This week I attended the 3rd annual user summit for OpenAir in Boston. OpenAir, recently acquired by Netsuite, is a professional services automation (PSA) vendor that deploys its software in the SaaS model. I wrote an IDC link on the acquisition when it was announced. I presented a short overview on project-based ERP and my take on the market during Netsuite CEO Zach Nelson's keynote Tues afternoon. During the conference Netsuite announced a new vertical focus that they are calling Services Resource Planning (SRP) that is aimed at the market that I call Project-based ERP. I started tracking this market last summer with the publication of the first market forecast in this space from IDC (IDC Doc #208756, Sept 2007).
So what's different with project-based ERP versus PSA and traditional ERP? Let's look at traditional ERP first. Traditional ERP grew up from a category of software that is called manufacturing resource planning (MRP). MRP is designed to manage the manufacture of goods. Companies like SAP have their roots in MRP (companies like Oracle, PeopleSoft, Great Plains, etc, started in a different part of the enterprise process than manufacturing but were still constructed around the product paradigm). Over time MRP added financial management, supply chain, human resources and other functionality to manage an entire business and became known as ERP. The core of the system though, is centered on products. During the 1990's service-based, or more accurately, project-based businesses tried to adopt ERP systems and were able to implement traditional systems only with quite a lot of customization to make the ERP suite work moderately effectively for their project-based enterprise. The fit was not good and the customizations were onerous enough that few of the systems could be upgraded. Customer satisfaction with these custom systems was not very high. In an attempt to meet the needs of project-based businesses in the late 1990's-early 2000 a new type of software was introduced by a group of start ups called PSA. The PSA solutions contained a business process focused on projects and generally started their process from the new project creation and ran through the process to invoice creation but were not a complete financial system (or HCM, SCM, etc.). The concept was that the PSA solution would be integrated with traditional ERP systems and would provide the missing project functionality. Companies like Evolve, Niku, and Changepoint to name a few, experienced good solid growth for a few years. The "bolt on" nature of the solutions led to the eventual acquisition of most of these vendors. OpenAir and Quickarrow also grew up around this PSA market but deployed in a SaaS model. Until this year they had remained independent. PSA, while an improvement to customized product-based ERP, was not the complete solution for project-based enterprises.
In a completely different path a couple of solutions grew up that were project focused. Two vendors, Deltek and Agresso (part of Unit4-Agresso) developed / acquired and sold complete project-based ERP solutions. Both vendors only deploy in an on-premise perpetual license model (or partner hosted, but the licensing is still perpetual). Deltek, which went public last year, in particular has seen very strong growth for all their solutions, which include project management solutions with strong earned value management (EVM) functionality for government contractors and complete project-based ERP.
What about the "big" ERP vendors? SAP and Microsoft basically have a vertical solution in the services vertical but it is built on the core product-based ERP solution and is not an end-to-end project-based solution. Oracle is somewhat more advanced in this vertical and has shown interest in expanding its footprint, most recently with its acquisition of Primavera and the formation of a Services Global Business Unit (GBU). Their solutions, while more robust than competitor's like SAP, are still mostly point solutions like project management, PSA, etc. that must be integrated with one of Oracle's product-based ERP packages to get a full business process solution. Oracle has a very robust business in services industries like professional services, construction, and transportation management.
Until Netsuite's announcement this week (and acquisition / integration of OpenAir) Deltek and Agresso were the leaders in the complete end-to-end project-based ERP solutions market. Netsuite joins these two vendors and of the three is the only one that offers the solution in a SaaS model. This is significant because of the accelerated shift to SaaS solutions that is being fueled in part by our current economic crisis (see my blog post: the financial crisis, now what about software?). Another factor is important to note about project-based businesses, many of the systems that were sold in the mid-90's are now out of support and can't be upgraded (as I noted above). The need to replace these legacy systems has worked to create a much higher demand for project-based ERP than many other software market segments and should drive solid growth for all three of these vendors.
