Following a long hiatus, end users are beginning to seriously
evaluate enterprise software again. During the first quarter of
this year, AMR Research observed a strong uptick in software
evaluation activity, a leading indicator for software
spending.
Deal flow was sluggish for most of 2001. However, in December,
there was a notable uptick in activity that continued through the
end of March.
In addition to the increase in absolute inquiries, we witnessed
significant improvement in the following:
$1m-plus deals - We don't expect a return to the elephant shooting
days of 1999, but big deals are making a comeback. As the economy
shows signs of recovery, end users are starting to realise that
large projects also carry large Returns on Investment (ROIs). We
expect that larger deals will continue to trend up as the perceived
odds of success increase.
Expected evaluation cycle time - This metric hit a seven-month low.
This is an indicator that sense of urgency is increasing, pent-up
demand is building, and end users have pain points that they would
like to eliminate quickly. Our data suggests that deal closures
should begin to surge in early Q3.
Evaluation completions - End users are moving beyond tyre kicking.
Negotiations are becoming more prevalent. The timing of this uptick
is significant, considering our expectations of a four- to six-week
negotiation cycle. In other words, we can expect a
heavier-than-typical rush to close deals at the end of Q2.
From an industry perspective, end-user demand for Enterprise
Resource Planning (ERP) is rebounding faster than any other
application category. Our contacts in the systems integration
industry concur.
Given the recent pre-announcements from Oracle and PeopleSoft, this
surge couldn't have come too soon. Q2 could prove to be challenging
for the ERP vendors, but our visibility foretells good things for
Q3 and beyond.
Supply chain software is also enjoying renewed interest from end
users. The surprise here is that Manugistics figures more
prominently in our evaluations than i2. Of course, given their
respective results this quarter, perhaps that isn't such a shock
after all.
All said, we believe that Manugistics will continue to outperform.
We also believe that SAP will have a good year in supply chain,
along with smaller supply chain vendors with compelling value
propositions, such as SynQuest.
On a relative basis, customer relationship management (CRM) is not
showing the same degree of strength. This may be an indication that
end users are more focused on operational efficiency than
customer-facing projects at this point in time. That said, it's
only fair for us to mention that our selection projects are
concentrated in the manufacturing and retail verticals. CRM is more
predominant in non-manufacturing verticals, such as finance and
telecoms.
From a vendor perspective, most of the major vendors have been
receiving their fair share of increased interest. In particular,
this quarter we saw the biggest spikes in interest for Manugistics,
JD Edwards, and Retek, respectively. Interest in PeopleSoft and SAP
was also up, but their upticks lagged that of the average vendor.
Oracle was the only major vendor for which we saw a decline in
interest in Q1. Among smaller vendors, IMI and SynQuest appear to
be experiencing a notable increase in interest - a positive sign
that smaller vendors can survive the downturn if they offer unique
and compelling products.
From a vertical perspective, Automotive and Pharma continue to lag.
On the opposite end of the spectrum, Retail and CPG are showing
particular strength. In the coming months, this should benefit
vendors with heavy concentrations in one or both of these
verticals. We'd highlight JDA Software, Manugistics, Manhattan, and
Retek. BroadVision, EXE, KANA, and Vignette stand to benefit as
well.
Looking at negotiation cycles, users are still exercising a fair
degree of caution. Shelfware is still a concern, prompting users to
buy only what is needed at a given time. That said, middle managers
do appear ready and willing to take a seat at the bargaining table.
The critical watch factor will be whether they can put together the
business case to get projects approved by senior management.
After witnessing three straight months of surging evaluation
activity, it's clear to us that end users are starting to see some
light at the end of the economic tunnel. As such, they are
beginning to explore ways that enterprise software can be exploited
to assist in the recovery. Barring a double-dip recession, sales
should closely follow. Based on our street-level visibility into
end-user demand, evaluation cycles, and negotiation cycles, we
believe that a sustainable pickup in demand should commence in late
June or early July.
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