Business app makers shake out

Business application software makers, in search of fresh revenue sources, are finding that the best way to expand is through mergers and acquisitions.

Out of the five major players in this global industry--Baan, JD Edwards, Oracle, PeopleSoft, and market leader SAP--three have either invested in, partnered with, or bought out smaller application developers in the past year to shore up their core products and build integrated enterprise applications suites.

Baan, PeopleSoft, and SAP all made major buys in 1997. And analysts say the purchases definitely mark a trend in the industry, and they expect more in 1998.

"What you have are these companies trying to develop a continuous business solution...by integrating their back office applications with the front office," Judy Hodges, an analyst with International Data Corporation, said.

Observers say the move represents a new drive by many companies in the industry to bring their core product into the customer services area--the front-office, which will help their presence in the electronic commerce market as well.

In the most recent procurement in the industry, SAP last month announced plans to buy a 50 percent share in one of Europe's leading sales force automation firms, Kiefer & Veittinger.

SAP said it plans to combine K&V's technical resources and consulting services with its development efforts to provide corporate users with customer management applications. No specific financial terms have been disclosed.

Observers say the move represents a new drive by many companies in the industry to bring their core product into the customer services area--the front-office, which will help their presence in the electronic commerce market as well.

In May, Baan said it would purchase Aurum, a customer relations software provider, in a stock-swap deal valued at approximately $250 million. The Dutch software firm followed up that announcement with another in August saying it planned to buy Siemens Nixdorf Information System's business software unit ALX-COMET for an undisclosed amount.

And in October, PeopleSoft said it would acquire management software maker Salerno Manufacturing Systems for an undisclosed amount.

Under the terms of the purchase, PeopleSoft moved all nine Salerno employees, including development, support, and sales staff, to its offices in Southfield, Michigan, PeopleSoft executives said. Details of the purchase were not disclosed.

Salerno's flagship SPM+open software will be integrated with PeopleSoft's next version of its software suite PeopleSoft 7.5, PeopleSoft said.

All three companies compete, along with Oracle and JD Edwards, in the global ERP (enterprise resource planning) systems market, providing packages used to automate and integrate corporate functions such as sales forecasting, inventory, control, procurement, manufacturing planning, distribution, finance, and project management.

ERP applications have become fixtures at a large majority of multinational corporations in recent years, but sales have begun to stagnate with market saturation, observers say. The major ERP vendors have devoted large resources to try to extend their core product to the front-office to make it attractive to a more diverse market.

Hodges said everyone makes out in these purchases and investments. "It's a strategic move for both the vendors and their customers," because the software companies push into the front office and the customers get integrated client-server business application suites.

Although most of the enterprise software makers are making these buys, others are building integrated suites by alternative means. For example, Oracle is working to develop stronger sales and marketing functions in its enterprise software offering. "And they're spending the money internally," the IDC analyst pointed out.

As for the new year, Hodges said to look to PeopleSoft to make the next acquisition, possibly in the customer management applications arena.