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e-Xpertise in Industry Issue #32
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February 2008

In this issue...

Quote for Today

Nearly all men can stand adversity, but if you want to test a man's character, give him power.
Abraham Lincoln  

Feature Article: Worldwide Engineering Applications Market

The worldwide engineering applications market continues to grow strongly. Despite economic turbulence, 2007 growth in demand of 13% will only slow to 11% in 2008.

We predict that users of engineering software worldwide will continue to increase spending on applications in 2008 through to 2010, albeit at a lower rate than that seen in 2007. Spending will rise from the nearly $15bn, spent in 2007, to $19bn by 2010.

Figure 1

Growth in all areas

In 2007, demand for engineering software grew in all regions and in all engineering disciplines: mechanical; architectural and civil; and geospatial. Growth was fastest in the Asia Pacific region. In the last two years, demand has increased sharply. Growth in 2005 was 10% and in 2007 spending growth increased to 13% world-wide. We forecast that 2008 will see an increase of around 11%, before falling back to high single digit growth by 2010.

Despite the economic and geo-political uncertainties we have seen in 2007, competition causes companies to continue to invest in new design and engineering tools.

Acquisitions key to Company revenue growth

A significant part of software provider's revenue growth has come from acquisitions. Since 2005, nearly a quarter of the growth of the top four providers and over half the growth of the top ten providers has come from acquisitions. This helped push 2007 provider revenue growth to over 14% worldwide, the highest in the last 5 years. We see further concentration of the market taking place in 2008 and expect this to be a recurring theme through to 2010, though we expect growth to return to single digit in the same period.

Currency plays its part

All growth figures quoted are in US$. The depreciation of the US$ against a basket of currencies over the past year, boosts the reported growth in US$ in the rest of the world. For example, in EMEA, where the working currency is the Euro (€), growth has been inflated by 9%. Similarly the Asian currencies appreciated nearly 6% against the US$, boosting apparent growth in the APAC region.

Nick Ballard

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Hot Topic: Enterprise Applications Review

2007 has been a buoyant year for the big Enterprise Applications vendors, with plenty of M&A activity and strong growth in revenues. The big mergers and acquisitions include Oracle buying Hyperion and SAP buying Business Objects. Vendors that underwent large mergers in recent years have started to reap the benefits. These include Lawson (merging with Intentia) and Infor (with SSA).

The last few years of consolidation has established a very different 'big 5' of SAP, Oracle, Sage, Infor and Microsoft Business Solutions (MBS). Microsoft is starting to blur the distinction between enterprise applications and Office applications. Half-way through 2007, Microsoft re-organised its divisions, merging MBS, now referred to as Microsoft Dynamics, with its personal productivity range (essentially Office). Microsoft's joint project with SAP to seamlessly link SAP's ERP solution with Microsoft's Office products has further closed the gap between the two. Indeed, at the micro-business level Microsoft's Excel is one of the main competitors for many of the functions within ERP. Microsoft's new 'Microsoft Business Division' (MBD) would be the leader of this larger segment, with revenues of about $16bn per year.

The revenues of the 10 largest vendors grew strongly in 2007 - on average up nearly 24% over 2006 (when viewed in US dollars). Much of this growth was driven by acquisition, but some of the biggest growths were from companies that grew mainly organically. SAP did not include revenue from Business Objects in 2007, but still grew by 20%, likewise Lawson grew nearly 45%, compared to combined Lawson and Intentia revenues in 2006. Infor focussed on smaller acquisitions and its rapid growth slowed to join the general trend growth of the 'big 5' vendors.

Figure 1: World revenue growths by company 2003 - 2007, based on revenues in US $

In Europe, 2006 ended with a disappointing fourth quarter (Q4) - down 11% on the Q4 2005 (when viewed in Euros). In contrast, 2007 has been a bumper year with strong growth in all quarters and 32% growth in Q4. The exceptional Q4 was mainly fuelled by SAP's growth (46% over Q4 2006). Some of this is because of SAP's poor Q4 in 2006, which was down 17% from Q4 2005.

Figure 2: Quarterly European revenue growths by company 2005 - 2007, based on revenues in Euros

In recent years, the devaluation of the US dollar has distorted the view of the European market. In some years, there was strong growth when the revenue data was viewed in dollars, but a worrying decline when viewed in Euros, as shown in figure 3. 2005 saw a switch - where the US dollar view was more negative than the Euro view; in 2006 the views were more or less consistent with each other; and in 2007 both views show a promising growth trend for the future. In itself, the strong growth in 2007 should predict another buoyant year for Enterprise Applications in 2008. However, economic pressures may well dampen this enthusiasm as companies find it increasingly difficult to borrow money for capital investments. We expect Enterprise Applications vendor revenues in Europe to grow to about €10.6bn in 2008, at a modest 1% year-on-year growth.

Figure 3: Quarterly European revenue growths

Dan Roberts

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Book Review: Marketing Metrics: 50+ Metrics Every Executive Should Master by Paul W. Ferris, Neil T. Bendle, Philip E. Pfeifer and David J. Reibstein.
Wharton School Publishing, £16.99, ISBN-10: 0131873709, 384 pages

What gets measured gets done. While it is appreciated that metrics are a key component in the process of executing a plan, in terms of monitoring progress and allocating resources, choosing the appropriate metric for the job is crucial and not always easy. This book comprehensively covers metrics used in measuring market share, profitability, sales force performance, channel and product performance, pricing, promotion and other aspects worth measuring and monitoring.

The approach of the book is practical while offering research based insights. The book describes the way the metric is constructed reasonably clearly, provides examples to demonstrate how the metric is calculated and indicates the data source and possible pitfalls. Importantly the book helps to understand the relationship between metrics which in turn can help in choosing metrics that complement each other and encourage working towards a balanced and optimal end-result.

Although the book is intended for readers from the field of marketing, many of the metrics overlap other disciplines such as supply chain and finance and so the audience for the book is not limited to marketing managers and executives. It can be used as a useful reference for those engaged in developing a balanced scorecard, dashboards, and operational reports, regardless of the company size or industry.

It is likely that professionals in the field of marketing will find many of the metrics elementary. However the book also covers more unusual and sophisticated metrics which were previously too impractical to use, but, due to developments in technology, can now be applied to the real world.

Michael Morein

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Noticeboard

Events

CeBIT: 4-9 Mar 2008, Hanover, Germany
GITA: 10-12 Mar 2008, Washington, USA
Softworld: 12-13 Mar 2008, Birmingham, UK
DATE 08: 10-14 Mar 2008, Munich, Germany
WESTEC: 31 Mar-3 Apr 2008, California, USA
MICAD & IND Paris: 31 Mar - 4 Apr 2008, Paris Nord Villepinte, France
COFES: 10-13 Apr 2008, Arizona, USA
Hannover Messe: 21-25 Apr 2008, Hannover, Germany

A full list of industry events can be found at IT industry events on the Cambashi website

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