Software firms go vertical

For the rapidly growing Crown Books bookstore chain, tracking inventory levels and restocking bookshelves at nearly two hundred stores is a nightmare.

Some of the beleaguered bookseller's software was originally designed for the apparel industry and never seemed to keep an accurate account of book sales and inventory levels. Wrong and incomplete information has crept into the system and hopelessly tangled the company's inventory count, costing money, warehouse space, and endless hassles, said Keith Hammer, Crown's vice president and chief information officer.

"When the data is suspect, you are going to overcompensate just to make sure you don't run out of stock," he explained.

Hammer hopes his troubles are now behind him. He and his staff are trading in the old, cobbled-together systems for software announced this week by PeopleSoft and Intrepid Systems. He expects the new software to end his inventory woes by year's end.

He will also provide PeopleSoft with a case study to help market its retail-sales software package, software that the company hopes will supply a new stream of revenue growth for a company known primarily for human resources applications.

PeopleSoft, a big player in the $23 billion worldwide market for business applications software and development tools, is not the only company eyeing opportunities in what are known as "vertical" markets, industries with specific business characteristics that require customized software such as retail, oil and gas production, pharmaceuticals, and the auto and aerospace industries.

The competition at SAP, Oracle, Baan, and a handful of other companies are all quickly moving beyond one-size-fits-all business applications like accounting, payroll, and human resources to woo broad new segments of the economy.

Through strategic relationships like the PeopleSoft-Intrepid deal, out-and-out acquisitions and in-house development, these companies are expanding software offerings to meet the specific needs of vertical industries.

"From industry to industry the core business processes are the same, even if they have different names," said Jane Biddle, director of marketing for SAP's new industry program. "But we find that we relate much better to customers when we understand their business."

According to report published this month by analysts at market research firm International Data Corporation, American companies dropped a total of $39.7 billion on business apps last year. A good portion of that was for specialized applications for their industries or for development tools to customize off-the-shelf software. This is the revenue that PeopleSoft, Oracle, and SAP would like for themselves.

The German applications titan launched its strategy for penetrating new markets back in 1994. Since then, it has partnered with niche players, or bought and embedded software into its core R/3 system, and repackaged the software for sale to companies that span more than 18 industries. By last May, the initiative had spawned so many industry-specific operations that SAP moved to consolidate them under one marketing and planning umbrella.

In the enormous manufacturing industry, PeopleSoft and Oracle made acquisitions last year to expand their product offerings into market segments that they had never before explored.

PeopleSoft bought Red Pepper Software in September, expanding its current offerings to include software that tracks scheduling and helps determine how inventory should move through the distribution channel.

Also in September, Oracle said it would acquire manufacturing software maker Datalogix. This week, Oracle announced pharmaceutical apps and Baan said it is working on packages for auto makers and members of the aerospace industry.

Even Microsoft, not one to let a lucrative market pass by untouched, is moving in on vertical businesses with its ActiveX Store Architecture initiative for building applications for vertical markets such as retail and pharmaceuticals.

Bobby Cameron, an analyst with Forrester Research sees the trend as a sign that applications developers have come of age.

After spending years developing entire suites for the economy's largest segments--chiefly banking and manufacturing--Cameron said the companies are looking to an array of industries that compose smaller but still significant markets. Here, the key to success is understanding the particulars of each industry and coming up with compelling software to solve chronic problems, like Crown's inventory and sales tracking dilemma.

"We think the market will go from large wholesale implementation and purchases to medium and small purchases and implementations that are less costly and time consuming," Cameron said.