Top 10 Enterprise Software Vendors, 2016 Market Overview and Forecast

After decades of unstoppable growth, the enterprise software market could be entering a new era of zero expansion or even an extended period of course correction for the next few years.

The unprecedented development, which became evident in our latest survey of over 3,000 enterprise software vendors and their 2015 results, can be attributed to the convergence of three significant events that have upended the marketplace – cloud adoptions, unfavorable exchange rates for US firms, and the overhang of dubious acquisitions.

The enterprise software market covers a full assortment of commercially off-the-shelf products ranging from corporate databases to Enterprise Resource Planning(ERP) solutions and from Cloud-enabled productivity tools to mission-critical vertical applications.

For more than three decades, these enterprise software products have been the linchpin to increased workplace productivity by simplifying an array of business tasks with the help of groundbreaking technologies from easy-to-use accounting packages to powerful Middleware and from cybersecurity tools to indispensable spreadsheets.

Analytics and business intelligence vendor SAS, for example, posted a record revenue of $3.2 billion in 2015, a 2.3% rise from 2014, continuing its streak of uninterrupted topline growth by achieving double-digit or even triple-digit in annual sales increases especially in its formative years after it commenced its operations in 1976 when it sold $138,000 worth of software.

Now many of these enterprise software vendors are bracing for leaner years ahead. In 2015, the enterprise software market grew a modest 2.2% to $320 billion in 2015, up from $313 billion a year earlier, according to our annual survey. The outlook is less rosy because of a combination of factors including shifting business models in favor of Cloud delivery and subscription pricing, compounded by the lag effect of delayed revenue recognition by enterprise applications vendors in order to adapt to new ways of selling their products.

As shown in Exhibit 1, the enterprise software market is projected to turn in little or no growth through 2020 potentially dragging down a number of underlying markets including database, middleware as well as other platform and system infrastructure technologies.

Enterprise applications written for customer relationship management, human resources and vertical-industry business processes are expected to fare better as replacements of legacy systems(many of which were last installed prior to the Year 2000 conversion) will pick up speed in order to take advantage of cloud computing, mobile content delivery and real-time reporting. In almost every single market segment, conventional on-premise enterprise software implementations will be replaced by a growing array of Cloud services.

Exhibit 1: Worldwide Enterprise Software Market 2015-2020 Forecast, $B

More Enterprise Software Research Findings

Each year Apps Run The World releases a major study that ranks and analyzes the explosive growth of the world’s 500+ largest enterprise applications vendors by their latest Cloud Subscription revenues. The Cloud Top 500 Report (Sample) provides software buyers, vendors and investors with an indispensable research tool that puts the dynamics of the enterprise applications market into sharper focus. Updated annually, the rankings in the study are based on 2011-2015 enterprise applications revenues of more than 3,000 enterprise applications vendors in our proprietary database.

In addition, we are releasing Apps Top 500 Market Report, which ranks the combined on-premise and Cloud revenues of the biggest enterprise applications vendors in order to give buyers a fuller picture of the breadth of the $320-billion business software market. Their 2015 results will be broken down, sorted and ranked across 16 functional areas(from Analytics to Treasury and Risk Management) and by 21 vertical industries(from Aerospace to Utility), as shown in our Taxonomy. Further breakdowns by subvertical, country, company size, etc. are available as custom data cuts per special request.

Just to make things even more interesting, we are releasing 37 market-sizing reports from Analytics and BI, HCM, ERP to the Utility vertical, focusing on the Top 10 vendors in each of these unique markets. Going forward, for each of the 37 markets our global team of researchers are updating them every quarter with win/loss analysis of the latest software purchases within that specific market. All of these quarterly data can be found in our Enterprise Applications Buyer Insight Customer Database. 

Top Ten Vendors’ Mixed Results

In 2015, the top 10 enterprise software vendors rose 4.6% to $151 billion in license, maintenance and subscription revenues, or 47% of the total.

Despite the overall increase, the top vendors(Microsoft, Oracle and IBM) experienced declining revenues in the enterprise software market last year, the first time ever that all three moved into the negative territory simultaneously as shown in Exhibits 2 and 3.

Exhibit 2 : Top 10 Enterprise Software Vendors, $M

Exhibit 3 – Top 10 Enterprise Software Vendors and Their 2014-2015 Product Revenues, $M

The results for the other seven leading vendors were decidedly mixed. While SAP, FIS Global/SunGard and Dassault have fared better with the help of their recent acquisitions, EMC is in the midst of a major transition with its pending purchase by Dell.

