ERP market in decline

Back in 2000, Commerce One CEO Mark Hoffman was forecasting a major shake-out in the computer industry. But he could not have thought that his company would be one of the victims.

Indeed, by the end of the summer, the vultures might well be circling expectantly over the much down-sized headquarters of Commerce One – unless Hoffman can pull off some kind of magic act. That magic comes in the form of Conductor, the company’s new tool for building composite applications and processes using web services technology. Analysts say it does what it says.

Although Commerce One had $74.6 million in cash and short-term investments at the end of the first quarter in March, it admits that it is still burning cash at such a rate that it could all be gone by the end of the year.

It is a far-cry from Commerce One’s halcyon days less than three years ago, when it was fighting its arch-rival Ariba for control of the emerging e-procurement exchange software market. In 2000, the company grew by an astonishing 1000% and revenues peaked at $191.4 million in the closing quarter.

Then everything started to go wrong: customers grumbled about the quality of the software, the IT spending downturn and a shift away from e-marketplace investments hit Commerce One particularly hard, and enterprise resource planning (ERP) software vendor SAP wound down its strategic alliance with the company.

That last event was critical and must have been especially galling for Hoffman. SAP accounted for a major proportion of Commerce One’s sales, and, moreover, Hoffman had reportedly turned down a takeover approach from the ERP giant in October 2001.

Rebuffed, SAP developed its own e-procurement software and Commerce One still has not recovered from the blow. In the first quarter of this year, Commerce One posted revenues down by 59% to $13.1 million, although its net loss of ‘only’ $29.3 million was quite a triumph compared to the $211.7 million chalked up in the first quarter of 2002. Yet more restructuring costs, the ending of the SAP agreement, a shift away from services, the sale of its e-marketplace network and the shift over to Conductor all played a part.

Compared to its peak quarter in 2000, revenues have plunged by 93%.

Yet its once great rival Ariba – where revenues also nose-dived in a similar fashion from 2001 – has posted stable revenues in the range of between $50 million and $60 million for more than a year now.

In its second fiscal quarter to the end of March, Ariba revenues edged up 3% to $59.3 million, and although net losses still weighed in at $51.6 million, that was largely due to the amortization of $49 million of goodwill associated with past acquisitions.

How did Ariba arrest its decline? Quite simply, the company concentrated on adding new functions to its core software. In contrast, Commerce One failed to rein in its spending and its strategy has appeared confused. It has, at various times, emphasised e-procurement, e-marketplaces, spend management and now composite applications. However, the company does appear to have won at least five big customers for Conductor. It will need quite a few more before the year is out.

800 pound gorillas

According to investment bank Lehman Brothers, the ERP software market contracted by 17% in 2002 and will decline by a further 17% this year. Even market leader SAP has been feeling the pain, so it should come as no surprise that mid-market vendor Intentia has also been hit.

The only surprise, perhaps, is that initially Intentia had seemed impervious. CEO Bjorn Algkvist had suggested early last year that the company might be able to ride out the downturn thanks to its long pipeline and the fact that it does much of its implementations itself.

Now even Intentia’s pipeline is running dry and there is still no end in sight to the IT spending downturn. Furthermore, Intentia can expect increasing competition from SAP as it prepares a renewed assault on the mid-market with its new Business One offering, which has been written from the ground up to appeal to the mid-market.

Siebel Systems CEO Tom Siebel should be able to tell Algkvist what it is like to face competition from ERP’s 800-pound gorilla SAP.

At the beginning of 2001, Siebel could boast a four-fifths share of its core customer relationship management(CRM) software market. But since SAP launched its own CRM modules that year, Siebel’s share has subsequently fallen to under 40%, according to Lehman.

Little wonder that Siebel’s revenues fell by one-third in the first quarter, from $477.8 million to $332.8 million. However, tight cost control enabled it to eke out a net profit of $4.6 million.


