ERP Vendors Caught in Web of Their Own Making.

If the Web is the most significant empowerment tool for the ISV since, well ever, then for the big ERP vendors, it's been something rather less than a walk in the park. Of all the applications the Web has plastered with browser-based, Internet-enabled interfaces, ERP software--traditionally incredibly expensive, highly customized, and shackled tightly to particular applications--has bucked the trend.

Recently, however, there have been signs--and lots of whispers--that ERP vendors are finally beginning to embrace the Web in their business technology models and software development strategies. And, of course, they can't afford not to: upstarts like Netscape and Yahoo! are seeking to expand their portal services to corporate clients, linking the Web to in-house apps--and in the process unseating established ERP vendors too slow to catch the Web wave.

ERP Evolution

In order to understand the problems and possibilities of so called ERP portals, it helps to understand how ERP software has evolved. In its earliest incarnations, ERP applications were used mostly in vertical markets--primarily manufacturing--to better integrate the needs of the supply house with those of the front office. The idea was to create an overarching view of company resources: supply, demand, replenishment/resupply schedules, price fluctuations, and so on, and integrate these with purchasing and inventory management. Think of it as a manufacturing implementation of the direct PC (or, for that matter, the direct bookseller) model: if you can keep just the materials you need on hand, you can reduce time to market, react quickly to market fluctuations, and reduce storage and inventory management costs.

In the '80s, ERP companies began to recognize the potential of their own products. If software could connect inventory and purchasing to the front office, couldn't it also integrate business-critical systems such as payroll, accounting, HR, sales, and distribution? In fact, it was this integration that allowed big companies like SAP to make huge profits by streamlining business processes for enterprise customers, giving them unprecedented control and management of their resources. The expense, of course, was enormous: thousands or tens of thousands of seats; well-entrenched legacy (especially mainframe) applications; mixed platforms, and vertical markets meant huge investments were necessary to keep systems up and running. In order to stay on top of market changes--and technology innovations--regular upgrades were necessary.

Now fast forward to the '90s. The Web arrives and applications and business processes are suddenly all about connectivity and integration. Want to connect the front office with purchasing? Use an intranet. Want to connect sales and distribution? Connect that database to the Internet. Want applications to share data across the enterprise? Use HTML and a browser interface. Of course, this is a bit of an oversimplification: not all systems can instantly--or inexpensively--be migrated to IP and HTML. But the possibilities for the enterprise are incredibly appealing. What better way to provide resource planning than by unifying reporting and management tools under the HTTP flag?

This is the conundrum that ERP vendors are facing today. Most spent huge sums in the late '80s and early '90s to adapt their products to client/server platforms--only to see c/s take a backseat to Web server/client browser architectures. Throw in such recent developments as e-commerce, Web-based distribution, and extranets and you have both huge opportunity and huge risk for ERP software providers. Bringing the Web into the enterprise can be a complex process: new HTML-based applications and IP-based communication mean a paradigm shift for large enterprise customers, many of whom have relied on proprietary business tools; therein lies the opportunity. But the elegant simplicity of IP means that companies can more easily connect, integrate, and manage their applications in-house--or at least contract management to a VAR or integrator with the expertise; therein lies the risk.

And, of course, there is another problem: Internet time. Traditional ERP tools are not exactly known for their speed in adapting to change: large deployments take years and require teams of in-house application experts and vendor-supplied manpower. Such expenditures of time and personnel are not conducive to the rapidly changing world of Internet technology, where product lifecycles can be measured in months.

Web-Enabled ERP Apps

The final straw for ERP vendors probably came when they began to see their customers Web-enabling their applications in-house, or using integrators to do so: creating forms, scripts, and database connectivity to allow employees and business partners to access and manage data. Another problem has been scalability. Companies like Baan, PeopleSoft, and SAP have had difficulty scaling their enterprise-based frameworks to smaller components that can be used by mid-size companies with more limited resources. In addition, the Y2K crunch has limited investment in ERP infrastructure upgrades, at least until after the new year.

Most of the major vendors have just announced or plan to announce in this quarter significant ERP portal services, with two exceptions: Oracle Corp. and Lawson Software. The former is having success with its Business OnLine hosting service (introduced in June), and the latter has been shipping its Self-Evident Applications Portal (SEAport) since the spring. Both companies' offerings are discussed in detail below.

