SAP CEO Bill McDermott and CFO Luka Mucic Tout Digital Growth At SAPPHIRE NOW
SAP CEO Bill McDermott and CFO Luka Mucic Tout Digital Growth At SAPPHIRE NOW

As customers are moving swiftly to embrace new technologies and transform themselves digitally, enterprise applications vendors are wasting no time to meet their needs.

This year’s Apps Top 500 report, which highlights the growth of the world’s 500 largest enterprise applications vendors, helps illustrate the point as companies large and small are doing everything to fortify their digital core.

At the recent SAPPHIRE NOW event, Cafés Richards, a French coffee company, turned to SAP to help them with a prototype connecting coffee machines in France so that its 160 technicians would be able to remotely perform a range of tasks from repairing to adjusting these machines. The prototype took only eight days to complete.

In the United Kingdom, Centrica has sold over one million devices like smart light bulbs that form the basis of its Connected Home strategy, which now generates over one billion messages every week. With the use of CRM applications from Salesforce that analyzes the massive data set, Centrica aims to enhance customer experience along the way.

At Oracle, its CEO Mark Hurd suggests that all of its customers will move to the Cloud, a bold prediction that could mean massive replacements of existing software assets and workloads that tens of thousands of these customers have been using for decades.

It’s worth recalling the fact that just six years ago SAP rang up only $24 million in Cloud applications revenues and Workday was barely picking up momentum when it posted $83 million in Cloud subscription revenues in 2011.

In 2016, SAP continued to lead the enterprise applications market after securing $3.2 billion in Cloud applications revenues, or 22% of its enterprise product sales of $15 billion. Meanwhile, Workday’s Cloud subscription revenues jumped to $1.3 billion last year.

The widespread acceptance of Cloud applications among vendors and customers has not been kind to everyone. In 2016, vendors that used to rely heavily on on-premise products saw a noticeable drop in sales. Autodesk in engineering applications, Ericsson in BSS and OSS applications for operating telcos, and McKesson in healthcare have all seen a sharp decline in their enterprise software revenues amid a shifting landscape.

Even market leader SAP has been caught off-guard by the pace of change, judging from a mix of products and services being thrown together to form Leonardo, which has become the vendor’s response to the wave of artificial-intelligence announcements from almost everyone involved in enterprise applications development.

What that suggests is that at a time when the overall market is growing at a low single-digit because of the underlying shifts from on-premise software to on-demand computing, every missed opportunity could matter a great deal.

In 2016, the enterprise applications market grew modestly at 2.4% to $205 billion. Within the 15 functional markets and 21 verticals being tracked by our global team of researchers, the market size has been adjusted to reflect country-specific revenues from local heroes – now covering some 1,200 vendors that form the basis of this year’s annual survey. When we updated the Apps Top 500 report last year, our sample size only covered 750 vendors.

Exhibit 1 lists the Top 25 Enterprise Applications Vendors, Their Growth, 2016 Shares, and Recent Developments

Rank Top 25 Enterprise Apps Vendors 2015 Enterprise Applications Revenues, $M 2016 Enterprise Applications Revenues, $M YoY, % 2016 Enterprise Applications Market Share, % Recent Developments
1 SAP 13515 14596 8.0% 7.1% SAP has signed more than 6,900 customers for S/4 HANA, its new ERP suite.
2 Microsoft 12760 13015 2.0% 6.4% Acquired LinkedIn to expand its Cloud reach
3 Oracle 9671 10154 5.0% 5.0% Oracle and NetSuite now dominate Cloud ERP
4 Salesforce 5171 6315 22.1% 3.1% Aims to be the first $20-billion Cloud applications vendor.
5 Adobe 4294 5114 19.1% 2.5% Digital Media segment to post 23% growth in FY2018.
6 IBM 4408 4540 3.0% 2.2% IBM Watson serves as the brain behind its Cloud and Cognitive Computing strategy.
7 FIS Global 3711 3715 0.1% 1.8% Integration of SunGard Financials into FIS Global was in full swing in 2017.
8 Dassault 2814 2990 6.3% 1.5% Acquired Exa software in September 2017 for designers to evaluate highly dynamic fluid flow throughout the design process.
9 Fiserv 2627 2758 5.0% 1.3% Core banking, eCommerce sales remain its key focus.
10 Intuit 2244 2492 11.1% 1.2% Intuit has sharpened its focus on QuickBooks after divesting noncore products.
11 Synopsys 2059 2224 8.0% 1.1% Continued its expansion with a series of acquisitions to shore up its manufacturing and design applications.
12 Infor 2022 2120 4.8% 1.0% Over the past year, Infor has invested heavily in analytics by buying Cloud BI vendor Birst for $105 million after spending $126 million for Predictx for retail analytics.
13 Cerner 1926 2087 8.4% 1.0% In 2017, Cerner took a breather after buying Siemens Health in 2015.
14 Siemens PLM 1799 1835 2.0% 0.9% Siemens PLM acquired Mentor Graphics in 2017.
15 Autodesk 2357 1661 -29.5% 0.8% In the midst of a turnaround, Autodesk eyes subscription growth.
16 Open Text 1500 1650 10.0% 0.8% Acquired Covisint for emarketplace and EMC Documentum in 2017.
17 Constellation Software 1301 1542 18.5% 0.8% Constellation Software becomes industry-specific solution powerhouse with its blend of ERP and business management applications.
18 Sage 1321 1453 10.0% 0.7% Sage targets Cloud growth with a slew of new products and alliances with Salesforce.
19 SS&C Technologies 948 1371 44.6% 0.7% SS&C Advent drives advisors, financial workflow
20 Cisco 1216 1352 11.2% 0.7% Applications are bright spot among otherwise sluggish recovery in core business.
21 SAS Institute 1236 1347 9.0% 0.7% SAS’ AI strategy centers around Viya for Visual Data Mining, Machine Learning and SAS Visual Text Analytics.
22 Workday 920 1291 40.3% 0.6% Workday continued expanding its customer count after signing more than 1900 customers – mostly for its HCM products – in 2017.
23 CDK Global 1191 1261 5.9% 0.6% Former ADP Dealer Services has become a major software vendor for car retailing with an extensive set of Dealer Management Systems.
24 Ericsson 1407 1200 -14.7% 0.6% In the midst of a turnaround, Ericsson is gearing up for next BSS and OSS upgrade cycle of its communications customers.
25 Digital Insight/NCR 1187 1180 -0.6% 0.6% Digital Insight banks on online banking for both B2C and B2B clients.
Subtotal 83605 89263 6.8% 43.6%
Other 116313 115552 -0.7% 56.4%
Total 199918 204815 2.4% 100.0%

