Shift patterns in ERP market

Over the last few years, more and more organisations have implemented ERP solutions. Large and medium organisations have benefited from implementing business process re-engineering and ERP. For the implementing organisation, it represents a very painful transition and adaptation period while the benefits are not immediate.

IDC estimates that the overall ERP market is expected to grow from $48.3 million in 1996-97 to $204.6 million in 1999-2000, at a CAGR of 62 per cent. This ERP market comprises the software segment and the services associated with it like consulting, implementation, customisation, training and support. The services market is expected to grow faster, at a higher CAGR of 72 per cent, while the software market is expected to grow at 45 per cent.

As software vendors found that software licences account for only 20 per cent of the cost, it was only natural and a matter of time that these vendors started thinking of the more lucrative segment. Since licensing revenue was on the decline, the scope for revenue lay in offering service differentiation.

Implementation services, software development, education and training add to 78 per cent of the total market for professional services, where ERP vendors have only a 15.6 per cent market share. Clearly, ERP software vendors had to look beyond the licence fee and add other services to their offering. For such ERP software vendors, the ideal clients would be those undertaking rapid implementation projects with less complicated demands of implementation and software development, which are within the range of the ERP software vendor and their partners.

In India, the ERP services market was worth Rs. 280 crore in 1998 and is expected to grow to Rs. 520 crore in 1999 and to Rs 850 crore by 2000. The growth rate in this market is projected to be close to 90 percent over the next five years.