Adobe has successfully rebounded from a series of fits and starts after adapting itself to a new way of selling content management and marketing automation software through the Cloud and subscription models, boosting its total revenues by 16% to $4.8 billion in its fiscal 2015 after falling sharply in 2008 and 2012.

Then, there are Salesforce and Amazon Web Services, two of the biggest beneficiaries in the cloud computing era. Salesforce continues to expand its dominance in the customer relationship management applications category by winning nine-figure contracts from the likes of State Farm and Farmers Insurance, coupled with the move to extend beyond its roots by displacing first-generation intranets(mostly Microsoft Sharepoint) and conventional development tools(C++, Java, Websphere) with its Community Cloud and App Cloud offerings, respectively.

Amazon, on the other hand, created AWS to better utilize unused computing power during the lull of its eCommerce operations in 2006. Its earlier rendition EC2(which stands for Elastic Compute) could have meant Excess Capacity too. Today, AWS is an $8-billion and growing business delivering Cloud infrastructure services every month to more than one million customers including some of the world’s biggest companies as well as single-person operations that just want to leverage its fast and reliable Cloud to help them automate business processes or write a new piece of enterprise software to unseat the incumbents.

That’s why the incumbents, especially the top three not wanting to be left behind, are pulling out all the stops to aid and abet the same set of customers and developers that want to transform the world through cloud computing, while curbing any further incursion by rivals like AWS into their own turf.

Consequently, the intense competition has altered the competitive landscape of the enterprise software market in ways that few could have envisioned just a few years earlier.

Overhauling Office

For instance, the Microsoft Office franchise saw a drop of $2.6 billion in product revenues in 2015, even though some of the underlying sales were shifted to the Cloud version, Office 365. By comparison, Microsoft’s Servers and Cloud Services covering everything from BizTalk Server to Azure, gained $2.5 billion during the period, as shown in Exhibit 4.

Exhibit 4 : Net Quarterly Revenue Changes For Microsoft’s Key Enterprise Software Products, According to Microsoft’s 10Qs and 10Ks, $M

Source: Apps Run The World, 2016

The total product revenues attributed to Office and its Productivity and Business Processes products, which reached as high as $22 billion in fiscal 2014 ended June 30, 2014, are expected to continue to level off with decreasing pre-installed units through its OEM partners, while subscription revenues of its Office 365 counterpart gradually rising to make up some of the losses.

Still, it would be hard to imagine the Office franchise capable of recapturing its former glory alongside the ubiquitous Windows. Now the emblem of PC computing and its survival are being threatened by an onslaught of apps from Apple Numbers for iPhone to a smorgasbord of free Cloud collaborating tools from startups like Slack that are fast becoming new faces of enterprise software.

The wrenching changes that undermine the future of Microsoft Office are afflicting similar damage to the core license and maintenance software sales of IBM and Oracle. In 2015, every single line of IBM software business declined with systems management products like Rational slumping as much as 20%.

At Oracle, its license revenues tumbled 16% to $4.5 billion in the nine-month period ended Feb. 29, 2016, while its cash cow maintenance business, representing the bulk of its sales and profit, fell 1% to $14 billion. Like Microsoft, Oracle’s Cloud revenues, about 8% of its total operations, soared 31% to $2 billion during the period just barely helping the company avoid from tipping further into the red.

In Oracle’s fiscal 2015 ended May 31, 2015, its license revenues were off 9% to $8.5 billion and maintenance revenues rose 4% to $18.8 billion, while total sales fell 1.3% to $38.2 billion.

The key question is whether the reshuffling of their revenue mix – from onpremise implementation to online delivery – can accelerate fast enough to stave off the rapid erosion of their core business. If they stumble, the repercussion will carry ripple effect because the top three represent nearly 30% of the $320-billion market. A one-percentage point drop of their combined revenues means an extra $1 billion that their counterparts have to eke out just to hold the market steady.

Even if the top three are able to reverse the decline by acquiring additional software properties and boosting Cloud conversion in order to offset their slipping maintenance sales, other vendors will still be feeling the pinch as any material gain in their own recurring revenue streams still trails the rapid erosion of their core business – selling software licenses. Above all, it takes these vendors longer to recognize their Cloud and subscription revenues under generally accepted accounting principles (GAAP) than what they have been accustomed to booking license revenues.

New and Improved Business Model

Engineering applications vendor Autodesk, for example, is in the midst of converting its license and maintenance sales to a subscription model, a multi-year process that will depress its recognized revenues. For its fiscal 2017, Autodesk projects its revenues to contract to about $2 billion, a 20% plunge from its fiscal 2016 revenues of $2.5 billion. As a result, Autodesk announced in February 2016 a restructuring plan that entailed eliminating 10% of its workforce, or 925 positions.

