The Real Reason ERP Sales Are Down: Buyers Aren’t Morons – Software Companies Are
The abrupt, if not totally unexpected, news of SAP AG’s (SAPG.DE) chief executive Leo Apotheke’s departure brings all sorts of Monday morning quarterbacking opportunities.
SAP’s troubles are not unique. Most ERP software companies are struggling to get their mojo back after enjoying an unprecedented run of ever increasing annual new license sales.
InfoWorld has essentially the same observation with a post that predicts SAP’s future depends on how they treat their customers. Read it here.
But SAP is only one software company – and pretty much all software companies are suffering from this lack of customer benefit focus – having instead turned to treating the customer as a portable ATM machine that dispenses yearly maintenance fees.
Software VARS aren’t blameless either. Most hold tightly to their ancient model of overpriced canned training, installation and upgrade services - all mechanical procedures with relatively small value add.
The past 10 years were filled with customers looking for the next great ERP software. Companies routinely reviewed their options – and when they perceived a better accounting solution was available they switched.
So what happened?
In my view the slowing (shutdown?) of the much cherished ERP “replacement cycle” is at the root of the ERP software vendor malaise.
In the past “the wise men” of nearly all software companies were smug in their prediction that customers “would be back”.
The conventional wisdom was that companies grew weary of their ERP software and sought something better about every 5 years (pick your own number here but it seems like 5 years or so was typically bantered about).
The problem? ERP software didn’t get better – only more expensive, more complex.
At least in the eyes of the customer. The only people who matter.
Software companies assumed that ERP buyers would, like robots on autopilot, keep replacing ERP software every 5 years. This despite ERP Software offerings remaining largely unchanged from the 1990s.
The fatal assumption? Assuming that buyers (customers) were morons.
Turns out the customers weren’t that dumb after all. The first sign is that almost all ERP software companies are struggling to report new license sales growth.
The real morons became the software executives who completely failed to observe that buyers weren’t stupid. Without improved software ERP replacement cycles would quickly grind to a halt. Most importantly, real improvements needed to be more than ill-fitting bolt on software which is increasingly more expensive to implement, support and upgrade.
Software buyers — the customers — have had their fill of open ended ERP engagements where each upgrade is potentially more painful than the last.
The gravy train stopped. Customers became wiser and smartly discovered that the grass was not perpetually greener on the other side of the fence.
In the 1990s conventional wisdom said most customers switched ERP systems between 2 and 3 times. Suddenly those customers learned after the 3rd ERP replacement that there was no “promised land” waiting around the corner with that next (more expensive than the last) $50,000 ERP replacement system.
So they stopped changing software. Instead they make due with what they have.
ERP software sales slump? It’s really this simple.
In my first flirtation with being a top salesman expressing my concern about running out of prospects, my boss said, “Dave there are two reasons why you won’t run out of prospects: (1) we provide the finest customer experience, and , (2) we are constantly obsoleting our present products to give the customer what they need and want.”
That was many years ago – before the PC revolution. That company has grown from a regional sales organization to global power, never once failing to show an increase in new revenue.
Wayne, if PC applications software would have adhered to the simple principal above they would still be profitable today. Instead it became a “forget developing products for the long term – our only driving force is the amount of money can we make today, this quarter, this year.”
David DeVelder
February 8, 2010 at 11:39 am
When is the last time you have seen true innovation from an ERP vendor?
The maintenance renewal invoice always seems to show up more often than an upgrade that is a must-have (other than for security/patch reasons…).
Most customers don’t realize until too late that every add-in and customization moves them closer to creating their own little FrankenERP. This, in turn, significantly increases their real upgrade or replacement costs. Many do not have the money, time, nor energy to go through the hassle of another conversion.
Jim Tarala
February 12, 2010 at 12:24 pm