The Enterprise Applications 'Arms Race' to Be Number Three
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The Enterprise Applications 'Arms Race' To Be Number Three Top of Form 1. Event Summary 2. Similarities 3. So Similar, Yet So Different (and Vice Versa) Complete Table of Contents Bottom of Form Event Summary In the enterprise resource planning (ERP) world there is fierce competition to be number three (after SAP and Oracle). The leading contenders are Infor, Lawson Software, and SSA Global. For a detailed discussion of Lawson, see ‘New’ Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions). This is Part One of the series The Enterprise Applications “Arms Race” To Be Number Three. Even those who still believe that weapons of mass destruction (WMDs) will be found in Iraq (or in North Korea or Iran) should by now have realized that the number one position in the enterprise applications space will ultimately be decided in the inevitable showdown between SAP and Oracle (and their accompanying platform and partner ecosystems). Certainly, this does not imply that either of those will ultimately dominate the tier two or high end of the tier three market segments per se. Thus, the “arms race” for the number three spot is no less exciting (and is maybe even breathtaking), given that the revenue rankings snapshot for SSA Global, Lawson Software (soon to merge with Intentia), and Infor may change at any time, depending on which vendor has most recently announced yet another acquisition. One should also note that Infor, Lawson, and SSA Global have no illusions of dominance in the tier one segment, since that battle will already have been decided between the two aforementioned giants. One should also not ignore Microsoft Business Solutions (MBS) or Sage Group, in light of their total applications revenues, but these two archrivals are still fighting in the lower end of the market. Their respective significance remains, however, especially given Sage’s recent acquisition of Adonix (which certainly has many larger midsized customers), and the fit of Microsoft Dynamics AX (formerly Microsoft Axapta) to like-sized enterprises, although this product is impeded by its nascence. Also significant are Epicor Software (with its recent acquisition of CRS Retail Solutions), and China-based CDC Software (with its ongoing digestion of the globally renowned Ross Systems, IMI, and Pivotal brands; its recent acquisition of JRG Software; and vacillating plans to nab Onyx Software), but they are still at a safe distance, revenue-wise, from the tier two echelon. Recently, we have given due attention to the Lawson-Intentia combination, and to the rivalry between MBS and Sage (see The Market Impact of Two Powerhouses), so the time has come for a comparative analysis of the remaining two foes: SSA Global and Infor. Executives of these two vendors would be genuinely (or not so genuinely) insulted at any mention of similarities between the two entities, and although the two do have mutually distinct characteristics (which will be tackled further on), the two vendors do indeed have many similarities. Similarities For one, besides their similar size, similar geographic coverage, significant industry overlap, close partnerships with IBM, and so on, both are, after all, aggressive acquirers (being more or less strange conglomerations of over a dozen enterprise products). This is in distinction to “organic growers,” which SAP, QAD, IFS, or IBS largely remain (if one disregards their occasional smaller, complementary acquisitions to fill some functional gaps). Other so-called organic growers include Oracle (prior to their acquisition of PeopleSoft/J.D. Edwards, and Siebel), and pre- merger Intentia and Lawson (see Rapidly Consolidating Enterprise Applications Market: The Worlds of 'Organic Growers' and 'Aggressive Consolidators'). Both vendors vehemently object to anyone characterizing them as aggressive consolidators, since the term gives the negative impression that acquisitions serve the purpose of farming maintenance revenues without any commitment to developing new solutions. SSA Global contends that it is much more than a consolidator, as it has been espousing and executing a well-defined convergence strategy. On the other hand, Infor claims to be a sort of organic grower of the businesses that it has assembled—adding close to 1,000 new customers annually. Related to this is the similar youth of the companies, which are both around toddler age. We know them now as SSA Global and Infor respectively, but via their progenitor companies, they can each boast about thirty years of market existence and industrial experience. For example, from bankruptcy (with about $130 million [USD] in revenues and a cash hemorrhage of $16 million [USD]) in late 2000, SSA Global generated almost