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Brian Asks the Swami

Brian is checking in with the Madame Opal at the Software Psychic Network. Madame Opal broadcasts from a parking lot in the Silicon Valley, riding the wireless waves of the vendors and VCs nearby.

Opal, what's in the cards for the ERP software space these days?

My first card shows a man in pain clutching his abdomen. A bad psychic would say that it's a software company digesting a bad acquisition. But I say it's a big ERP vendor thinking about mid-market prospects. Microsoft and its Navision, Great Plains, and Solomon product lines have an army of 30,000 resellers on the borders of the mid-market.

A big ERP vendor aims for 6-10 deals per year per salesperson. I've made a tidy sum over the years giving them readings on how to push the mid-market salespeople to 20-50 deals annually. But they never believe me when I tell them the answer. Now, Microsoft will make my answers irrelevant.

The mid-market players think they're in better shape. Lawson and JD Edwards have old, stable, conservative users who came from AS400 and System/38 roots. But as these customer bases come up for re-installation, Microsoft will be vying for their business. We've already seen our first Microsoft Great Plains vs. Lawson selection.

Oracle has a number of smaller applications customers, too, but whether these firms will switch from Unix platforms to Microsoft is unknown. Drop $20 more in my 'offering' jar and I'll read a tarot card on that for you!

I'll pass. We're getting ready to cover that research ourselves. What will drive sales in the near term for the ERP vendors?

Hmmm, the cards say nothing. I mean this card is completely blank. Looks like there are no drivers to stimulate sales of these products. There's no Y2K, no new Internet/client server/Unix sales driver coming - no, nothing! Now what this means is that sales will fall back to repeatable patterns of the past for core applications (e.g., HR, Fin, MRP). During the 1980's and most of the 1990's, users only replaced these core applications once every 8-12 years. If a lot of firms bought new software in the late 1990s (to met Y2K concerns), they won't re-enter the market for another 5+ years.

Can't the vendors do something to stimulate new sales or de-installs of older products?

The cards say no. You see this card has a number 5 with a question mark on it. This means that ERP core applications have morphed through 4 generations of products already (custom apps in the 1970s, huge proprietary systems of the 1980s, Unix/Client Server in the 1990s and now Internet enabled). I'll let you in on a little secret (since you're paying). There isn't much effective difference between a 4th generation and a 5th generation general ledger module. What would the fifth generation do? Notify the SEC when you try to capitalize expenses?

This other card shows a dollar sign inside a zero. This means that the ROI for new back office applications is negligible. Most firms have automated, re-automated and re-re-automated these functions. They've picked all the low hanging fruit. This card shows no fruit left on the tree.

At least their maintenance revenue will be safe. Right?

The cards show unhappiness here, too. Do you see all the tears on this card? This means that existing customers are going to tighten their belts a lot more in the future. Customers will no longer pay maintenance on uninstalled, but licensed, applications (i.e., shelfware) if they do not see themselves installing these applications within 24 months.

The little CIO in the corner of this card has a light bulb over his head. This means he has new knowledge of his applications backlog and budget. He sees a smaller project portfolio, smaller budget and fewer big projects coming for some time. In other words, CIOs won't be implementing a significant amount of their prepaid shelfware any time soon. The lady with the green eyeshade in the other corner of the card is a CFO. She is counting chairs. She is realizing that her company has fewer users than before and she will want to see reductions in her annual seat fees to the vendor.

You see that stone wall. That's the vendor when the customer comes knocking for a reduction in annual maintenance.

Pretty grim, short term, Opal. Quickly, what does the long term look like?

Interesting. Very interesting. This card shows two figures. One is a fashion supermodel embedded in a vat of hardened concrete. The other is an ever-expanding supernova. What this means is that the ERP vendors who stick to old, 'controls' based business architectures or application models will be frozen for years to come. The ones that rapidly expand outward to new applications and new structural paradigms will experience greater market success.

What new applications and paradigms?

I'll tell you what it's not. It's not hosting the basic transaction processing functions. It's not adding a few new ancillary applications to the product set to resell to the installed base. It's not any of the usual, add-on incremental quick fixes that the strategy-meisters at these firms rush to embrace. If these generate any revenue, all they're doing is offsetting shortfalls from the core business. The new applications will be knowledge based and be centered around axes other than core accounting or business transaction data. But, if you want more of a clue on these, Madame Opal needs to see some more green in her tip jar.

Since Brian's psychic budget is tapped for this week, we'll have to do our own research. Stay tuned.

See also our other recent Short Takes.