ERP software sales expected to plummet

By Staff -- Logistics Management, 7/1/2000

A study of the enterprise application software market predicts that enterprise resource planning (ERP) software will lose much of its current market share over the next five years, while other types of packages will see significant gains. AMR Research of Boston, which conducted the study, defines "enterprise application" software as enterprise resource planning, enterprise relationship management, supply chain management, and electronic commerce programs.

AMR projects that ERP software's share of market will fall from an estimated 64 percent of the total market in 1999 to just 28 percent in 2004. (ERP-once the dominant business software application-provides financial and manufacturing applications that double as a corporate platform for information technology.) And it appears that the slide will be irreversible. "The ERP market will not revive," says John Fontanella, AMR's service director for e-commerce strategies.

Fontanella says companies are bypassing ERP in favor of "best-of-breed" software packages, which focus on a specific task such as warehouse management. Historically, vendors have sold these function-specific packages for installation on clients' computers. Now some suppliers, known as application service providers (ASPs), have begun renting their software online, giving users access to the software via the Internet.

Web-hosted applications will grow in popularity. AMR predicts that-at least for transportation management software-most users will rent the programs from ASPs rather than buy the packages. But in the early stages, at least, ASPs have some problems, Fontanella says. For one thing, companies face the task of linking up their in-house software applications with online packages. "Some integration issues remain," he notes. "It's far from being the perfect answer." And ASPs are still learning the ropes, he continues. "ASP vendors don't yet have good domain expertise [knowledge of specific industries]," he observes. "And ASP vendors are not good integrators."

Supply chain management (SCM) software revenues, meanwhile, will increase at ERP's expense. AMR estimates that revenues from supply chain management software totaled $3.8 billion last year, accounting for 14 percent of an overall market that was estimated to be worth $27 billion. Over the next five years, SCM's market share is projected to grow to $20.3 billion, which would be 26 percent of the projected $78 billion business software market. (See chart, above.) Supply chain management software covers such areas as logistics, transportation, warehousing, and inventory management.

The hottest segment of the business software industry, though, is e-commerce applications, many of which will be used to drive online trading platforms. AMR forecasts that sales of e-commerce packages will rise from $1.7 billion in 1999 to $16 billion in 2004. Enterprise relationship software, which automates the management of customer contacts and customer-service centers, is another segment that is expected to grow rapidly, from $4.4 billion in 1999 to $20.8 billion in 2004.