving by 24 percent in 2009. That's bad news for the various vendors operating in this field. But it could well hasten consolidation in the industry. And there's hope: ERP market leader SAP (NYSE: SAP) is posting its strongest sales growth in years and just announced record revenues

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Open source ERP

What factors are involved in the drop discussed above? Obviously, the economic scene has caused a general tightening of IT purse strings. But another factor could be the rise of open source ERP and other enterprise applications — which also could be attributed to the economy. One IDC survey found high usage of open source enterprise applications; 9 percent of respondents already had an open source back office application deployed while, while 7 percent of respondents were running an open source CRM application.

IDC analyst Bo Lykkegaard cites the attractiveness of no upfront license payment and a generally lower cost of ownership, although doubts remain about the level of support that can be expected.

"In an enterprise applications market in which large vendors boast a 10 percent market share, adoption rates of 9 percent and 7 percent appear very high," said Lykkegaard. "Of course, usage can mean anything from departmental use or niche use to enterprise-wide deployment. We expect the majority of users of open source enterprise applications to use commercial enterprise applications at the same time. Despite this reservation, the survey results show that open source adoption in ERP and CRM has reached a critical threshold and should now make a 'bleep' on every vendor's radar screen, particularly for those that compete in the mid-market."

 

Rising stars

In such a climate, a new star often rises, either to dominate a market or be gobbled up by one of the giants. So who could be the next big thing in ERP? Of the many open source ERP players, Forrester analyst Holger Kisker names several up and coming candidates: Openbravo, Compiere, ERP5, OpenERP and xTuple (formerly OpenMFG).

 

Pricing pressures

The rise of open source is like a Wal-Mart opening in an area — the competition better get ready for a price war. Hence the likelihood is that the big players could be forced to drop prices. Historically, Microsoft (NASDAQ: MSFT) has been willing to go this route and could possibly force the hand of some others.

"The net effect of the emergence of open source enterprise applications will be one of price pressure, in particular in the mid-sized segment,” said Lykkegaard.

 

Risky business for big ERP players

It seems then, that it's a bad time to be an established ERP player. Eric Kimberling, president of Panorama Consulting Group, pointed out that most enterprises are unwilling to spend millions on ERP, especially if that means a deployment headache and lack of obvious ROI.

"When they do go to implement, executives are going to rely on outside consultants and experts to help them manage and minimize risk," he said. "There will be less tolerance for risk and implementation cost overruns."

That will manifest in ways such as CIOs, CFOs, and IT Managers trying to do more with less as budgets remain tight. They'll have to manage limited budgets and resources while trying to manage risk at the same time, which are two conflicting priorities.

"Executives implementing ERP will be walking somewhat of a tightrope in coming years," said Kimberling.

 

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