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To: Lizzie Tudor who wrote (30431)	4/5/1999 10:43:00 PM
From: John Pitera	Read Replies (1) \| Respond to of 86076

Hi Michelle after reviewing your Web page I realize that I should let you do the explaining to us about these ERP and SCM stocks and I should shut up and listen... do you see a ITWO warning in the wind..?? sounds like it. I'll post you the 4Q final analysis from the same consulting company on the ERP sector. John Original post The ERP stocks such as SAP, PSFT and JDEC, are in a different boat than the supply chain management stocks, although the Y2K lock-down from this fall until 3/1/00 will not be a banner time to sell software. The ERP stocks all received huge revenue increases in 1997, and 1998 as companies upgraded systems to be Y2K compliant. When that Revenue driver was finished and the lack of the chance of upgrade, due to the Y2K lockdown on implementing new software took effect, these ERP companies have evil comparisons that have hurt them. Itwo does appear to be the category killer in the supply-chain management companies and it topped out and is down from last July. Manu has had problems executing I know because I own some, and it has been dropped from a couple of very big S&P companies due to the short coming in the software. Supply chain management is a different are than Enterprise Resource Planning. We have had a bit of a running conversation on the ERP companies here in the past 3 months. Here is some end of Q 1 99 analysis on the ERP companies... Accounting 1Q99 Large-Enterprise Magic Quadrant J. Comport The first financial-accounting-specific applications Magic Quadrant reflects a maturing market and continued consolidation. Core Topics Administrative Applications -- Markets and Vendors ~ Business Applications Financial Accounting -- Transaction Processing and Cost Management ~ Business Applications Key Issue Which packaged-application vendors will dominate? Which will be at risk? In the last six months, we have seen year 2000 as a buying motivation subside dramatically. With this change has come heavy downward pressure on application vendor license revenue. Mega-vendors are struggling to sustain top-line revenue growth, and in the process are seeing their revenue mix shift from license toward a maintenance/professional services composition. Upstart vendors, with a business model that is heavily dependent on license revenue growth and new-name accounts, are finding this a punishing market. There is not a enough service revenue to fill the gap. Either expenses, including research and development, must drop, in which case product competitiveness is at risk, or they must sacrifice profitability, which strains relationships with investors and puts off dreams of public stock offerings. Both young and old are searching for ways to remake the financial accounting market in the absence of an imperative such as the year 2000 crisis. Two answers are emerging: analytical applications and links to the front office. In this Magic Quadrant, we have separated the financial accounting and human resource (HR) application market for the first time (see Figure 1 and Note 1), and have adjusted our analysis by extending the quadrant's vision parameter (see Note 2). Consolidation continues to be the underlying trend in the financial accounting market, as evident in the widening gap between leaders and niche players. PeopleSoft and SAP remain strong product offerings. SAP is expanding from its traditional cost-accounting and global strengths with heavy investment and early success in industry flavors of product and an analytical suite. PeopleSoft was earliest to take an analytical approach with its performance and benchmark add-ons. Delivery is phased, which indicated this offering will evolve in the next year. Oracle has moved from the visionaries quadrant to the leaders quadrant. Struggles with multiple architectural transitions are for the most part behind them as early NCA customers are going live, reaching reasonable scale and becoming referencable. Oracle is building on its strengths in a flexible accounting model and strong project accounting by enhancing the analytical portions of the application and creating links, with Internet/E-business as a theme to its new front-office offerings. Key for Oracle in sustaining this position is making a transition from technology-oriented to business-oriented selling themes. Figure 1 Financial Accounting Large-Enterprise Magic Quadrant Note 1 Magic Quadrant Analysis Assumptions Vendor analysis is limited to financial accounting transaction providers. Large enterprise market is defined as vendors and requirements common to user enterprises with revenue greater than $250 million. International vendors are assessed based on their stated geographic market. Analysis of individual markets could provide different results. Analysis of a combined HR/financials solution must consider additional factors beyond this single application assessment. The greatest evidence of market consolidation is in the visionaries quadrant. Notable is the absence of vendors toward the lower left of the quadrant, the normal home of upstart, entrepreneurial firms. As the market matures, we are not seeing young, radically inventive companies with prospects of becoming market leaders. Our visionaries, Lawson, J.D. Edwards (JDE) and, to a degree, Clarus, are more established with innovative, successful products that are still trying to catch the kind of market traction of the leaders. These visionaries have much more in common with leaders in their market potential and stability than with the niche players. The best way to survive as a niche player is to pursue a niche, market-differentiating strategy, rather than continuing to fall behind in the general cross-industry marketplace (see Note 3). This is the case with Computron, which is narrowing to primarily the financial services and consulting services marketplaces, where their volume-handling and document/workflow capabilities play. Ross Systems is seeing the most success in the process manufacturing industry. For others, trying to remain cross-industry in this market consolidation will likely take a heavy toll. The challenger quadrant vendors are not candidates for leadership. J.D. Edwards' World (legacy RPG) product still sells, but is being displaced by the newer One World (OW) product. Walker has been able to extend the life of its mainframe applications, but has not been successful in attracting many new-name accounts. The strategy for Walker is to move into the analytical applications independently and in partnership with Oracle. Note 2 Magic Quadrant Analysis Criteria We have developed the following four models: International - Large Enterprise Financials, International - Large Enterprise HR, North American - Midsize Enterprise Financials, and North American - Midsize Enterprise HR. These new models will better demonstrate the market positions of vendors in both the HR and financial product areas, and further recognize the differing market issues and dynamics for midsize vs. large-enterprise markets. Inconsistency of products within product suites, client inquiries specific to each application area and variations in market trends make a compelling case for the new models. Additionally, we have taken this opportunity to extend the Magic Quadrant analysis by increasing the focus of *the vision parameter to include issues of vendor viability, projected over a five-year planning period. The expanded dynamics in this adjusted vision metric allow us to better recognize current and future vendor positioning in accordance with our predictions of trends and the changing market landscape. Note 3 Niche Quadrant Consolidation Fallout Users will notice that we have removed several vendors from the confines of the large-enterprise Magic Quadrant. As was anticipated, market consolidation and competitive pressure have changed product viability for vendors in this specific market. Decreased market presence and client interactions reduce our ability to assess these products. Bottom Line: Our Magic Quadrant reflects the commoditization of the core accounting market. The value and differentiation in the market is moving into analytics, treasury, and process extension such as corporate services and verticalization. Year 2000 demand fluctuations are making the transition more difficult for vendors. Users should expect some financial pressure on vendors in the next 18 months. The larger vendors are better able to sustain their strategies during this market phase. Users buying from niche vendors should play close attention to their fit with the evolving niche strategies of the vendor.