Analyst view: Niche areas are the bright spots amidst slower enterprise application sales
Frank O Smith, senior contributing editor -- Manufacturing Business Technology, 1/8/2009 9:47:00 AM
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AMR Research released a report recasting enterprise application market projections for both 2008 and 2009 in mid-December, addressing the rapid and significant shift in global market dynamics during the fourth quarter.
Even though declines in manufacturing, higher unemployment, and tightening credit took the bloom off the rose for what could have been strong single-digit—and in some segments, double-digit growth for 2008—AMR sees some niche areas that promise to perform well in 2009.
Supply management (procurement and purchasing) will be a leader in percentage growth, projected through 2008-2009 at 6 percent. “It brings emphasis to cost containment and reduction, and puts more spend under management control, which is a key objective in a downward trending economy,” says Marianne D’Aquila, senior quantitative research analyst for the Boston-based firm.
In terms of direct procurement of production materials, software that aids planning, order forecasting, and purchasing also will benefit; as will technology that enables automation of the requisition process—especially workflow that strengthens control of supply management.
Product life-cycle management (PLM) is solutions space that will suffer sharper declines, according to AMR. Growth in 2007-2008 made it a category leader—pegged at 9 percent. But PLM software purchases are anticipated to fall off to around 2 percent through 2009.
“Global collaboration in product development has driven this market,” D’Aquila says. “Much of it has been put in place, and though it will continue to be important, we expect it to be harder hit during the downturn.”
AMR predicts the impact of the downturn during the fourth quarter knocked 2 percentage points off the overall enterprise application market for the year—tumbling growth from 9 percent to 7 percent. Comparative numbers looking to 2009 have ERP growth dropping further, from a recasted 4 percent growth in 2008 to 2 percent; and for supply chain management, from 5 percent to 2 percent.
But the report says there’s also good news.
“In the 1990s, most of the ERP spending came from brand-new customers replacing legacy systems with ERP suites. … [More recently], spending was driven by a much healthier mix of new customers, consolidation projects, add-on applications, and deployment to additional users. The ERP business had also spread across a much wider set of vertical industries, company sizes, and geographic markets.”
The report states that “Globalization continues to occur whether the global economy is up or down. Companies recognized future growth opportunity from developing nations across many sectors. In turn, the expansion is increasing the complexity of the information needed to fairly and effectively manage workers and support global mobility.”
Though North America and Europe will continue to comprise the bulk of growth for traditional enterprise applications, “Many of the larger ERP vendors are investing heavily in Central and South America, and are very enthusiastic about the market potential,” states the report. D’Aquila says growth in these regions are driven both by emerging market opportunity as well as a growing interest in near-shoring that is aimed at least in part to tightening the dramatic supply chain expansion that occurred over the last 10 years as companies moved production to Asia to reap lower wage cost advantages.
Recognition of risk, disruption inherent in longer supply chains, and the rising cost of transportation also sparked greater interest in near-shoring.
One of the brightest spots in the market will be fueled by what AMR terms alterative pricing—including on-demand or Software-as-a-Service (SaaS) deployment models.
“Subscription makes applications much more affordable to be deployed in small and medium-size businesses,” says D’Aquila. Ease of use, lower risk, and shorter deployment cycles all contribute to making this model more attractive to companies of all sizes in a down economy.
Read our related feature:
Staying the course: Tech-savvy companies
during economic downturn
