Thursday, November 10, 2011

Confirmed: it's not a business plan, it's banking

Kudos to mid-tier vendor IFS and Cindy Jutras' new consultancy for doing some actual hard research on the impact of all this ERP graveyard business.  They surveyed 200+ executives at manufacturing companies, and found some interesting data points on how all this M&A activity is actually playing out with real customers.

IFS' summary here, full PDF here.  Cindy's blog writeup is here.

A lot of the findings tend to reinforce what a lot of us have intuited for some time ... but for me the real takeaway was the weakness of M&A as a long-term business model in ERP.  I think of it as the difference between a short-term banking transaction (i.e. buying generic captive revenue streams for a couple of years) and a long-term customer retention strategy.

To pick on my favorite whipping boy, what is the (latest) long-term product strategy for a company like Infor?  Are they going to make a real effort to rationalize all these disparate products, and provide a go-forward platform for all the customers they've acquired?  Here, to me, is the key data point in the IFS/Jutras study.  Of companies whose software vendor had been acquired, they asked about their software plans after the acquisition:
  • 68% were still using the product, and planned to continue doing so.  These are the "banking" customers.
  • 14% were still using it, but planned to replace it through a competitive process.
  • 10% were no longer using it, and had replaced it with a product from a competing vendor.
  • Only 8% had followed, or planned to follow, the acquiring vendor's upgrade recommendation.
That's why the clock is ticking for all these ERP roll-ups.  I would have guessed the number of customers in the first category - the poor saps who just stick with the legacy product and hope for the best, even as support and maintenance continues to fall off in quality every year (another widespread assumption confirmed by the study) - would have been much higher, north of 90%.  But customers are wising up, and starting to take more of an active hand in the future of their mission-critical business systems.

That's why we're seeing such a dramatic uptick in interest in open source ERP at companies like xTuple.  Our users - whether they're community members using the totally free version, or commercial customers using one of its big siblings - are in control of their own destinies.  They don't have to worry about picking up the Wall Street Journal one morning and seeing that their software partner has been gobbled up by EPINFORACLE.  They have the source code, no matter what - and they are members of a thriving global community of users that is bigger than any one company.