Consolidation transforms ERP landscape

A flurry of acquisitions among high-profile ERP players has customers and vendors mired in the fallout of a consolidation period.

Industry experts expect large-scale vendors to bolster existing products in an effort to fill the midmarket void that these acquisitions have created in enterprise application arena.

In the latest in a series of acquisition announcements, PeopleSoft rattled the enterprise software landscape by unveiling plans last week to purchase Denver-based J.D. Edwards in a stock deal valued at approximately $1.7 billion.

The transaction, which should be completed by the late third or early fourth quarter, will result in a combined software entity with $2.8 billion of annual revenue.

Also last week, Baan was sold for $135 million to an investment group consisting of Cerberus Capital Management and General Atlantic Partners. As part of the acquisition, Baan will become a division of SSA Global Technologies to create a manufacturing-specific enterprise software behemoth, according to Laurens van der Tang, president of Barnevald, Netherlands-based Baan.

Van der Tang called last week’s acquisitions a definitive “starting point” of consolidation in the software industry as competition and customer demands increase, paving the way for virtualization and the reduction of utilized IT vendors.

“The message [to enterprise software providers] is, It’s time to think about your future. People are very pragmatic about leveraging investments they’ve made in the past,” Van der Tang said.

From an ERP perspective, van der Tag said Baan’s Gemini next-generation platform, due for release in September, and Baan’s Open World X third-party integration product will be key enablers of the combined company going forward.

By adding J.D. Edwards’ midmarket and manufacturing integration muscle to its overlapping technology cache, PeopleSoft said it will boost its enterprise software and services presence considerably within vertical, distribution, and asset-intensive industries.

In particular, the purchase will serve midmarket customers armed with small IT staffs, a segment that for the most part has been ignored by enterprise software companies.

“One out of three of our new customers is [in the] midmarket. They really want a solution that is easy to implement, easy to configure, and doesn’t take a lot of resources,” said Nanci Caldwell, executive vice president and chief marketing officer of Pleasanton, Calif.-based PeopleSoft.

PeopleSoft is jostling with fellow ERP titans Oracle, SAP, and Lawson Software to push SCM (supply-chain management), HRM (human-resources management), financial management, and application integration.

The enterprise software midmarket is becoming attractive because it is not saturated with lower-priced turnkey applications, noted Ted Kempf, principal analyst and program manager at Stamford, Conn.-based Gartner.

But Kempf warns that several obstacles stand in front of large-scale vendor’s attempts to grab the midmarket, such as selling business product suites instead of individual modules and co-existing products with a strong services identity.

“Some of these ERP software companies, you look at them, … you start asking, ‘Are they services or software?’ ” Kempf said. “[J.D. Edwards] could add significantly to [services] PeopleSoft has already; but negatively or on the flip side is, What does it mean for their channel? It’s a tango these guys dance everyday.”

According to a recent Meta Group report, customers will pay more attention to implementation and what services are delivered by the ERP vendor versus what is handed off to systems integrators.

SAP said it was not surprised about the J.D. Edwards deal because “everyone was expecting consolidation,” remarked Herbert Heitmann, senior vice president of corporate communications at Walldorf, Germany-based SAP.

Heitmann said the ERP landscape has adopted “publishing house” features of individual style and culture. Integrating disparate platforms and code through acquisition rather than homegrown innovation is a risky maneuver that can jeopardize customers’ confidence and familiarity, he added.

“It’s a tough thing to merge different software cultures and products in a customer-satisfying way. In these times, [customers] are very much interested in long-term reliable relationships with vendors,” Heitmann said.

If the ERP market consolidates further, end-users could suffer as choices become fairly limited, noted Ron Hanscome, senior program director at Stamford, Conn.-based Meta Group.