For ERP vendors, making applications Web-enabled requires opening up business logic and moving away from proprietary APIs. This process has been difficult for a number of reasons, but primarily because ERP vendors embraced the client/server model too well. "Maybe more than any other industry, ERP vendors embraced the fat client," says Paul Mockenhaupt, vice president of Microsoft Business Practices at Lawson Software. "Basically, what we are seeing is that vendors are being forced to re-code from a fat client to a browser."

Paul Barker, director of technical marketing at J.D. Edwards, agrees. "ERP vendors have been in the business of delivering back office, transaction-oriented systems," Barker notes. "The Web is generally delivering front office, 'customer facing' information and/or applications. Bridging the two takes careful planning and execution. That planning and execution takes time."

Mockenhaupt believes that because vendors relied so heavily on their front end functionality, they don't have the open APIs that allow browsers and applications to talk to the back end, making Web integration very difficult, and costly. "Expectations in the industry have changed," Mockenhaupt notes. "Customers don't care about the back end as long as it works." They also don't want to be tied to the ERP vendor's tools; they want to be able to use their own front-office applications to access the back end and make changes as

necessary.

Lawson was first to market with a set of enterprise portal development tools, called INSIGHT II SEAport, which began shipping in June. SEAport gives users a single point of access to information in data warehouses, data marts, databases, email systems, intranets, extranets, the Internet, and all Lawson and non-Lawson apps. All access to enterprise information and applications is maintained in a secure, personalized desktop accessible from any Web browser. SEAport is not a hosted application; rather, it allows companies to create their own internal corporate portals.

But providing third-party access to ERP apps means giving up a measure of control, and some big ERP vendors have been less than enthusiastic about opening up the cores of their proprietary applications. SAP, in particular, has remained wary of losing control of its application kernels. Still, the company has offered its business APIs (called BAPIs) to partners, which help in the development of third-party, front-end solutions. "SAP introduced more than 100 BAPIs in 1997, but these are still limited in functionality and they really need to be modified," says Arnold Nel. Nel is vice president of vertical markets at Metamor, a SAP national implementation partner in the U.S. and a development partner with SAP AG in Germany. "I don't see SAP ever opening up the core, but with the BAPIs and some modifications, you can get access to data storage and process definition."

For large ERP vendors like SAP to succeed in a Web-based world, Nel believes, they must spend more time developing pre-configured solutions for vertical industries, outsource more effectively, and change their per-seat licensing models.

Lawson's Mockenhaupt agrees. "ERP vendors are having real trouble adapting to the new pricing models dictated by Web-based application access," he says. Where once vendors based their pricing on a per-seat/per-user model, opening up ordering and purchasing to the Web has blown these models to smithereens. Existing pricing schemes and software licensing strategies have to be revamped and new traffic-based or transaction-based models put into place. Other issues, such as the increase in network traffic created by e-commerce, have yet to be fully solved.

In response to customer demand for more Web-based functionality and lower pricing, ERP vendors have outsourced: they are now starting down the application hosting road. Oracle, notably, is having success with its Business OnLine offering, where ERP apps are hosted at Oracle and leased to licensees. But Metamor's Nel suggests that as more ERP vendors rely on their partners to host applications--Oracle is alone in its on-site hosting--they are finding that contingency, availability, and just the overall day-to-days risks of hosting can be daunting. While SAP has announced ASP hosting agreements, Nel thinks we'll see little real movement until the second or third quarters of 2000. "The leasing option makes sense for the small to medium size company that doesn't want to pay--or can't afford--the huge up-front cost of a traditional implementation," Nel says.

SAP also has another Web strategy in its Internet-Business Framework, an XML-based messaging infrastructure of which the largest single piece is mySAP.com, a set of tools that allows browser-based access to SAP and third party applications. mySAP.com is targeted at some of the smaller (sub-Fortune 1000) companies that want the functionality of a SAP implementation but can't or won't invest in the full package. But is mySAP.com a true trailblazer in terms of Web-based ERP, or simply a bandwagon jumper? "If you asked me if mySAP.com was just a move by SAP because of where the market is, I'd say yes," notes Metamor's Nel. "But, that said, I believe it will work, though full functionality is still a year away."

Indeed, the Y2K crunch has put development on hold for many ERP upgrade projects, and has sliced growth rates for the ERP industry. According to the most recent figures from AMR Research, while the ERP business has a projected compound annual growth rate of 32 percent (1998-2003), ERP spending from 1998-1999 will rise at only about 24 percent ($16.6 billion in 1998 to $20.2 billion through 1999). Spending will rise modestly in 2000 to a projected $27.7 billion, as companies upgrade software post-Y2K, but the phenomenal growth rates of the past seem a distant memory for ERP vendors. "I think there will be a rebound in ERP investment in Q3 2000 because Y2K froze the market," says Soren Pallesen, director of product marketing for e-business applications at Baan. "But I don't think we'll see a rebound to the old days: there won't be any more 50 percent growth rate."