If done right, the moves to overhauling one’s business model by emphasizing more on the Cloud and subscription revenues over software licenses and professional services could pay off handsomely. When supply chain applications vendor Aspen Technology moved from a license/maintenance model to subscription in 2010, its revenues were almost halved to $166 million and it posted a loss of $107 million. Then it took Aspen three years to revive its revenues to the levels prior to the shift. Today, Aspen is a $440 million company that has been profitable since 2013.

Few vendors have had the staying power of Aspen, which had already endured a bruising round of restructuring moves following revenue restatements and a stock delisting between 2004 and 2008 before it launched its campaign to embrace software subscriptions. It may become more difficult than ever to find such successful turnarounds with most other legacy vendors resorting to buy out their competitors in order to stay afloat, a choice that is fraught with risks and uncertainty these days.

Amid the current geopolitical volatility, the software industry consolidation, which has swept the market in one tidal wave after another since 2004, will not necessarily generate incremental revenue increases for any of the vendors involved. The acquisition-heavy strategy that has been widely deployed over the past decade may prove to be less effective when vendor A chooses to pick up vendor B with both still deriving the bulk of their revenues from conventional on-premise enterprise software implementations.

Additionally, the backstreaming of their revenues will result in little or no growth of their combined revenues, or the market as a whole. In the enterprise software market, 1 plus 1 does not necessarily equal 2.

Oracle’s Missing Micros

One of the examples that illustrates the counter-productive effect of the consolidation play among enterprise software vendors is Oracle. In September 2014, Oracle paid $4.6 billion in cash for Micros to help it expand its presence in the retail vertical. Micros, which earned $182 million on $1.4 billion in annual revenues three months earlier, was similar to Oracle’s business of selling a mix of hardware, software license, maintenance and professional services.

Following the acquisition, Oracle’s fiscal 2015 revenues(which cover at least nine months of ownership of Micros), dropped $49 million, or 1.2%, to $38.2 billion. Oracle’s earnings for fiscal 2015 fell 9% to $10 billion. In other words, the absorption of anywhere between $700 million and $1 billion(the lower estimate includes revenues that could not be recognized because of accounting rules) from Micros was not evident, as shown in Exhibit 5.

Exhibit 5 : Results of Oracle After Acquiring Micros in September 2014, $M

Citing a strong dollar that made it harder to sell overseas, Oracle said its total revenues would have risen 4% in constant currency during the period. It’s worth noting that international sales accounted for 59% of Micros’ fiscal 2014 revenues, so its exposure to an unfavorable exchange rate could be considerable.

Still, Oracle’s software license in fiscal 2015 posted a 9% drop in dollar terms and a 4% decline in constant currency, while its hardware revenues posted a 4% drop in dollar terms and flat in constant currency.  In other words, Micros’ software and hardware revenue contributions – based on the annual run-rate of $486 million, failed to offset the sharp contraction in Oracle’s software license and hardware product sales during its fiscal 2015.

It’s fair to say that the five acquisitions including the purchases of Micros for $4.6 billion and Datalogix for marketing analytics software for a reportedly $1.2 billion that Oracle made during its fiscal 2015 failed to deliver the desirable results. However, it is far from clear if these acquisitions have been accretive in boosting the bottom line of Oracle, based on the drop in its earnings for the year because of Oracle’s need to raise spending to help shore up its Cloud infrastructure.

Coincidentally, it would be difficult to fully assess the intellectual properties and the associated business value of these acquisitions given Oracle’s big-tent strategy of keeping one of the most extensive enterprise software portfolios in the world – simply for the sake of owning those assets by depriving them from the reach of its competitors.

Seismic Shifts

Oracle is not the only enterprise software vendor whose future is severely tested by the colliding forces and structural changes to the marketplace(Cloud popularity, a strong dollar as well as questionable value of acquisition-heavy strategy).

Trimble, which sells an array of vertical, field service and mobile solutions for asset-intensive customers, made a total of 42 acquisitions between 2013 and 2015 with the biggest purchase amounting to $83 million. After spending more than $200 million on these acquisitions, Trimble’s total revenues reached $2.3 billion in 2013, rising to $2.4 billion the next year before slipping to $2.3 billion in 2015.

Trimble attributed its shortfall to sluggish spending in the oil and gas industry in 2015 as well as the strong dollar. For the past decade, Trimble has completed more than 100 similar acquisitions to help sustain its growth more than doubling its revenues from $940 million in 2006. During its fourth-quarter 2015 earnings call, Trimble executives said in 2016 it would divest itself out of non-core markets such as public safety and oil and gas in moves that would affect about 1% of its revenues. A few weeks later, Trimble announced its plan to sell to Tritech its public safety applications Omega Group, which Trimble bought in July 2014. Instead of spreading itself too thin, Trimble aims to concentrate its efforts – increasingly software driven – on core areas such as agriculture, construction and geospatial.