quintuple revenues of $637.8 million, with a net income of $20 million (USD) for the fiscal year ending July 2004. This was accomplished via nine acquisitions from April 2001 to August 2004. For fiscal year 2005, revenues totaled $711.8 million (USD), not including the last three acquisitions, which will be discussed later. With about 5,000 jittery customers in 2000, SSA Global now has over 13,000 active customers in 90 countries and 121 offices worldwide. The company, which also went public in May 2005, spends on average 15 percent of its annual revenues, or over $100 million (USD), on the research and development (R&D) of new solutions and enhancements. On the other hand, from its first (hardly ever publicized) acquisitions in 2002, Infor has thus far acquired 18 companies, and estimates are that it has become a nearly $780 million (USD) company. This includes projections for the latest, partial acquisition of Geac Computer Corporation, and the complete acquisition of Datastream Systems, which will also be analyzed later on. It now has more than 3,100 employees in over 50 global offices, with earnings before interest, tax deduction, and amortization (EBITDA) currently around $140 million (USD), or a projected $190 million (USD) after the above acquisitions. The company is privately held, but remains refreshingly open about its finances, which is another similarity with private-era SSA Global. Another similarity is that both companies are far from being finished with their acquisition streaks—both are keeping watchful eyes around the clock on several dozen possible acquisition targets. However, eager candidates can also click designated buttons at these vendors’ Web sites and offer themselves up to “chief acquisition officers” (or whatever their titles might be). Both SSA Global and Infor will sooner rather than later reach the magic $1 billion mark in revenues. As a matter of fact, both vendors are occasionally frustrated at being branded by analysts as mid-market-only providers simply because their revenues do not match up those of SAP and Oracle. In fact, many of their customers are multinational corporations with multibillions in revenues. Another striking similarity is that a lot of due diligence and integration takes place before any acquisition is publicly and officially announced; there is no confusion amongst their ranks about who is staying in which capacity, and about who has to move on. Also (at least at a mid-managerial level), there is a tradition of meritocracy in both houses, whereby incumbent employees do not necessarily have a “free ride” advantage over newcomers—many employees from acquired companies have actually climbed far up the corporate ladders. So Similar, Yet So Different (and Vice Versa) However, there are certainly somewhat different philosophies underlying the current state of affairs for SSA Global and Infor. Being the first to start the acquisition streak, SSA Global had initially shown (at least to lesser-informed outsiders) something of a scavenger nature, by acquiring struggling peer companies that typically had products written off by many as technologically outdated has-beens. But in hindsight, there was at least some underlying method and consistency to these acquisitions: all the products were technologically similar (based either on Unix or IBM iSeries [AS/400]); they were mostly aimed at related discrete and process manufacturing sectors; and they quickly became cash-generating businesses within SSA Global. On the other hand, with every acquisition, Infor has attempted to solve essential, industry-specific challenges faced by its (by now) more than 17,500 customers (26,700 after the impending acquisition) and implementations in 70 countries. Also, each acquisition has had the role of helping to develop deep vertical expertise within the targeted supply chain management (SCM) and ERP solutions, and within certain regions (for example, Infor has succeeded in becoming the mid-market automotive supplier leader in Germany). The addition of Datastream, a prominent enterprise asset management (EAM) provider, reveals a lot about Infor’s strategy to acquire leading brands that round out the entire solution footprint, and that provide compelling combinations to compete against the larger horizontal players like SAP and Oracle. Certainly, SSA Global has been less focused so far on capturing certain industries with its acquisitions per se, than on acquiring ERP and SCM vendors to grow market share and share of wallet (SOW) by broadening its product footprint. Consequently, nowadays SSA Global develops, sells, and services enterprise applications software, which encompasses ERP, customer relationship management (CRM), SCM, financial management, procurement, project management, human capital management (HCM), business intelligence