Gartner, Baan: ERP is dead

Although this year's plummet in ERP licence sales is expected to end early next year, things may never be the same for ERP.

Reporting a global dip in Baan ERP licence sales of almost 60 per cent in Q3 this year compared with Q3 last year, Baan's managing director for Australia and New Zealand, Gerhard Rumpff attributed the downturn to Y2K.

"Due to the Y2K situation this year, the whole ERP market has been very badly hit," he said. "Especially in the third quarter... no one would have gone out and bought extra licences or new licences to implement an ERP system," he said.

Gartner research director Neil McMurchy agreed Y2K was the main reason for the dip in ERP licence sales, but said another strong factor had been an "effective decline in per user pricing". The lower the per user charge, McMurchy argued, the lower the profit margin for the vendor.

"ERP has moved, over the last couple of years, into a commodity type environment. There are many like substitutes at similar prices. This has effectively caused a downward pressure on per user pricing," McMurchy said.

Rumpff said other causes for the decline in ERP licence sales included a strong general shift in business interests away from ERP products and into integrated front/back office areas like CRM (customer relationship management) and e-commerce solutions.

McMurchy agreed ERP licence sales had been damaged by an overall decline in business interest.

"The relative perceived value (of ERP) is declining. Companies still need to have it, but that just keeps them in the playing field now," McMurchy said, speculating that ERP vendors may have "used up" potential customers.

"ERP has had such high penetration. It has sustained an average of 30 to 40 per cent annual compound growth over five years, so they're running out of customers," he said.

Rumpff predicted ERP licence sales in Australia would pick up in Q2 next year. Even then, licence sales would only increase at rates of between 18 and 25 per cent, he said.

Industry figures show a global average decline in ERP licence sales of 35 per cent in Q3 this year compared with Q3 last year.

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