Another serial consolidator Constellation Software Inc.(CSI), a Toronto-based company that has completed hundreds of acquisitions(31 in 2015 alone) over the past decade, is also having a tough time extracting incremental revenues from its recent acquisitions. In 2015, CSI showed a negative 3% organic growth, citing unfavorable exchange rates that undercut its revenues. More importantly, its foray into the healthcare vertical in the Netherlands with the December 2013 purchase of Total Specific Solutions appeared to hit a roadblock that crimped its professional services revenues, a 5% drop for its public sector division in 2015.

In fact, its public sector division, which represents two-thirds of its business, gained only 8% to reach $1.3 billion in annual revenues in 2015, the slowest increase since 2006 when it was a tenth of its current size.

Beyond The Cloud, Mighty Dollar, Acquisition Angst

While the mighty dollar may well be a short-term challenge for US-based enterprise software vendors, the Cloud migration as well as the new realities of market consolidation will continue to redefine the tech world for years to come.

For the time being, these are the learning lessons based on our latest survey of over 3,000 software vendors that could serve as the cheat sheet from those that are in the know.

The 80-20 Rule

The 80-20 rule applies to the conundrum facing most enterprise software vendors with Cloud offerings representing no more than 20% of their revenues, yet preparing to invest 80% of their resources to ensure they succeed in the Cloud for years to come.

Anchoring its future on Azure, Microsoft has invested more than $15 billion to build its cloud infrastructure, now keeping over one million servers hosted in its datacenters. Microsoft’s cost of goods sold, which had never exceeded 21% for 18 years straight since 1995, ballooned to 31% in fiscal 2014 and 35% the following year primarily because of its heavy Cloud spending.

Last year, their efforts began to pay off as Cloud subscription revenues reached new heights for all of the top 10 enterprise software vendors, as shown in Exhibit 6.

That level of enthusiasm is boomeranging around the globe. TechnologyOne, one of the largest enterprise software companies in Australia with $164 million in 2015 revenues, projects that its $3-million Cloud unit now accounting for 2% of its business to generate $107 million in annual contract value at a compound growth rate of 69% by 2022. TechnlogyOne also predicts that its Cloud unit to become profitable by 2017.

By gambling 80% of its future on the Cloud means that enterprise software vendors need to mitigate their risks through meticulous market segmentation of its customers by targeting those that are showing the greatest propensity to follow their Cloud ambitions, while keeping a tight leash on the laggards that may not make the plunge until all signs are clear.

Only through careful market segmentation and studying and anticipating Cloud preferences of their customers can vendors reduce their risks of alienating any part of their target audience.

Rethinking Maintenance and Acquisition Strategies

The current efforts to transition customers to a subscription model by a range of vendors from Autodesk to Intuit reinforce the need to reevaluate the software maintenance strategy, which for years has been associated with the goose that lays the golden eggs.

With the move to the Cloud and increasingly fickleness of Cloud subscribers(likely the result of the freemium approach), no longer can enterprise software vendors expect to feast on maintenance revenues – especially through acquisitions – for perhaps any much longer. Ironically, the looming crisis for enterprise software vendors is not that different from that of any electric utility that faces the rude awakening that many of its largest customers could switch off by turning to renewable energy sources like solar, thus ending years of dependable income for the energy provider.

Vendors that rely on such recurring revenues must become more transparent about the intrinsic value of their maintenance services and how they plan to tailor them for different customers. Without such explicit guarantees, customers that are being asked to move some of their software assets to the Cloud or a new subscription model will have greater incentives than ever to look for alternative solutions.

The same applies to the wisdom of an acquisition-heavy strategy, which has been considered a fool-proof way to lock in recurring revenues for the acquirers since Oracle touched off the frenzy by declaring a hostile bid over PeopleSoft in 2003, the first of its kind in the software industry. As the above examples show, the acquisition strategy that made sense in those heady days might have reached its limits in the current climate when perhaps agile and compact point solutions are becoming more preferable to big and all-encompassing offerings.

There is always a desire to grow big rapidly via mergers and acquisitions, judging from the rationale behind the biggest tech deal in history with the pending purchase of EMC by Dell for $67 billion. However, enterprise software vendors must stick to their knitting when pursuing acquisition targets that should add tangible value from the get-go. Otherwise, the rush to buy off a smattering of companies to enrich oneself could end up with a bout of bad digestion, an issue that some of the consolidators like Trimble are now wrestling. Interestingly enough, the need by company A to acquire company B may usher in a complete transformation of the former rather than the latter. That’s especially true when a traditional onpremise vendor is overhauling its operations by acquiring a Cloud-only company. Sometimes the courage to reinvent oneself may have to be instigated by external forces.

