Sunday, June 08, 2003

ERP ecosystems: a sustainable business model?

Last week I attended one of the SSA GT “Road Shows” in Irvine, CA, which SSA is hosting around the country to update its installed base users on current product directions. As I have written previously, over the past 18 months, SSA has been building a large installed base (now over 16,000 customers, in 90 countries) by acquiring other software vendors that have fallen on hard times.

Coming away from this presentation, I am convinced that SSA’s strategy is to build an "ERP Ecosystem" (my phrase, not SSA's) of complementary products that it can sell into its installed base, to keep clients on maintenance and sustain them as a source of revenue for many years. Such a strategy has strong appeal for two reasons:
  1. From the vendor side, in the maturing market for ERP systems, new license sales are becoming more difficult and increasing revenue from existing customers becomes more important.

  2. From the client side, although companies want new functionality, they are increasingly reluctant to undergo wholesale change-out of functioning ERP systems to get it.
These two factors lead to the concept of an ERP ecosystem, where a vendor's revenue model depends less on constantly finding new customers and more on sustaining a large installed base of existing customers with sales of complementary products and services to integrate them with client’s installed system. SSA already had an impressive list of multi-national customers of its BPCS ERP system, especially in key verticals such as pharmaceutical manufacturing. Over the past 18 months, it has been adding to this installed base through its purchase of a number of other ERP systems, such as PRMS, Infinium, KBM, ManMan, and most recently, Baan. SSA is not alone in attempting to build an ERP ecosystem around a large installed base. MAPICS appears to be adopting a similar strategy, as I described in my post on April 29.

In the Road Show, SSA outlined the common complementary products it is now offering to its large installed base. These include the following:
  1. Warehouse Management (WMS): SSA is offering Warehouse BOSS, which it picked up in with its acquisition of PRMS. Interfaces were already in place for PRMS, of course, and interfaces to BPCS were just released in April. WMS is a frequently-desired complementary product, and for companies that need it, it usually carries a strong tactical ROI. Warehouse BOSS is a good mature multi-site WMS that should be well-received in the BPCS installed base.

  2. HR/Payroll: SSA is promising integration of its Infinium HR/Payroll system to its BPCS and PRMS installed base within 60-90 days. Infinium was always considered a solid HR/Payroll vendor, especially for the IBM iSeries (formerly AS/400), and this offering increases the attractiveness of SSA for the BPCS and PRMS installed base. The Infinium offering has been updated over the past few years with a functionality for manager and employee Web-based self service.

  3. Enterprise Performance Analytics (EPA): For data mining and business intelligence, SSA is offering pre-built integration to Cognos, a well-regarded business intelligence solution. Current EPAs are limited to financial reporting and sales analysis, two of the most-often requested, with more on the way. Integration appears limited to BPCS users of V6.1 and higher, which would put this out of reach for the large number of BPCS users on older versions.

  4. CRM: SSA is offering "BPCS CRM," which is based on Applix. (The Applix web site, however, indicates that its iCRM product has been acquired by Platinum Equity Holdings.) SSA currently has interfaces to Applix built for BPCS, with interfaces promised to PRMS later this year.

  5. Forecasting and Demand Management: SSA is offering interfaces to Logility from BPCS, with interfaces from PRMS later this year. SSA refers to this offering as "collaborative commerce," probably because of its support for Collaborative Planning Forecasting and Replenishment (CPFR). However, the offering is basically a high-powered demand planning tool. This is a good offering for SSA’s consumer product customers.

  6. Web-enablement: SSA is offering a "BPCS Enable," which is basically a private label version of IBM's WebSphere Express. This platform allows older IBM 5250 character-based versions of BPCS to be deployed over a browser-client and also allows them to interoperate with newer SSA offerings for e-commerce, CRM, and business intelligence. If the uptake of this product by the installed base is good, it will serve to extend SSA maintenance revenues on these older versions of BPCS.

  7. Knowledge Management: Although not discussed in the Road Show, SSA has just signed a letter of intent to acquire, Elevon, a vendor of knowledge management and collaborative commerce systems.
In an ERP ecosystem, complementary products such as those listed above do not need to be best-of-breed. They just need to be "good enough" for an installed base client to stay with SSA and avoid a completely new ERP system or costly custom integration with third-party products. SSA's plan to build such an ERP ecosystem will be tested over the next 12-18 months by whether the installed base begins to purchase these complementary products. If SSA is successful, watch for other vendors to adopt a similar strategy.