Saturation stalls enterprise software market

Six enterprise software vendors that announced weaker-than-expected revenue forecasts for the second quarter this month can blame their shortcomings on several factors, including a saturated market for large customers, analysts said.

Although demand for enterprise resource management (ERP), customer resource management (CRM) and financial software remains strong among small-to-midsize businesses, many larger companies have already installed these core systems in recent years and are generally just “spot buying” to fill in the gaps, said Andrew Bartels, an analyst at Forrester Research Inc. in Cambridge, Mass.

That’s reflective of conditions at the Snohomish County Public Utility District No. 1 in Washington. Over the past several years, the Everett, Wash.-based power company has installed enterprise systems for customer information, material management, finance, geographic information systems and energy resources.

“Mining the benefits from these by lowering operations and maintenance costs and making business process improvements will be our emphasis at least for the near term,” said Ed Klein, an IS business consultant for the utility. “Unless there is a significant cost advantage, I would not see us investing in a replacement for any of them.”

Other factors that may be impeding enterprise software purchases include a shift among corporate buyers “to move away from run-the-business systems and instead toward grow-the-business type projects,” said Howard Rubin, executive vice-president at Stamford, Conn.-based Meta Group Inc. “We’re seeing an uptick in development projects, but not in big ERP implementations. IT spending is just not going in (the enterprise software vendors’) direction.”

Bartels also believes that some contracts that were expected to be finalized during the April-to-June period may be extended into the current quarter, as corporate customers who “have become conditioned to expect significant discounts” over the past few years may have met more opposition from vendors that tried to hold the line on pricing.

“Some of these deals could close in the third quarter, but at a significantly lower price point than vendors expected,” said Bartels.

Tim Breuer, a spokesperson for IBM Corp., which reported its second-quarter earnings last week, said that some customers deferred software purchases at the end of June.

“We do believe the majority of the deferred transactions remain opportunities for the third quarter,” Breuer said.

Mountain View, Calif.-based Veritas Software Corp., which lowered its quarterly revenue target to between US$475 million and US$485 million from US$490 million to US$505 million, is in a quiet period until it reports its earnings Tuesday. PeopleSoft Inc., which revised its revenue outlook from between US$675 million and US$690 million to between US$655 million and US$665 million, also declined to comment on the factors behind its sales slowdown until the company reports its earnings on the same day.

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