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Baan moves into new terrain

The business applications firm has long toiled in the shadow of SAP, but the company is making a move into new markets.

Baan, a business applications maker based in the Netherlands, has long toiled in the shadow of its better-known competitor, SAP. But the company is now making a move into new markets that could give it a higher profile.

This week, Baan launched a new marketing initiative designed to follow SAP and a handful of other companies into an enormous emerging market composed of manufacturing firms with average annual sales of $1 billion each.

So-called enterprise resource planning applications, for automating supply chain management, have become fixtures at the vast majority of large multinational corporations in recent years, but sales have begun to stagnate with market saturation. Now, companies like Baan are turning to small and midsize manufacturers for additional sales.

Baan, SAP, and Oracle are among the applications makers who are targeting firms that supply parts to larger companies, such as those that provide components to auto makers.

"You are talking about 50,000 sites primarily in the United States," said Bruce Richardson, an analyst at Advanced Manufacturing Research. He said companies in the small to midsize range are willing to pay between $200,000 to $1 million apiece to wire their operations.

"You do the math, and you realize this is a huge market," said Richardson.

Baan focuses on manufacturers in the automotive, electronics, aerospace, defense, and other process manufacturing segments with its Baan IV flagship software. The integrated family of client-server applications includes modules for managing manufacturing, distribution, finance, transportation, and services. It comes with Orgware, a suite of tools to ease the process of configuring the modules.

To get the apps to market, Baan this week launched two new distribution strategies.

The company has formed relationships with more than two dozen systems integrators and value-added resellers throughout the United States and Europe. The channel partners, which include consultants Ernst & Young Technologies and KPMG Team, will focus on specific vertical niches and geographic market regions.

The company has also teamed with distributors of popular hardware such as Compaq Computer, Hewlett-Packard, Digital Equipment, and IBM to provide another layer of service and support to potential clients in this space. The distributors have pledged to work with value-added resellers in their local areas to further streamline sales and deployment, the company said.

Yet Baan has already received some criticism of the initiative. Analysts at Advanced Manufacturing Research consider it "a high risk strategy."

The approach "could result in a chaotic situation where customers and prospects are getting inaccurate information or inadequate support," according to a recent issue of AMR's newsletter. "The open market approach almost guarantees that Baan will be plagued with channel conflict between its direct sales reps, systems integrators and VARs."

It is an opinion echoed by Oracle, which has opted instead to work with a smaller group of high-end value-added resellers.

"We don't think you can mass market applications of this sort," an Oracle spokesperson said. "You simply have to target high-end VARs to be successful in the marketplace."

Baan also signed a deal this month with Hyperion Software, an accounting software maker, to integrate their offerings, build new Internet apps, and pool distribution efforts. The joint development effort is a bid by the two companies to expand their offerings to compete more effectively with the likes of SAP and Oracle, which sell integrated modules for administrative tasks such as accounting, as well as human resources and manufacturing operations.

Baan, which splits its headquarters between Putten, the Netherlands, and Menlo Park, California, is riding the same wave of demand for business applications that is driving up the sales and profits of its competitors.

The company yesterday reported a 59 percent increase in revenues for the quarter ending March 31. Revenues of $123.9 million for the first quarter, compared favorably to $77.9 million posted for the corresponding quarter a year ago.

That figure included license revenues of $77.4 million, nearly double the level of a year ago. Net income was $12.3 million, up an astronomical 184 percent from the $4.3 million in net income posted this time last year.

SAP and PeopleSoft also reported strong gains in sales and profits this week. PeopleSoft posted $17.8 million in net income, or 14 cents a share, on $153.7 million in revenues for its first quarter ending March 31. Meanwhile, the German powerhouse had record revenues of $615 million for the quarter, nearly doubling sales over the same period one year ago.

Baan said Baan IV can scale from four to 4,000 users and supports the Microsoft Windows NT and Unix operating systems.