AMR: SAP to maintain ERP dominance in 2005

ERP spending grew at a healthy 14 percent rate last year, but the market isn't expected to sustain that growth rate in 2005, according to new research. Looking ahead, AMR Research expects ERP revenue growth to slow to just under 3 percent this year.

"The ERP market showed solid organic growth in 2004 as IT spending improved," said Jim Shepherd, vice president of research at AMR, in a statement released this week. "The market was also affected by consolidation within the segment, as well as ERP vendors acquiring best-of-breed players to broaden their portfolios."

Overall, acquisitions helped to make the biggest players even bigger. AMR expects the current top five players -- SAP, Oracle, Sage Group, Microsoft and SSA Global -- to account for 72 percent of ERP vendors' total 2005 revenue. By comparison, the top five ERP vendors in 1999 -- J.D. Edwards, Baan, Oracle, PeopleSoft and SAP -- accounted for 59 percent of the industry's revenue.

SAP in particular had a strong year, increasing overall revenue by 17 percent and license revenue by 20 percent in 2004 -- without any acquisitions.

SAP managed to grow its license revenue at a time when deal sizes are shrinking. ERP buyers have moved away from bulk purchases, opting instead to license user seats and functional ERP modules incrementally, according to AMR. Coupled with widespread discounting, this trend has led to smaller average deal sizes.

For its part, Oracle nearly doubled the size of its application business through the acquisition of PeopleSoft. However despite Oracle's bulking up, SAP will maintain a comfortable lead over Oracle in 2005 with a projected 43 percent market share. Oracle's projected 2005 share is 19 percent.

The movement to service-oriented architectures (SOA) may be disruptive to the ERP market, AMR warns. The research firm also predicts ERP vendors will remain focused on providing products geared for midrange enterprises with between US$50 million and US$1 billion in annual revenue, as well as smaller businesses with less than US$50 million in annual revenue.

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