Enterprise Applications revenues include license, maintenance and subscription revenues.
Source: Apps Run The World, December 2017

SAP Leads Enterprise Applications Market

In 2016, SAP sustained its momentum among the Apps Top 500 as it expanded in the Cloud with its acquired assets from Concur to SuccessFactors, while safeguarding and growing its core business of selling ERP and purpose-built applications like Hybris, all of which are backed by SAP HANA in-memory database.

On one hand, SAP has already built a beachhead with S/4 HANA, its next-generation ERP suite, after picking up nearly 7,000 customers as of the third quarter of 2017. Of these 7,000 customers, there are 3,000 active projects including 1100 that have gone live.

Today, most of these S/4 HANA implementations are on-premise, but SAP executives said the Cloud version, which can be deployed either in public or private Cloud, is growing at triple-digit. For example, Sovanta, a 150-person professional service company in Germany, has been able to go live with S/4 HANA in the Cloud in four weeks with the help from Google Cloud Platform.

SAP has also been firing on all cylinders with its Industry-specific applications for mills, consumer goods and other sectors, along with Hybris for CRM and SAP HANA database, all of which have helped the vendor achieve license and maintenance growth for much of the past 18 months, a no small feat when some competitors have faced precipitous drops in their on-premise revenues. For the nine-month period ended September 30, SAP’s license and maintenance revenues rose 4% following a 3% increase in 2016.

Coupling that with its Cloud growth(28% in the last three quarters of 2017 on top of 31% jump in 2016) has given its CEO Bill McDermott plenty of reasons to tout the fact that SAP remains a growth engine without the need of making another major acquisition. SAP’s last big purchase was in December 2014 when it bought Concur.

Despite its organic growth, SAP continues to rely heavily on its support revenues, which accounted for nearly half of its revenues in 2016. If many of its customers are migrating to the Cloud, SAP could see decelerating growth and even contraction in its support revenues. What SAP is counting on is new products like Co-Pilot, which is a part of Leonardo, will help drive incremental sales.

Additionally, Leonardo, which combines machine learning, predictive analytics from its BusinessObjects offerings as well as templates called SAP Leonardo Innovation Services designed to speed customers’ artificial intelligence or IoT projects, will be instrumental in converting some of their maintenance credits into new innovation projects or Cloud extensions, resulting in SAP safely keeping the support revenues within reach.

Exhibit 2 Shows The Enterprise Applications Market Forecast Through 2021 By Functional Market, $M

Functional Markets 2016 2021 2016-2021
Analytics and BI 12039 14117 3.2
Collaboration 8264 9550 2.9
Content Management 16616 16094 -0.6
CRM 24284 26648 1.9
eCommerce 3802 4679 4.2
Enterprise Performance Management 2303 2918 4.8
ERP Financial Management 27469 28307 0.6
ERP Services and Operations Management 54798 56435 0.6
Human Capital Management 16426 18669 2.6
IT Service Management 1932 2288 3.4
Product LifeCycle Management/Engineering 17796 18385 0.7
Project Portfolio Management 2895 3195 2.0
Procurement 5053 5593 2.1
Sales Performance Management 821 1031 4.7
SCM 7602 8418 2.1
Treasury and Risk Management 2715 3412 4.7
Total 204815 219740 1.4

Source: Apps Run The World, December 2017

As Exhibit 2 demonstrates, the market covers 15 functional areas with different growth projections. Enterprise Resource Planning, which includes both ERP Financials for accounting and financial management and ERP Services Operations Management for industry-specific functions like claims processing in insurance, remains the work horse of enterprise applications, representing $82 billion in product revenues, or 40% of the market in 2016, and $85 billion, or 39% of the total by 2021.

