Difference between revisions of "Threat of new entrants"
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* Microsoft has made a very substantial name of itself in desktop users. Bearing in mind that desktop users are the largest user group, this makes Microsoft especially identifiable. This adds weight to its own ERP product, Navision which is more or less a typical ERP targeted to small to medium enterprises. | * Microsoft has made a very substantial name of itself in desktop users. Bearing in mind that desktop users are the largest user group, this makes Microsoft especially identifiable. This adds weight to its own ERP product, Navision which is more or less a typical ERP targeted to small to medium enterprises. | ||
* SAP is instantly recognizable as a top ERP vendor, with its own R/3 product. Its product is based on the same general principles as ADempiere (and has some same features) (Jorg Janke, the developer of Compiere was a SAP employee), but is targeted to medium and large enterprises. | * SAP is instantly recognizable as a top ERP vendor, with its own R/3 product. Its product is based on the same general principles as ADempiere (and has some same features) (Jorg Janke, the developer of Compiere was a SAP employee), but is targeted to medium and large enterprises. | ||
| − | * Local ERP suites, developed for country-specific markets, have a very strong position in the local markets because of their adaptation to local laws. Furthermore, since the companies that developed them have a long-standing | + | * Local ERP suites, developed for country-specific markets, have a very strong position in the local markets because of their adaptation to local laws. Furthermore, since the companies that developed them have a long-standing presence in the local market, they are also instantly recognizable. |
=== Capital Requirements === | === Capital Requirements === | ||
Latest revision as of 17:28, 10 August 2008
Contents
Entry barriers in the ERP market
Software Development
As with any other software, ERP's should be designed, developed, debugged and tested. Along with the different abilities needed to develop an ERP (programming languages, databases, internet) makes the proccess consume enourmous time and resources. Furthermore, testing could not check for every discrepancy there is, and this means that for every new feature the end-users are the most likely beta-testers. This means that in oder to enter the ERP market you have to make a very large investment in time, effort and money. On the other hand, in open source software, where it is easy to find code and fork or develop it to another end, this barrier is substantially lower.
Differentiation among vendors
- Microsoft has made a very substantial name of itself in desktop users. Bearing in mind that desktop users are the largest user group, this makes Microsoft especially identifiable. This adds weight to its own ERP product, Navision which is more or less a typical ERP targeted to small to medium enterprises.
- SAP is instantly recognizable as a top ERP vendor, with its own R/3 product. Its product is based on the same general principles as ADempiere (and has some same features) (Jorg Janke, the developer of Compiere was a SAP employee), but is targeted to medium and large enterprises.
- Local ERP suites, developed for country-specific markets, have a very strong position in the local markets because of their adaptation to local laws. Furthermore, since the companies that developed them have a long-standing presence in the local market, they are also instantly recognizable.
Capital Requirements
To develop and distribute software, it takes a large capital to be spend on infrastructure (offices, computers, software), wages and marketing channels. On the other hand, open source software through its collaborative nature does not need large infrastructure, and uses Internet as its marketing channel, which is a very low cost approach.
Switching Costs
The costs of switching to another ERP are:
- The large sum of money that has allready been invested in the previous ERP, and has not yet made a return on this investment
- The loss of historical transaction data. These data enable the customer to make informed guesses on trends hidden in the data. It is the single largest long-term beneffit of every ERP.
- Customers want to have at first the same functionality from their previous ERP. This is very difficult considering the differences among ERP's
- The steep learning curve when in transition from one ERP to another. This can be avoided by piecemeal implementations, adding advanced features/workflows later on.
Access to resellers
Established ERP companies have their own reseller channels. The resellers themselves have invested large sums of money to be able to resell ERP's (eg Navision certification takes 6 months and has substantial cost). This is a feature to tie the reseller to the product. Of course, the more resellers in an ERP suite, the larger the sales and the credibility of it. The main difference in OSS is that the people who sell installation services (and do the work of resellers in closed source) have commited their own time in development of the software, and know it in much more detail than any reseller.
Cost Advantages
The closed source ERP suites cost large sums of money, are being sold by the module, licenced for certain number of users, and charge for yearly upgrades. Open source ERP's cost nothing, but there is need of a certain proficiency to deploy them. Since experienced individuals are not cheap, this means that open source ERP's cost about two-thirds of closed source alternatives. The development of usability features, meaning faster implementation (and the ability to do more implementations yearly) will widen even more the cost gap.
