Demand for enterprise resource planning software (ERP) in Europe will slow dramatically over 2005, although the weakness will be disguised at some larger vendors by acquisitions.
According to AMR Research, ERP licence revenues will rise by just 3% in 2005 to $24.3 billion, in sharp contrast to the 14% upswing in 2004 when currency fluctuations inflated the growth rate by 6% to 7%.
At the same time, industry consolidation has shifted the bulk of revenue to the upper echelons of the market. In 2004, the top 5 vendors (SAP, Oracle, Sage, Microsoft and SSA Global) accounted for 72% of all ERP software spend, compared to the 59% claimed by 1999's top 5 (SAP, Oracle, PeopleSoft, JD Edwards and Baan).
That reflects the spate of acquisitions in recent years by vendors such as Sage, Microsoft and SSA, and the absorption of PeopleSoft and JD Edwards by Oracle, a move that doubled its application revenue in 2004. But not all growth in the market sprung from acquisitions: market leader SAP increased its worldwide revenues by 17% in 2004, inching up its market share by 1% to 40% without any significant acquisitions.
Such organic growth was driven by the adoption of a new wave of technological innovation by enterprises, and a heightened awareness of the need to apply technology to regulatory compliance issues, said Nigel Montgomery, director of European research at AMR. "The spotlight on innovation and the concern of non-compliance has driven large companies to put the last nail in the coffin for ageing legacy systems."
Despite its current good health, the ERP market may be in for a shake-up as more businesses transfer to service-oriented architectures (SOAs). "SOA may have the same disruptive effect that other technologies have had on the market," said Montgomery, "for example, the emergence of client/server systems in the 1990s."