Market Watch, September 2004
By Don Cochran, regular Market Watch Contributor, Configuration Work Group Review
We can sum up more or less everything that's been happening in the product configurator market space with one very simple question: Where's the money?
Economic conditions in the early 21st Century have been less than ideal. There was a severe downturn in demand for a variety of reasons. Profits were slim or negative and down sizing or right sizing was and sometimes is still the predominate theme. Software suppliers, consulting services companies and IT organizations have suffered and many no longer exist in the same way they did in 2000 or 2001. Some have gone away and others have merged and changed their names.
Now many companies are beginning to make decisions that were deferred for 18 to 24 months. The demand never diminished, users still want improvements, but projects are still hard to fund and ROI remains king. If there is no ROI, there is not a project.
Productivity has improved at many companies because they have completed their implementation of software like R/3 or CRM. Information is available today that was not accessible two years ago. Bad or good, there is no longer a need to have as many people to do the same job as a few years ago. The investment into software and its promise has been realized in many companies.
The configurator application space remains very small when compared to ERP, CRM or SCM vendors. It is not a billion dollar market as predicted a few years ago. It never was. Analysts really like the novelty of the application a few years ago, but SAP, Oracle, PS, Siebel, SSA Global and a few others consider configuration capability part of their CRM application.
Only the smaller firms that specialize in "Sales Configurators" or "Manufacturing Configurators" or "Front-End User or Guided Selling" applications, ad infinitum, perpetuate the market. Most have changed their focus to making it easier to do business with a customer and connecting to a host ERP or CRM application. All of the smaller software companies have built their own integration software or use someone else's. Else they can't compete.
It is clearly not a billion dollar market. Is it hundreds of millions? Yes. It all depends on how you view the market. Most software companies that offer configurator applications make most of their revenue from consulting services and software maintenance with a few exceptions.
Yet, SAP has grown stronger, it remains profitable and it has a larger market share than ever before. SAP (SAP) has emerged the big winner in 2004, with a 23% gain in U.S. software sales for the second quarter. For example, PeopleSoft's second-quarter net income fell 69% from a year earlier, to $10.98 million, while sales of $647 million fell well short of analysts' expectations. Oracle's (ORCL) application sales have plunged 36%. Oracle is trying to buy PeopleSoft to grow its application suite because their ERP application sales are far behind predictions and only a very small fraction of their database sales.
Siebel (SEBL) continues to experience pain with many very unhappy CRM and configurator customers. They continue to oversell their application capability and sales are on a downtrend. Siebel is losing market share and SAP is considered to be the market leader in CRM by some analysts. Siebel has a new CEO and new Senior VP of Global Consulting Services and many more changes will occur in the next 6 months. But, they still don't listen to their customers and their Product Managers and Software Engineering Management still don't talk to customers or among themselves. Processes and people will change, and new management, customers and Siebel's competitors will dictate it. Siebel is likely to change dramatically in the next 18 months, but don't look for much change soon. With a very highly politically charged atmosphere internally, many culture changes are seen necessary.
The smaller "configurator" software firms or "third party companies", especially in the configurator market have suffered until 2004. Nearly all third party [non ERP based] companies offering configurator applications were losing money prior to 2004. That has changed. Obviously, some are healthier than others; some continue to spend money like Selectica. They have never made a profit. They continue to lose over a $1MM a month. But with $110MM in the bank they can last for awhile. Blue Martini has won some new business, but remains unprofitable.
On the contrary, smaller firms like Access Commerce, Big Machines, Cincom, Comergent, Configuration Solutions, Edgenet, Intelliquip and some others are implementing configurator applications in 60 days for some large companies and are making a profit. Yes, they each have suffered in the previous two years, but now are earning new customers, respect in the market and making their investors happy.
Big Machines, Configuration Solutions and Intelliquip have announced new capability for specific configuration reporting aimed at C level management that has helped them win new business and shorten their sales cycle by months. A promise made years ago by many is now available as standard "out of the box" capability by these companies. For example, Options available versus options sold. What does the dealer have available in the pipeline? Etc. ILOG has a host of products oriented to configuration, optimization and rules processing and continues to be very successful selling their engine[s] to developers and companies alike.
The larger Do-It-Yourself companies in the USA have configuration capability for windows, doors, window fashions [blinds] and the demand orders are placed directly to the manufacturer when the customer pays for the product. No more internal paperwork before the order is committed. The trend also continues with specifically tailored user front-end interfaces. Pricing alternatives are being explored in the market as well.
- There are some new players in the market as well. A 100-employee firm based in Ohio, TDCI, has a configurator application oriented to manufacturers and claims to have 10 new customers in the past year. Some are large companies. At this time, their customers are primarily in the Eastern half of the US. They have interfaces to SAP, Oracle, PS, SSA Global [Baan], FrontStep and MAPICS.
- ConfigureOne is now appearing in many configurator application searches.
- ResolutionEBS has new funding and new senior management but still lacks a clear market
The "configurator market", the offerings and the suppliers are no longer the same as they were 18 months ago. Thankfully, 2004 has been a much different year than the previous 2 to 3 years. Managements have changed, costs have been minimized, products are more robust, 3rd party companies are smaller but profitable and some new, real capability has been made available that was not available a year ago. Focus continues to be on the customer and improving productivity. The market is maturing, however, the larger ERP and CRM based companies still dominate. But, there is still no clear market leader.