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BusinessWeek: January 10, 2000 |
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Industry Outlook 2000 -- Information
Software
Indeed it was. Y2K jitters took their toll. But in the end, BEA Systems wasn't a victim. In fact, its stock is trading at about 120, up nearly 800% in a year. And because of its near miraculous turnaround, BEA Systems has come to symbolize the bright promise of the software industry in the year ahead. The company retooled itself as a provider of vital programs for managing e-commerce Web sites and landed a crucial partnership with Hewlett-Packard Co. Now, with sales increasing at 20% a quarter, it's catching the e-business wave. "This e-commerce thing is really happening," marvels BEA Systems CEO William T. Coleman III. E-commerce. E-business. E-engineering. No matter what you call it, fear of Y2K problems among the technology czars at corporations has been replaced by an irrepressible urge to morph their companies into Net businesses. This phenomenon offers the prospect of rapid-fire growth for dozens of software companies. "We're in the early stages of a massive wave of software development that's allowing companies in a wide range of industries to transform their businesses," says Anne Meisner, an analyst at Goldman, Sachs & Co. As a result, the market for e-commerce packages is expected to hit $4.2 billion in 2000, up 151%, according to International Data Corp. Software to manage customer relationships should top $5.4 billion, up 46%, says market researcher AMR Research Inc. Meanwhile, the emerging application service provider market--software offered via the Web as services--is expected to leap from $2.77 billion in 1999 to $5.5 billion this year, according to Dataquest Inc. Overall, revenue growth in the software sector is expected to be solid if unspectacular this year. IDC projects that the worldwide packaged-software market will top $175 billion, up 13.5% from 1999. While that percentage is slightly lower than last year's, it comes on a larger base. Also, it reflects sluggish growth for mainframe software. Thanks in part to demand created by the Web, even some of the torpid software markets are expected to pick up this year. Revenue from retail PC software sales last year increased just 12.2%, to $5.7 billion, according to market researcher PC Data Inc. But the forecast for 2000 is for a 20% increase--boosted by fast-growing online sales. WINDOWS INVASION. On the server side, the long-awaited introduction of Microsoft's Windows 2000 operating system in February is expected to drive many software upgrades. Microsoft has beefed up the package in an attempt to make it handle the busiest Web sites--finally penetrating the computing realm that so far has been owned by Unix servers. "I think Windows 2000 will be a breakthrough. Microsoft's computer partners are pushing the upper limits with this software," says Dwight Davis, an analyst with market researcher Summit Partners. Partly because of Windows 2000, BancBoston Robertson Stephens Inc. expects Microsoft's revenues to rise from $19.74 billion in fiscal year 1999 to $23.78 billion in 2000, up 20.5%. Profits are expected to increase 11%. While Windows 2000 may change the balance of power in computing, corporate applications are where the real excitement is this year. And no market is being watched more closely than software for customer relationship management (CRM). Siebel Systems Inc. of San Mateo, Calif., is the leader of the pack with a 35% market share. Two rivals, Vantive Corp. and Clarify Inc., both ran into problems and were bought by larger companies last year. "Siebel's momentum has started to feed off itself," comments analyst Marshall Senk of BancBoston Robertson Stephens. But Siebel will have to be on its toes. New entrants such as Silknet Software, E.piphany, and netDialog are coming out with Web applications and services that automate all sorts of customer outreach. E.piphany, for instance, offers software that analyzes customers' preferences and helps sellers come up with personalized marketing campaigns. Hambrecht & Quist expects E.piphany's revenues to grow 128% this year, to $38.5 million. E-business is larger than customer-relationship management. And BroadVision Inc. of Redwood City, Calif., is emerging as the e-commerce specialist to watch. It has rounded up such blue-chip customers as Citibank and US West. Deutsche Bank Alex. Brown expects BroadVision's revenues to grow from $95.4 million in 1999 to $140 million this year, with net income growing from $14.1 million to $18.1 million. "You ain't seen nothin' yet," says BroadVision CEO Pehong Chen. WILD CARD. His spot certainly looks attractive to the leaders in the fading software segment called enterprise resource planning. That's software that helps companies manage accounting, manufacturing, and