Enterprise Application Software

EAS market muted in 2009

Yanna Dharmasthira, Research Director, Gartner said that the Indian EAS market slowed down significantly in 2009 with end-user organizations being less inclined to add new applications and focusing on improving efficiency and reducing costs

2006-2007, was perhaps the golden year for the Indian Enterprise Application Software (EAS) market that saw 22-24% growth in software license revenues. Then came 2008 where the EAS growth shrunk to half at 12% to $324.4 million up from $288.4 million in 2007. Vendors faced erosion of new license revenues as new projects were shelved in 2009 or were postponed for some more time. The largest buyers, SMBs, clearly preferred to give the sales cycle a miss. As per Gartner forecasts the growth rate of EAS revenues (software license, maintenance and subscription revenues) is expected to further plunge with the market growing at 6% to $344 million in 2009 and a marginal growth of 7.26% is expected in 2010.

Although the market is forecasted to have a significant growth slowdown in 2009, however, from an end user survey that we conducted in Q2 ’09, India-based respondents are expecting to have a positive growth in their spending for 2010, for ERP, SCM, CRM. From the six Asia-Pacific countries/markets surveyed in that study (Australia, China, Hong Kong, India, Malaysia & Singapore), respondents in India were the most optimistic.

Key trends in 2009 & 2010

• ERP to carry growth; end user focus on FMS: While ERP will carry the bulk of the EAS revenues, Gartner feels that businesses will continue to invest in Financial Management Systems (FMS), which is a segment of ERP, even in the current economy. FMS is the most mature segment, yet it is the core foundational segment within ERP with the largest revenue share and good growth. FMS will experience a growth slowdown in 2009, and a slight uptick is expected in 2010. The forecast for FMS demand continues to be strong for the next five years.
• Improving sales through CRM: End-user organizations will continue to prioritize in providing better service and therefore retaining customers. Basic CRM functionalities, such as contact center, customer service and technical support, will continue to represent the bulk of demand in many Asia-Pacific countries, including India. Another area that has been growing very significantly is anything that relates to the issue of increasing the effectiveness of sales related activities in the current economic situation. Both customer service support and sales are expected to have moderate single digit growth rates in 2009 and 2010.
• Streamline logistics & distribution: Demand in SCM in the current economy will continue as end user organizations need to become more agile, and closely monitor the logistics, production, and time to market of their products as their customers’ demand may continue to fluctuate. Additionally, fuel prices may continue to fluctuate as well, and this will force end users to continue to be effective and efficient in managing their supply chain and logistic operations. The largest demand of SCM will be derived from supply chain planning, followed by procurement and supply chain execution.

There is still hope

The slowdown in the overall EAS software growth spending in 2009 was felt in different sizes of organizations, both small and large. Companies are still spending on IT to increase their efficiency and reduce cost (even when they are not growing as much), or to support their growth (when they are in growth mode, which is not unusual in emerging markets).

What end users are doing is that they are becoming much more cautious in justifying new purchases, including their ROI, and in making sure that they are invested in their priority areas.

In India, end users are allocating their IT budget on software as one of the highest priorities. (This is followed very closely by allocation of budget for hardware purchases).

In a volatile economic situation, however, spending on infrastructure software tend to be given a higher priority than spending on application software. This is because, in a challenging economic situation, end-user organizations are less inclined to add new applications, but will be more inclined to enhance or maintain their infrastructure software to improve the effectiveness of their IT operations.

SAP and Oracle: the torch bearers

Within the ERP, SCM, CRM markets, two multinational vendors, SAP and Oracle, still significantly dominate the market in the Asia-Pacific and in India too. When combined, their market share in each of ERP, SCM, CRM are notably more than half of the total market share in India. If consolidation occurs among the smaller vendors, the impact will not be seen immediately or affect the top-end of the market. In a volatile economy, these top two vendors will benefit from the maintenance revenue stream from their large installed base in the respective markets in the countries.

Positive growth in 2010

As EAS vendors have been continuously marketing and educating the markets about their new product releases in 2009 [although the real purchase may not happen in 2009 because of the economic situation] then, after a more solid sales pipeline forms, the real purchase may occur in 2010.

End users will continue to have strong bargaining power, a situation that will be more pronounced in the current economic situation. Therefore vendor competition will be far more intense. Vendors will and should continue to provide sales, channel and marketing initiatives to boost their sales in 2010.

Customer service and support will continue to be an important part of spending on EAS. This is because end user organizations tend to prioritize customer retention and increasing customer ‘wallet share’, as well as the effectiveness of sales related activities.

Although demand for SaaS has been sporadic, based on an end-user survey on SaaS in key countries in Asia-Pacific, their spending outlook will continue to be positive (specifically in India), with greater intention of end-user spending in 2010. The segments that will have the most demand for SaaS include point solutions in finance and Human capital management within ERP, and sales within CRM.

As told to Akhtar Pasha