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SAP, Oracle maintain ERP market lead as customers seek to cut TCO

Customers are focused on cutting their total cost of ownership (TCO), leading to a drop in license sales.

Stalled projects and efforts to cut total cost of ownership (TCO) have characterized enterprise application customers'...

behavior this year, meaning vendors will see revenues decline in 2009, according to Boston-based AMR Research.

But customers' continued willingness, however reluctant, to pay for maintenance and support has cushioned the economic blow for vendors, and will continue to do so. Despite dissatisfaction over a recent SAP maintenance fee increase, which has since been delayed, customers are sticking to the upgrade track, according to Dennis Gaughan, vice president at AMR.

Most clients say applications are too mission-critical to take out of maintenance mode.

"They're not necessarily thrilled with it, but they recognize it's something they need to continue to get enhanced," Gaughan said. "They need that lifeline of support."

As a result, customers are looking to spend smarter in other areas.

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Those going forward with projects favor a single-vendor strategy to ease integration of new HCM, SCM or CRM modules, Gaughan said. They consider that bringing in another vendor is a potential risk because of the cost of the extra integration points they will have to maintain. As a result, some companies are trading off the additional functionality a best-of-breed vendor can offer in favor of easier integration.

"I was on the phone fairly recently with an SAP customer who said, 'SAP gets the first look and the last look,'" Gaughan said. "They're not dismissing best-of-breed, but they're also recognizing the value of good integration."

Globalization, and its resultant regulatory, security and compliance requirements, is driving spending on supply chain applications such as global trade management. Companies are also looking to standardize applications and turning to ERP instance consolidation, which can cut IT operations costs by more than a quarter.

In turn, Software as a Service (SaaS) is becoming a more accepted model of delivery, even among large enterprises, Gaughan said. While companies like Saleforce.com and NetSuite have blazed the trail, he said, market adoption will take off when Oracle and SAP start selling more SaaS applications, simply because of their market footprint.

"As the larger suite providers like SAP and Oracle put more resources and marketing dollars behind their on-demand offerings, we expect a rapid acceleration in ERP SaaS adoption," the report says.

The economy, and subsequent efforts by companies to cut costs, was the dominant factor influencing the numbers in AMR Research's 2009 enterprise application market sizing report. SAP is still the top enterprise application vendor, bringing in $15.8 billion in application revenue in 2008. It's followed by Oracle ($8.5 billion), Sage Group ($2.4 billion), Infor ($2.2 billion) and Dassault Systemes ($2 billion).

Most application software buyers, particularly small and midmarket companies, have halted projects and aren't buying new software licenses -- a drop that could be as steep as 15% to 25% this year. It's prompting AMR to predict that enterprise software vendors will see an overall revenue decline of 5% in 2009.

In addition to the economy, another wrench for the enterprise application vendors could be Oracle's acquisition of Sun and its subsequent control over the Java programming language. More than 60% of enterprise software vendors have applications that rely on Java, including 33 of the 50 largest vendors, Gaughan said.

If Oracle makes it harder to license or manage Java, SAP's NetWeaver platform would be among those to feel the effects, he said.

"NetWeaver is basically built on Java," he said. "Should they, for whatever reason, need to move off Java, it would be a significant, time-consuming exercise for SAP."

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