2009 Opportunity Assessment and Demand Trend Analysis of the U.S. SMB Accounting & Enterprise Resource Planning (ERP) Market

Executive summary

Accounting and Enterprise Resource Planning (ERP) Definitions

Accounting and ERP solutions deliver value to the enterprise through direct improvements to financial, operational, and risk management

ERP has evolved in recent years beyond its roots in accounting and inventory management to touch all functions within the enterprise

Spending by US small and mid-market firms on accounting & ERP software and services will grow by $1 billion between 2008 and 2013

The ERP segment will create incremental revenues for vendors largely in the upper-small and core-mid markets

ERP should deliver a respectable premium on the average spend per `firm in most employee segments

Microsoft and Sage are taking the early lead in creating a migration path for SMBs from pure accounting to ERP environments

There is ample room for vendors to build on core ERP applications with bundles that address specific business needs

A focus on business and financial management could be an attractive play in sectors that are service oriented and human capital intensive

Bundles that optimize core back-office production processes would most benefit firms in manufacturing, retail, and wholesale industries

Market Overview & Opportunity for US Accounting & ERP Software and Services

Steady growth in the US SMB market for application software and services will create a $30 billion spending opportunity in 2013

Accounting and ERP solutions will drive $3.1 billion of the total spend on a CAGR slightly higher than the market average (7% vs. 6%)

SB and MB contributions to spend are highly skewed by product category yet roughly equal on an all-up basis

Demand Trends in the Small and Medium Business Market-Accounting Software & Services

Trend data suggest that accounting software is well entrenched across the full spectrum of small and mid-market firms

On premise software and ERP accounting modules trump all other categories of accounting methods

There is a high correlation between enterprise scale and the deployment of accounting applications attached to ERP suites

Penetration rates of accounting software by sector generally show more stability in the small business segment

Average spending/firm is up 43% in the mid-market and trending flat among smaller enterprises

Short product lifecycles provide a built-in upgrade model for vendors and frequent opportunities to target potential switchers

Intuit is best positioned to drive consolidation in the mid market by leveraging its QuickBooks franchise among smaller firms

Demand Trends in the Small and Medium Business Market-ERP Solutions

ERP solutions are broad and touch all functions within the enterprise

Limited need in the small business segment will cap the ERP market opportunity to a narrow band of firms with >20 employees

ERP adoption rates are increasingly concentrated among upper-small and mid-market firms

Mid-size companies are using ERP more broadly and at a higher level of sophistication than smaller enterprises

The average ERP spend per firm is declining by 18-37% among all mid-market segments and in the >10 employee small business tiers

The bulk of spending shifts from consulting to maintenance and licensing fees as enterprises transition from the small- to mid-market

The average cost per seat drops precipitously until firms reach an average deployment of roughly eight users

ERP brands from Microsoft and Sage appear to have the largest footprint in a marketplace experiencing consolidation

Small ERP firms have made the biggest bets on SaaS/on-demand software services

Broad acceptance of SaaS-based accounting and ERP applications suggests that hybrid delivery models could be opportunistic for vendors