Follow the Money to Find ERP Leaders

by: Dennis Byron

Just as with presidential politics in the US, there are a lot of ways to find out who the leaders are. But a straw poll is not the best way.

I make that link because there is an article up on that purports to draw a distinction between Gartner's Magic-Quadrant-type subjective (some would say "bought") analysis of enterprise software and a more statistically sound analysis. In this case, the subject is ERP enterprise software but the problem with the it.toolbox article's premise holds for any type of information technology,

The problem is this: it appears the statistically sound approach advocated by the article's author is also flawed because it depends on an opt-in survey methodology. I base that on the author's request at the end of the article that readers sign in to fill out a survey. If that is the case, the results can be manipulated a lot more than any Magic-Quadrant-type review (where Gartner carefully guards its reputation) because suppliers can encourage clients (and users groups can encourage members) to stuff the ballot box. In other words, it's an old-fashioned straw poll.

I am not saying Oracle (NASDAQ:ORCL), SAP, Infor (NASDAQ:INFA) or any of the other ERP software providers mentioned in the article would ever stoop to do such a thing... but just as with the perception that a Magic Quadrant placement can be bought (a position with which I don't agree), a straw poll can be manipulated.

The answer is to follow the money if you want to know which company is leading the ERP parade. The result will get you to many of the same suppliers mentioned in the article, especially Epicor (NASDAQ:EPIC), Microsoft (NASDAQ:MSFT), Activant, IFS (Nasdaq Nordic), and Sage [LSE:Sage] as well as the companies mentioned above.

Following the money, the leaders are SAP, Oracle, Infor, Sage and Intuit (NASDAQ:INTU). Microsoft said in its financial analysts meeting in July that Dynamics, its ERP brand, loosely speaking, is a billion-dollar business. So Microsoft has not cracked the top five yet although it could get there eventually if it does not take my advice and sell off the ERP business unit. (I can count the number of times Micosoft took my advice on one finger.)

But you can quickly tell from that top-five list that looking for the leaders (for investment purposes or to buy an ERP system) also all depends on the size of the company the ERP provider supports. In general, the leadership ranking also mirrors a size of company spectrum from the very large companies using SAP to the very small companies using Quickbooks.

Not obvious from the aggregate money ranking is another key criteria: industry. When you add the industry dimension, companies such as Deltek (NASDAQ:PROJ) in government, Micros Systems (NASDAQ:MCRS) in retail/POS -- much larger than Activant (the old Prophet 21 is the small ERP part of Activant), and McKesson (NYSE:MCK) in healthcare delivery make most short lists.

When it comes to following the money, there is one other cut to make: between license and subscription-maintenance services revenue. The former means users are buying now. The latter means they bought sometime in the past and simply need updates to their tax tables, etc. Even a leader such as SAP gets only 30% or so of its revenue from license sales and much of that revenue is from existing customers upgrading from one version to another, adding a module or adding users.

Disclosure: no financial interest in companies mentioned.