Examples are easy to come by around the world as many companies are aiming to transform themselves through such ambitious initiatives.

Darling Ingredients, a $3.6-billion company that has been selling everything from sausage casings to pet foods for 135 years, is in the midst of a multi-year ERP project to improve its work management, financial and supply chain applications. Last year alone, Darling spent about $40 million on ERP software and implementations.

Similarly, Andeavor, the $25-billion oil refinery formerly known as Tesoro, planned to invest $97 million in 2017 in an ERP project to simplify business processes and transform its operations.

Over the past year, our global team of researchers have been poring over documents from thousands of these companies and their digital transformation projects, many of which are anchored by a new ERP system.

Their appetite for growth is as strong – if not stronger than ever – as their thirst for applications that are easier to implement, user-centric as well as domain-specific.

On the other hand, Constellium, a Dutch-based aluminum producer, has this to say about its software environment, “Some of our information systems are nearing obsolescence, in that the software versions they are developed on are no longer fully supported or kept up-to-date by the original vendors. While day-to-day operations are not at risk, major new requirements (e.g., in legal or payroll) might require manual workarounds if the current software versions do not support those new functionalities.’’

When one juxtapositions the active approaches of Darling and Tesoro against the predicament of Constellium, one gets the sense that companies are either taking charge or anticipating the breaking point. Regardless of their actions, the enterprise applications market may see more twists and turns before an extended period of unbridled growth becomes apparent when firms like Constellium opt for a replacement.

Exhibit 3 Shows The Enterprise Applications Market Forecast Through 2021 By Vertical, $M

Verticals 2016 2021 2016-2021 CAGR, %
Aerospace & Defense 2186 2369 1.6
Automotive 6769 7230 1.3
Banking and Financial Services 25122 26449 1.0
Communication 9065 9915 1.8
Construction and Real Estate 8246 8391 0.3
Consumer Packaged Goods 10150 10752 1.2
Distribution 6441 6587 0.4
Education 5780 6194 1.4
Government 9875 10648 1.5
Healthcare 17650 19629 2.1
Insurance 11623 12881 2.1
Leisure & Hospitality 5221 5860 2.3
Life Sciences 6420 7279 2.5
Manufacturing 21700 21993 0.3
Media 4350 4636 1.3
Non Profit 3605 3915 1.7
Oil and Gas 7694 7849 0.4
Professional Services 16850 18297 1.7
Retail 15331 17081 2.2
Transportation 7487 8380 2.3
Utility 3250 3405 0.9
Total 204815 219740 1.4

Source: Apps Run The World, December 2017

In order to capture revenues from the likes of customers like Andeavor, Darling and Constellium, most enterprise applications vendors will have to align themselves with their industries. Our research shows in recent years, some of the enterprise applications vendors that have posted above-average growth rates consistently are those that have leveraged their domain expertise and the ability to help improve business processes of these industries almost from the ground up. Examples are Veeva in life sciences, Dealertrack(now part of Cox Automotive) in car retailing and Tyler Technologies in government.

Over the next few years, another growth engine will be felt at the local level as more customers are going to gravitate toward the ones that understand their market from up close.

Examples include Xero in New Zealand becoming the dominant ERP vendor, Silverfin in Belgium connecting more than 85,000 companies with its accounting platform, and Shipserve in Denmark providing eProcurement applications to the marine industry through major ports like London, Copenhagen, New Jersey, Manila, Tokyo, Singapore and Hong Kong.

Doing business with these local heroes, or at least those that complement their industries, could be a prerequisite. A major HCM vendor that specializes in the retail vertical was recently reminded by its retail customers of the importance of not putting its applications on Amazon Web Services, which has become a lightning rod in the retail industry.

For many enterprise applications customers, going global is a good thing, but it seems that they would be more open to doing more business with those that are compatible with their business practices. In many respects, the old adage – when in Rome, do as what Romans do – still resonates with many enterprise applications customers.

Over the past 12 months, our researchers have been gathering enterprise applications adoption data at the country level and we encourage you to learn more by subscribing to our premium content, which covers the Worldwide Enterprise Applications Market split by 45 countries. The granular data cuts also include the top enterprise applications vendors by country, the top Cloud applications vendors by country and the top HCM applications vendors by country.

Exhibit 4 Breaks Down the 2016 Enterprise Applications Market By Country, $M

2016 Enterprise Applications Market By Country, $M
2016 Enterprise Applications Market By Country, $M

Further Readings

Our latest market-sizing reports profile the top 10 vendors in each of the 37 markets (see Taxonomy here), offering in-depth analysis of the market dynamics, vendors’ Strengths, Customers, Opportunities, Risks and Ecosystems as well as their ability to gain Shares (SCORES) within their respective space. We also track their successes in the Cloud by breaking down their latest on-premise and Cloud applications revenues. Another metric that we use is win-loss analysis of the quarterly wins of these top vendors and whether incumbents and Cloud upstarts pose any real threat to their standing amid shifting market requirements and user preferences.