Key supplier financial results – May 2003
Company   Description Period   Period   Period end   Revenue ($m)   Rev change   Net inc ($m)   Prev net inc ($m)  
Actuate Corp Enterprise reporting s/w 1Q03 31-Mar 25.5 -11% -0.6 -0.2
Ariba Inc E-procurement s/w 2Q03 31-Mar 59.3 3% -51.6 -151.5
BEA Systems Inc Middleware s/w 1Q04 30-Apr 237.3 6% 24.5 3.9
BMC Software Inc Data &systems mgmt s/w 4Q03 31-Mar 380.7 15% 20.6 -1.8
Borland Software Corp Application development s/w 1Q03 31-Mar 74.4 30% -17.7 4.6
Brio Software Inc Business intelligence s/w 4Q03 31-Mar 26.7 5% -13.4 -3.8
Broadvision Inc Customer targeting s/w 1Q03 31-Mar 24.5 -20% 1.3 -36.1
Business Objects SA Business intelligence s/w 1Q03 31-Mar 118.5 10% 8.8 11.0
Cisco Systems Inc Networking products 3Q03 26-Apr 4,618.0 -4% 987.0 729.0
Citrix Systems Inc Server applns s/w 1Q03 31-Mar 143.5 1% 30.3 26.7
Commerce One Inc E-marketplace s/w 1Q03 31-Mar 13.1 -59% -29.3 -211.7
Computer Associates IntÕl Inc Systems &applns s/w 4Q03 31-Mar 801.0 4% -106.0 -238.0
Computer Sciences Corp IT services 4Q03 28-Mar 3,079.1 1% 162.7 141.1
Compuware Corp Prog tools, sys mgmt &services 4Q03 31-Mar 337.6 -17% 21.4 -335.9
Dell Computer Corp PCs &PC servers 1Q04 02-May 9,532.0 18% 598.0 457.0
Electronic Data Systems Corp IT services 1Q03 31-Mar 5,368.0 2% -126.0 354.0
Epicor Software Corp Accounting s/w 1Q03 31-Mar 34.3 -5% 2.6 -2.7
Fair Isaac Corp Analytic s/w &data mgmt prods 2Q03 31-Mar 158.6 82% 25.6 14.2
FileNet Corp Content management s/w 1Q03 31-Mar 87.0 1% 1.3 1.4
FreeMarkets Inc E-sourcing s/w &services 1Q03 31-Mar 34.5 -20% -11.8 -11.5
Hummingbird Ltd Data analysis/content mgmt sw/ 2Q03 31-Mar 47.0 2% 1.8 4.7
IFS Industrial &Fin Sys AB* Business applns s/w 1Q03 31-Mar 59.4 -20% -6.2 1.4
Informatica Corp Data mgmt/integration s/w 1Q03 31-Mar 48.5 0% 1.2 -0.3
Intentia AB* Business application s/w 1Q03 31-Mar 76.0 -16% -11.6 -3.9
Macromedia Inc Interactive s/w dev tools 4Q03 31-Mar 83.6 10% 6.9 -83.4
Mapics Inc Manufacturing s/w 2Q03 31-Mar 38.1 15% -1.5 0.3
MatrixOne Inc Collaborative commerce s/w 3Q03 29-Mar 24.0 -26% -5.3 -5.0
Mentor Graphics Corp Electronic design s/w 1Q03 31-Mar 159.3 24% 3.6 1.8
Mercator Software Inc Application integration s/w 1Q03 31-Mar 23.0 -16% -4.3 -6.1
Micromuse Inc Network management s/w 2Q03 31-Mar 32.0 -18% 1.0 0.4
Microstrategy Inc Business intelligence s/w 1Q03 31-Mar 37.4 5% 0.7 3.0
NCR Corp Data warehousing/financial systems 1Q03 31-Mar 1,234.0 -1% -27.0 -344.0
NetIQ Corp Systems management s/w 3Q03 31-Mar 80.2 8% -3.2 -180.3
Network Appliance Corp Storage servers 4Q03 30-Apr 241.6 18% 24.8 7.8
Open Text Corp Document management s/w 3Q03 31-Mar 44.0 19% 6.8 4.3
Perot Systems Corp IT services 1Q03 31-Mar 338.0 4% -12.7 19.4
Quantum Corp Storage systems 4Q03 31-Mar 235.1 2% -5.2 -21.2
Quest Software Inc Application management s/w 1Q03 31-Mar 72.0 21% 2.9 1.7
Sapient Corp Process/performance applns s/w 1Q03 31-Mar 46.2 -11% -3.8 -54.0
Siebel Systems Inc Customer relationship s/w 1Q03 31-Mar 332.8 -30% 4.6 64.6
Software AG* Database and development s/w 1Q03 31-Mar 107.2 -14% -10.4 -2.6
SPSS Inc Data analysis s/w 1Q03 31-Mar 49.1 -1% 1.4 -2.5
Stellent Inc Content management s/w 4Q03 31-Mar 16.8 20% -6.6 -17.4
Sun Microsystems Inc Workstations, servers, web s/w 3Q03 30-Mar 2,790.0 -10% 4.0 -37
SunGard Data Systems Inc Computer services 1Q03 31-Mar 674.6 11% 76.0 70.0
Verisign Inc Internet security s/w 1Q03 31-Mar 269.8 -18% -53.4 -39.7
Veritas Software Corp Data storage s/w 1Q03 31-Mar 394.4 6% 42.5 44.5
Vignette Corp Web customer s/w 1Q03 31-Mar 40.8 -12% -7.5 -37.9
Vitria Technology Inc Application integration s/w 1Q03 31-Mar 22.6 -8% -20.7 -27.2
WebMethods Inc Application integration s/w 4Q03 31-Mar 49.1 -3% 0.2 -15.7
* figures converted to $US at exchange rates averaged over the period

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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