human resources. The ERP market grew only 12.5% last year because of Y2K worries and customer dissatisfaction with long and expensive installations. Now, the market leaders are seeking new realms to conquer. ERP leader SAP of Germany just launched a Web portal designed to let businesses forge online links with customers and suppliers. And Oracle Corp. landed a deal to provide an online exchange where Ford Motor Co. can handle more than $80 billion a year in transactions with suppliers. Oracle is in one of the best spots to capitalize on the e-business gold rush. It sells databases that are vital to large Web sites, CRM applications, e-commerce, and supply-chain software--and all of it has been adapted to the Net. Analysts expect all that spadework to pay off this year. "Oracle has done a masterful job of positioning its products for the Web," says Neil J. Herman, an analyst for Salomon Smith Barney, who predicts that Oracle's revenues will increase 14%, to $10.07 billion, this fiscal year and that profits will increase 33%. Oracle's newest target is the application service provider market. It's offering its own corporate applications directly to customers via the Web, but most of the other 150 or so ASPs resell other companies' software as fee-based services. Corio of Redwood City, Calif., for instance, fronts for BroadVision, Siebel, and PeopleSoft. So far, most of the ASPs are targeting midsize businesses. "It will be a while before the top corporations will consider handing off their computing to outsourcers," says Mary Pat McCarthy, vice-chairman of KPMG Consulting. The real wild card in the software industry this year is Linux. The so-called open-source operating system certainly holds sway on Wall Street, where the initial public offering of computer maker VA Linux Research Inc. on Dec. 9 produced a record-breaking 698% first-day price runup. But while Web sites embrace Linux for simple tasks like serving up Web pages, the software hasn't yet taken off within corporations. That's why this is more likely to be the year of Windows 2000 than the dawning of the age of Linux. Return to top | |
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  Return to top  Return to top TABLE Positives and Negatives POSITIVES -- Watch for a boom in customer relationship management software, which melds Web sales with other channels. -- Application software providers, a new breed, will do big business renting out programs on a per-use basis. NEGATIVES -- Enterprise resource planning software will have trouble bouncing back from a wretched 1999, replete with costly installation snafus. -- Unix offerings from SGI and others will be trounced by Windows 2000, due in February. Return to top Trying to Keep SAP's Party Going Software stars can lose their luster overnight. After years of astronomical growth, fortunes turned in 1999 for several big suppliers of enterprise programs that help companies manage manufacturing, accounting, and human resources. The year 2000 will be better for some players. But few of these companies, if any, will ever see the 40%-plus growth rates that were common in 1997-98. For SAP in particular, the party turned quiet in 1999. Analysts last year were expecting a 22% increase in revenues. What they got was closer to 13%, according to estimates by Morgan Stanley Dean Witter. Part of the problem was widespread preoccupation with Y2K, which caused many of SAP's potential customers to freeze installations of new technology, including enterprise software. "Nobody expected the Y2K scare would cause so many companies to hold off purchases for this long," says Jim Shepherd, senior vice-president at AMR Research Inc. in Boston. Now, to thrive in a post-Y2K era, enterprise software companies must retread themselves for the Internet. Once again, among traditional enterprise vendors, SAP co-CEO Hasso Plattner is leading the charge. But this time, SAP will have to share more of the winnings. The giant, with an estimated $5.3 billion in global sales last year, has launched an initiative called mySAP.com, which essentially grafts onto the Web the same huge SAP programs that customers use internally. This, in theory, allows groups of companies to collaborate more cheaply and easily. Market researcher Gartner Group, for one, thinks mySAP may be too little, too late. Instead of waiting for SAP, Gartner says companies should get needed Web programs right away from specialized e-commerce suppliers such as BroadVision Inc. Morgan Stanley is less pessimistic about the Old Guard. It says SAP's 2000 revenues should rise a respectable 21%--higher than rivals such as Oracle Corp. and J.D. Edwards & Co. Adds AMR's Shepherd: "Folks in the application software business will be able to sell damn near anything as long as they put an `e' in front of it." Return to top |
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