It’s All About Customer Insight

The evolution of the enterprise software market has now reached a critical juncture that knowing customers inside out makes all the difference in the world. Owning the customers for life means keeping them at bay through continuous innovation, a technique that most Cloud vendors have been practicing for years. With that perpetual collaboration between the buyer and the seller comes greater need for customizing certain interfaces, bespoke features for specific tasks and processes along with co-innovation best practices that can be shared among a software vendor, its trusted customers and the ecosystem at large.

DON’T MISS OUR CUSTOMER DATABASE

For any enterprise software vendor, segmenting its customer base by size, industry, subvertical, country, or any other measurable metric is the first step. That must be followed by a comprehensive inventory check of the customer’s entire enterprise software environment in order to identify and fix pluggable holes, disjointed business processes and even cybersecurity vulnerabilities.

Our assumption is that having the granular level of customer insight could well determine the long-term successes of winners and inevitable outcomes of losers in the cloud era with major and startup vendors transforming themselves to the degree that is unparalleled, or perhaps unthinkable, in the relatively short history of selling enterprise software. Banking on buyer insight may well be the only viable option for breathing new life into the enterprise software market.

Research Methodology

Since 2010 our global team of researchers have been conducting an annual survey of thousands of enterprise software vendors by contacting them directly on their latest quarterly and annual revenues by country, functional area, and vertical market. We supplement their written responses with our own primary research to determine quarterly and yearly growth rates, in addition to customer wins to ascertain whether these are net new purchases or expansions of existing implementations.

Another dimension of our proactive research process is through continuous improvement of our customer database, which stores more than one million records on the enterprise software landscape of over 100,000 organizations around the world. The database provides customer insight and contextual information on what types of enterprise software systems and other relevant technologies are they running and their propensity to invest further with their current or new suppliers as part of their overall IT transformation projects to stay competitive, fend off threats from disruptive forces, or comply with internal mandates to improve overall enterprise efficiency.

The result is a combination of supply-side data and demand-generation buyer insight that allows our clients to better position themselves in anticipation of the next wave that will reshape the enterprise software marketplace for decades to come.

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1. Supplemental Exhibit 1 – Top 10 Enterprise Software Vendors and Their 2014-2015 Product Revenues In Enterprise Applications Market, $M
2. Supplemental Exhibit 2 – Top 10 Enterprise Software Vendors and Their 2014-2015 Product Revenues In Other Enterprise Software Market Segments, $M
3. Supplemental Exhibit 3 – Top 10 Enterprise Software Vendors and Their 2014-2015 Product Revenues In Cloud Applications Market, $M
4. Supplemental Exhibit 4 – Microsoft and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
5. Supplemental Exhibit 5 – Microsoft and Its 2015 Enterprise Applications Revenues By Verticals, $M
6. Supplemental Exhibit 6 – Oracle and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
7. Supplemental Exhibit 7 – Oracle and Its 2015 Enterprise Applications Revenues By Verticals, $M
8. Supplemental Exhibit 8 – IBM and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
9. Supplemental Exhibit 9 – IBM and Its 2015 Enterprise Applications Revenues By Verticals, $M
10. Supplemental Exhibit 10 – SAP and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
11. Supplemental Exhibit 11 – SAP and Its 2015 Enterprise Applications Revenues By Verticals, $M
12. Supplemental Exhibit 12 – EMC and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
13. Supplemental Exhibit 13 – EMC and Its 2015 Enterprise Applications Revenues By Verticals, $M
14. Supplemental Exhibit 14 – Adobe and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
15. Supplemental Exhibit 15 – Adobe and Its 2015 Enterprise Applications Revenues By Verticals, $M
16. Supplemental Exhibit 16 – Salesforce and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
17. Supplemental Exhibit 17 – Salesforce and Its 2015 Enterprise Applications Revenues By Verticals, $M
18. Supplemental Exhibit 18 – FIS/SunGard and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
19. Supplemental Exhibit 19 – FIS/SunGard and Its 2015 Enterprise Applications Revenues By Verticals, $M
20. Supplemental Exhibit 20 – Dassault Systemes and Its 2015 Enterprise Applications Revenues By Functional Markets, $M
21. Supplemental Exhibit 21 – Dassault Systemes and Its 2015 Enterprise Applications Revenues By Verticals, $M