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PeopleSoft climbs ERP ladder

PeopleSoft takes second-place from Oracle in the ERP application market in 1997, while SAP continues to hold a commanding lead over all other players.

PeopleSoft overtook Oracle in the enterprise resource planning (ERP) application market in 1997, while SAP continued to hold a commanding lead over all other players, according to a new study by International Data Corporation.

PeopleSoft's sales grew 76.2 percent last year to $705 million in 1997 from $400 million in 1996, a rise attributed mainly to sales of its popular human resource and financial applications. However, the Pleasanton, California-based vendor became more of a player when it redesigned its product using a three-tier architecture, which gives corporate users of the software system more flexibility in how the software is implemented and used, according to the Framingham, Massachusetts research firm's report.

IDC analyst Clare Gillan attributed PeopleSoft's second-place standing to the company's push into foreign markets. PeopleSoft also added a new manufacturing application, which lets the firm compete with SAP and Oracle for the business of manufacturers who use the software to manage the flow of inventory and supplies, plan factory floor use, and make their production processes more efficient.

"PeopleSoft has been very successful in expanding its product suite so when it goes into a deal it's selling a much larger piece to customers," Gillan said.

ERP software is generally used to automate and integrate corporate functions across the board, such as inventory control, procurement, distribution, finance, and project management. ERP applications have become fixtures at many multinational corporations in recent years as companies search for ways to get rid of 20-year-old homemade applications running on mainframes that no longer meet the needs of growing companies.

Oracle grew 42.4 percent in 1997 to $699 million from $491 million in 1996. Recent financial results continue to show signs of trouble in the application unit, a trend that has spurred Oracle chairman Larry Ellison to take more of an active roll in selling and marketing Oracle's applications.

IDC, however, used a strict definition of ERP applications. Analyst Sandra Rogers noted that the study included only sales of human resource management/payroll, materials management, accounting, and manufacturing applications. IDC did not count in its study sales of other applications, such as sales force automation. Had the other applications been counted, Oracle would have held second place, Rogers said.

But Oracle executives claim foul regarding IDC's method of calculating sales. Jeff Caldwell, vice president of product marketing for the applications division, said IDC is not comparing apples to apples. He pointed to three discrepancies Oracle has with IDC's math. One point is that IDC did not count Oracle's full breadth of applications and only focused on a select few, a point that IDC was clear to mention.

Gillan said IDC wanted this particular study to concentrate on traditional core ERP offerings and not the wide range of applications most vendors are now offering and calling ERP, such as front office functionality like sales force automation.

Caldwell's other complaint was that IDC did not compare like fiscal years. IDC's study was for the calendar year of 1997 which is the fiscal year for PeopleSoft. However, Oracle's fiscal year starts June 1 so that a calendar year would mean combining Oracle's numbers for the second half of 1996 and the first half of 1997. Gillan said her office wanted to make sure the same selling period was covered to account equally for any changes in the applications market during the course of a year.

Caldwell also sited IDC's failure to include Oracle's application development tools in the study while calculating those figures. Users of both companies' products need the tools if they want to customize the applications.

The difference, Gillan said, is that Oracle sells its development tools independently as a separate revenue stream so that anyone wanting to develop an application from scratch can do so with just the tools. PeopleSoft only sells its tools to customers of its applications. Gillan said this is a problem across the board and should PeopleSoft start selling its tools independently, the figures will be dropped from the calculations.

"Oracle has a legitimate position in showing that the tools were not included," Gillan said. "It is also a legitimate point that other applications were not included, but they were not part of this market cut. But PeopleSoft's growth is the story here. The numbers are close. It was a 1 percent difference between Oracle and PeopleSoft, but the growth rates really tell the difference."

And that difference is that PeopleSoft is growing faster than Oracle. "The message is still clear, PeopleSoft had stronger growth and are on track whereas Oracle has some work to do over the next year," Gillan said.

Harry Tse, analyst at the Yankee Group in Boston, said using sales figures for just these applications, he agreed that PeopleSoft is running second behind SAP in the market. Tse said he expects PeopleSoft to hold on to the No. 2 spot for sometime because solving Oracle's problems will take a long-term approach.

"Peoplesoft has the most healthy legitimate revenue pipeline of any of the ERP vendors and the most conservative accounting policy in place," Tse said. "It's not surprising that they have taken No. 2. Oracle has a good product but its biggest problem is execution and sales force. It is not consistent whatsoever."

As it stands, Oracle took 4.8 percent of the market in 1997 while PeopleSoft took 4.9 percent. But it was German software giant SAP that continued to run away with the lead. With sales of $2.25 billion in 1997, SAP grew 32.2 percent last year from its $1.7 billion in sales in 1996. That growth spurt was enough to give SAP a 15.6 percent share of the market, and a commanding lead over its competitors.

Overall, the ERP market grew 20.2 percent to reach $14.4 billion in software licenses and maintenance fees. The top 10 vendors alone grew 32.9 percent to $5.9 billion which accounted for 41 percent of the entire marketplace.

The other top 10 ERP vendors in descending order are: Computer Associates with $435 million in sales and a 3 percent market share; Baan with $432 million in sales and a 3 percent market share; J.D. Edwards with a 2.2 percent market share and $320 million in sales; System Software Associates with $299 million and 2.1 percent market share; Geac Computer (formerly Dun & Bradstreet Software) with $283 million in sales and a 2 percent piece of the market, in ninth was IBM with $258 million in enterprise application sales and a 1.8 percent market share; and JBA Holdings with $248 million in sales in 1997 and a 1.7 percent market share.

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