The leading players in the enterprise application market are suffering which means the contractors specialising in their products are set to suffer too.
These manufacturers are stricken by the double of blows of not having a sales story for the latest resource planning disciplines and the Year 2000 issue has stalled regular business.
The climate is forcing the enterprise application vendors to rethink their product and marketing strategies.
A clear divide is emerging between vendors that have applications with market appeal and those that don’t.
With the possible exception of Oracle, which is the competitor name on everyone’s lips, SAP, Peoplesoft, JD Edwards and Baan in the top tier do not have a credible strategy that embraces the newer disciplines of customer relationship management, e-business and supply chain management. In these markets, Siebel, i2, Ariba and Commerce One are the market darlings.
And everyone agrees the year 2000 issue is impacting new licence sales, with accounting, human resources and manufacturing application sales at a virtual standstill for the main enterprise resource planning (ERP) vendors.
As John Brooks, technical pre-sales manager at JD Edwards admits: “In the run up to 1 January 2000, no one is seriously buying software.”
The first wave of enterprise application vendor Q2 results are now and reflect what Brian Skiba, research director at Lehman Brothers describes as “A sea change in IT.”
First off the block was SAP, with revenue and profit at the lower end of expectations, still appearing comparatively healthy but with a holding strategy. Next up was Peoplesoft, which by contrast reported a collapse in net profit following a 61 per cent drop in licence revenue and an execution credibility gap to overcome. Next came Siebel, jubilant at having blown analyst expectations with an 82 per cent rise in revenue and a ‘no limits’ view of the world. Finally i2 Technologies weighed in , slightly ahead of First Call estimates, but with question marks about its sales force competency, also signalling a change in strategic direction.
The consensus among the financial analysts is that SAP is in a holding phase so has developed an eye catching strategy that allows it to dig into its massive 20,000 company customer base and offer codevelopment as a pre-cursor to commoditised product.
Perversely, this is contributing to a significant though patchy dropout in the UK SAP consultancy market. A striking example of this is Ernst & Young, which has been forced to lay off one fifth of its SAP consultants in the UK.
Tom Hooper, SAP practice manager at £22 million ERP specialist consultancy M3 Group said: “There’s been a general drop in day rates of around 20 per cent and in the consultancies, we believe the fall out is as high as 50 per cent.” Hooper says this is not really affecting his business because of the type of relationship the company enjoys with SAP.
He takes issue with press criticism levied at SAP about its Advanced Planning and Optimiser for the supply chain market.
“A year ago, i2 was creaming them, today it’s a different story. SAP listened and have made version 2 much slicker and easier to understand.”
But M3 is an exception. Elsewhere, demand for SAP consultants and engineers is falling. A recent statement from Sue Devine, SAP UK’s head of training confirmed there would be a 40 per cent drop in new recruits to 800 persons going through the basic SAP Academy. This is the main seedbed for SAP engineers and consultants in the UK so is a good indicator of downstream expectations.
To compensate, SAP is cranking up its own services organisation. This has a direct effect on third party consultancies because SAP will take work from those practices.
Ben Whiteley, sales director at recruitment consultancy FTR said: “It was bloody quiet in the UK right up until the last couple of weeks. I think everyone’s felt some of that, but this market move will get rid of a lot of the fast buck merchants and that’s a good thing.”
In Hooper’s view, an improvement in the contractors’ market will depend on the success with which SAP attacks the middle market. It has been pushing ASAP as a fast-track implementation methodology for a while and claims the majority of its deals are won with ASAP as a differentiator.
This introduces a new dynamic to the contracting market. “If SAP pulls it off, contractors will not find 15-month contracts, but a succession of say six month deals,” said Hooper.
Even though the newer vendors like i2 and Siebel are making significant selling headway, this is perceived as being very much US led.
Sanjiv Sidhu, chief executive officer at i2 for instance said: “Quarter two activity in Europe was lower than we expected.”
Similarly, Whiteley said: “We see no real demand for Siebel and i2 people at the moment - the UK presence is pretty low at the moment.”
Mark Hunter, managing director at Axon, an SAP centric services organisation that recently went public partially agrees. “i2 appear quiet to us, but the Siebel lads are very bullish,” he said.
Oracle is milking its Internet story and divesting itself of the ‘consultancy led’ image. In a recent interview, Dave Anderson, head of Oracle applications UK, said: “I’ve pegged the consultants this year, I want relationships outside for the new products.”
The recently announced Ernst & Young partnership is expected to see them announce that Ernst & Young will offer Oracle’s strategic procurement module as its preferred e-business procurement solution.
So, while Ernst & Young is cutting jobs in its SAP practice, it is understood to be compensating in the Oracle division. Others are feeling the competitive pressure: “Where Oracle makes a technology play, they are tough opposition,” conceded Mark Lane, vice president of marketing at Peoplesoft.
It seems the enterprise applications market is facing considerable uncertainty with many possible outcomes. Hunter believes consultancies need to pick their technology partners carefully, demonstrate talent and develop new partnerships.
“Let’s face it Germans do engineering, Americans do customer facing stuff,” he said.
Does this mean the contracting market will remain difficult?
“I’ve done one SAP implementation this year. In the ecommerce and CRM space, folk will pick up the skills and we’ll all move on. We had an ecommerce product already so were fortunate and I’ll make my numbers,” he concluded.
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