The drop in growth may have hindered Web development among large ERP vendors. While most have announced portals or introduced Web-based software development plans, few have anything fully functional today. "I think what you're seeing is some application types and a few pilot installations, but very little in full production," says Baan's Pallesen.

One problem is the nature of portals themselves. Their purpose is to offer users a unified view of highly disparate information, a technically rigorous process. "Portals are fundamentally different than ERP applications," says J.D. Edwards' Barker. "Portals are points of aggregation and delivery of information, applications, services, and communities, while ERP is an engine for high-volume, high-integrity transaction processing. As such, the design of the portal can deliver all the functionality of ERP by allowing the ERP environment to snap in to the portal. I think the two are complimentary."

In September, J.D. Edwards introduced ActiveEra, a portal which provides a Web-based interface to all OneWorld applications. ActiveEra offers Web-based self-service applications for employees, managers, customers and suppliers to check order status, pricing and availability, as well as integration with Siebel's sales force automation software. Similarly, in early Q4 Baan is expected to announce a wide-ranging portal initiative which will customize information for the corporate user and present data from multiple stores via a browser interface.

Baan competitor PeopleSoft has just introduced a Web-based application strategy with the rollout of PeopleSoft 8 in September. "PeopleSoft has entirely rewritten its applications for the Internet," PeopleSoft chief technology officer Rick Bergquist said in a statement "PeopleSoft 8 supports the essential ingredients that make up applications for eBusiness." iClient, the most significant piece of the new version, will allow users to access PeopleSoft 8 applications with a Web browser. iClick and PeopleTools 8, the PeopleSoft 8 development environment, are slated to ship in Q4, as is release 8 of Enterprise Performance Management on PeopleTools 8. In Q2 2000, release 8 of HRMS, Financials, Supply Chain Management, and Manufacturing on PeopleTools 8 should be available.

Like both Baan and PeopleSoft, SAP is going the ERP portal route. At its biggest North American confab of the year, SAPPHIRE, SAP formally introduced the mySAP.com Workplace, which provides drag-and-drop support across business applications and Web sites. For example, a buyer using the mySAP.com Workplace can drag and drop a rush purchase order onto an overnight package delivery carrier's icon in the same screen window. This action causes the mySAP.com Workplace to automatically access the carrier's Web site to obtain full details of the overdue shipment. Another feature of the mySAP.com Workplace is the ability to automate frequent tasks. For example, a buyer who needs frequent access to industry-specific price quotes can launch targeted searches across multiple resources directly from a materials requirements listing.

Partners of the German software giant introduced new software aimed at fledgling mySAP.com installations. Web-based scheduler TimeDance rolled out a scheduling and event planning service for mySAP.com TimeDance allows mySAP.com users to schedule meetings and events with coworkers, customers, and suppliers via email and a browser. Only the meeting initiator needs to register with the service.

Third Party Portals

Other companies are moving into the ERP portal space, seeking to add Web value to existing HRMS and procurement systems. For instance, iClick Inc. has created the iClick Action Network (iCAN), which offers a browser-based, event driven interface to HR systems. For instance, via a browser, iCAN can handle open enrollment, 401(k) modeling, new hire processing, time-off requests/approvals, and updates to personal data. If an employee needs specific third party information, such as a moving company for relocation, iCAN will show a list of geographically appropriate choices.

Taking a somewhat different tack, Applicast Inc. will host Seibel (front office) and SAP R/3 (back office) applications, providing access via secure high-speed links and the Internet. To bypass the traditionally lengthy installation process of ERP and CRM systems, Applicast has created preconfigured blueprints for vertical markets. This structured, template-based methodology, called FastFit, enables the rapid mapping of SAP and Siebel to specific business models in just weeks. Targeted integration between front-office and back-office applications and tailored reporting is also available.

Smaller vendors like Applicast and iClick have been quickly picking up the slack when larger ERP companies have inched toward the Web. But in six to nine months, assuming IT investment returns to previous, pre-Y2K levels, expect every major ERP vendor to have a firm Web commitment in place. And while it's often true that smaller companies can move faster when it comes to software development cycles, the big boys have one distinct advantage: if they can't develop it, they can buy it outright.