Friday, February 29, 2008

ERP's vs. many little systems

Big box software vendors have a problem. I'm referring to Oracle & SAP, primarily.

Their business models almost demand that they generate significant revenue from ongoing maintenance agreements. But, those agreements are often so expensive that any self-respecting CFO will want those contracts justified every budget cycle. At some point, firms will determine that paying all that money for upgrade assurance might not be worth it anymore.

On the other hand, there are hundreds, maybe even thousands, of very inexpensive solutions for mid-sized firms available. And if those firms get big and successful without the benefit of a big-box application, they'll be far more resistant to writing that huge check to implement a true enterprise-class solution.

The value proposition has to change. It's no longer enough to tout the benefits of an integrated solution. Integration on its own has limited value, and there's lots of ways to achieve it. Those ways may be expensive over the long haul (maybe even more expensive than a single ERP), but the costs are expended gradually, in small increments... a point-to-point integration here, a focused custom app there. The big value comes from drawing the data together into a consolidated picture... and your gargantuan transactional system won't help you there.

The 10 year outlook for those big-box vendors looks dim to me without some significant changes. I don't know what those changes look like, but they must manifest or Larry is going to have to sell his boat.

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