ERP sector faces major shake up

The enterprise resource planning market is entering a major technology transition phase in which service oriented architectures are likely to transform the technology as profoundly as the emergence of client-server systems in the 1990s.

AMR Research's annual report on the state of the market also revealed that increasing demand for ERP systems helped push market revenues in the sector by 14 per cent in 2004.

While the study recorded growth in terms of sales, it noted that consolidation continues to change the industry.

In 1999, the top five vendors in the ERP market (JD Edwards, Baan, Oracle, PeopleSoft and SAP) accounted for 59 per cent of the industry's revenue.

But the analyst firm expects the top five vendors in 2005 (SAP, Oracle, Sage Group, Microsoft and SSA Global) to account for 72 per cent of ERP vendors' total revenue.
"The ERP market showed solid organic growth in 2004 as IT spending improved," said Jim Shepherd, vice president of research at AMR Research.

"The market was also affected by consolidation within the segment, as well as ERP vendors acquiring best-of-breed players to broaden their portfolios."

The study found that, while many ERP vendors struggled in 2004, SAP increased overall revenues by 17 per cent and license revenues by 20 per cent without any acquisitions. SAP's ERP market share increased to more than 40 per cent.

Oracle nearly doubled the size of its applications business through the acquisition of PeopleSoft, but AMR Research expects SAP to finish 2005 with more than twice the revenue and market share of the combined Oracle/PeopleSoft.

According to the study, ERP buyers are moving away from large upfront purchases, tending to license user seats and functional ERP modules incrementally as they deploy a product.

Along with widespread discounting, this has led to smaller average deal sizes.