Research Note
Markets
23 June 2000

North America Accounting Midmarket 3Q00 Magic Quadrant T. Tow

Redefinition of the midmarket is causing changes in vendor positioning. Enterprises should be aware of how increasing competition and e-business are affecting this market and what this will mean for vendor success or failure.

Core Topics

Business Applications: Corporate Financial Applications; Midsize-Enterprise ERP and Supply Chain Management

Key Issues

How will corporate financial products and vendors support business requirements?

How will corporate financial business applications evolve?

Strategic Planning Assumptions

By 2003, 50 percent of midmarket financial applications will be delivered via application hosting (0.8 probability).

By 2004, 90 percent of midmarket financial applications will incorporate e-business capabilities that extend these applications to suppliers, customers and employees (0.8 probability).

Redefinition of the midmarket accounting Magic Quadrant has changed vendor positions based on their ability to deliver to the wider range and size of midmarket enterprises (see Note 1). Midmarket enterprises are leveraging e-business to increase sales, improve customer satisfaction, make the supply chain more efficient and raise employee productivity. Web accessibility is only the first step in meeting these needs (see Note 2).

Note 1

Why Redefine the Parametersof the Accounting Midmarket?

Shifting enterprise requirements and demands have prompted Gartner to redefine the midmarket parameters to incorporate enterprises and their divisions and sites generating revenue between $50 million and $800 million annually. Previously, Gartner had defined the accounting midmarket as enterprises, divisions and sites generating revenue between $25 million and $250 million.

Source: Gartner Research

Note 2

The Web Is the First Step

Browser-based user interfaces are becoming a minimum requirement for any e-business application because of the need to interact with customers and employees over the Internet. Coupled with the need to integrate data with customers' and vendors' external systems, this is forcing vendors to rewrite and rearchitect their products. Midmarket vendors that have invested heavily in client/server-based tool sets will need to rewrite their applications for deployment in this new Web/collaborative-commerce environment.

Source: Gartner Research

Tighter resource constraints in the midmarket highlight the importance of service delivery channels and application service provider (ASP) options to reduce costs and improve accessibility to vendor applications. ASPs provide application services over a network via rental or subscription pricing. Reflecting the changing nature of the midmarket, our latest Magic Quadrant (see Figure 1) and is marked by vendor departures and consolidations (see Note 3).

Note 3

Vendor Consolidations and Departures

The consolidation of vendors does not necessarily mean the immediate end of individual product lines. Solomon is being continued as a separate Great Plains product line, as is SQL Financials for Geac Computer. Vendors have been removed from the Magic Quadrant for a decline in ability to address the North American market. Systems Union's retreat from the North American market and Flexi International Software's lack of new product sales have resulted in the removal of these two vendors.

Source: Gartner Research

Leaders: Leaders provide technology and performance at a suitable price point for midmarket enterprises, while offering functional breadth and depth. Great Plains Software is successful at the lower end of the midmarket with its reseller channel model (see Note 4), its partnering strategy and complementary acquisitions, such as Solomon Software. J.D. Edwards and Lawson Software have moved into the Leaders segment because they address the full span of the new midmarket definition. Midmarket enterprises often prefer "one-stop shopping" and seek single-vendor solutions. Where lacking, these leading vendors have identified specific best-of-breed options for their customers, reducing the complexity of moving to e-business, while providing customers with competitive to leading-edge functionality. Users rating these vendors must also evaluate partner applications and be prepared for some integration issues.

Note 4

Indirect Reseller Channel

Midmarket vendors have traditionally focused on an indirect local reseller channel as the principal means of interacting with the customer. The local presence and responsiveness of this channel and its ability to work more closely with the customer must be balanced against the broader geographical coverage and service consistency of a direct sales model.

Source: Gartner Research

Challengers: This area is separated into two competing segments, with PeopleSoft and SAP at the upper end and Epicor Software at the lower end. Service offerings and delivery capabilities aimed at the midmarket have lagged those of the leaders. Epicor's exclusivity requirement for its resellers limits its ability to attract reseller candidates, but will create deeper loyalties and expertise in its reseller channel. PeopleSoft and SAP have approached the midmarket with dedicated organizations, rapid implementations and hosting options designed to address cost and complexity issues, which have limited these vendors' ability to penetrate the market. When evaluating these vendors, enterprises should pay attention to service and delivery capabilities, because these vendors have recently revamped midmarket delivery organizationally and conceptually with imitative and opportunistic offerings.

Visionaries: Oracle's integrated technology stack, breadth of applications and hosted delivery strategy for the midmarket makes it a visionary. Execution in the midmarket is still uneven, as evidenced by Oracle's recent switch from its own exclusive BusinessOnLine ASP to opening up the ASP opportunity to external partners. Users considering Oracle's FastForward rapid implementation pricing must balance its basic templated configurations with nonincluded costs for custom configuration and implementation.

Niche Players: Niche vendors offer systems that appeal to a narrower set of midmarket enterprises, due to more-limited distribution channels and less breadth. Among these are Navision Software, which has strengthened its North American distribution channel. Other European vendors, such as Agresso Group and Coda, are retreating back to the European continent. Established vendors such as Sage Group are emphasizing synergies within acquired product lines and improved customer support. Infinium has invested heavily in a forward-thinking ASP strategy and will need to complete architectural changes to realize it. Users considering these vendors need to find and evaluate appropriate partners, as well as own integration issues.

Bottom Line: The most successful midmarket vendors will deliver accounting transactional functionality, while extending the reach of their applications through Web-based technologies. Enterprises selecting midmarket applications must become increasingly aware of the potential for further consolidation and instability, since some vendors will be unable to make the functional and technical changes needed to compete in this market.