The fourth quarter 2010 results were in with sequential improvement that suggested increased momentum for the recovery of the enterprise applications market.
Compared with the third quarter of 2010, the fourth quarter demonstrated resilience in mature markets such as North America with a growing number of vendors gaining ground in fast-growing regions from Asia Pacific to Eastern Europe.
Amadeus, which sells operations systems to airlines, said much of its growth in the fourth quarter came from Asia Pacific and Europe where recovery appeared to be in a firmer footing.
Fueled by acquisitions, reinvestment by key customers and increased adoptions of Cloud-based products, the majority of enterprise applications vendors showed a steady year-to-year increase in sales in the last quarter of 2010.
License sales for the 63 largest publicly-traded enterprise applications vendors showed a 15% increase to $8.6 billion in the fourth quarter of 2010, up from $7.5 billion in year-earlier period. By comparison, license growth for the third-quarter 2010 amounted to a 11% gain to hit $8.2 billion.
Their maintenance revenues jumped 15.2% to $11.6 billion in the fourth quarter of 2010, compared with $10 billion in year-earlier period. On the other hand, maintenance sales rose 9% in the third quarter of 2010 to reach $9 billion.
The fastest-growing segment came from recurring business in the fourth-quarter of 2010 in the form of subscription revenues, which soared 22% to reach $1.9 billion, up from $1.57 billion in year-earlier period. In the third quarter of 2010, subscription sales spiked 23% to $871 million.
Services revenues in the four quarter of 2010 rose 6.3% to $5.9 billion, up from $5.6 billion in the year-earlier period. Services revenues jumped 9% to reach $4.7 billion in the third quarter of 2010.
While the macro economic conditions are still volatile with rising oil prices and global inflation worries, enterprise applications vendors are projecting solid growth in 2011 with many aiming to achieve anywhere between 7% and 10% increase in sales this year.
If the upturn in the last three-month period were sustainable, 2011 could well become a bonanza year for enterprise applications vendors because of the lag effects of recent acquisitions, which usually would not generate organic growth and/or synergistic benefits until a year or two after the deals were finalized.
Major vendors including IBM and SAP attributed a fair amount of their fourth-quarter growth to their recent acquisitions. In the case of IBM, incremental revenues from purchases of Clarity, CoreMetrics, Initiate Systems, SPSS and Sterling Commerce, among others, contributed to the 7% sales increase in Big Blue’s Software Division in the fourth quarter of 2010. Excluding the associated revenues of these acquisitions in recent quarters, IBM would have only generated a 4.2% organic growth in software sales in the fourth quarter of 2010.
Similarly SAP’s acquisition of Sybase has added about $274 million in software and subscription revenues in the fourth quarter of 2010, enabling the ERP market leader to post a 25% increase in software sales. Without that purchase, SAP’s organic growth would have been in the 17% range.
The reinvigorated economy meant IT investment was on the rise. Long-time customers of Oracle, for example, stepped up their system upgrade and expansion projects in order to better compete and drive greater efficiency and visibility across their enterprise.
Cox Communications, Harvard Pilgrim Health Care, Royal Caribbean Cruises Ltd., Shimano American Corp., and US Air Force were among the reference wins of Oracle during the fourth quarter, which ended November 30 for the vendor.
Under a new ERP project at the Department of Defense (DoD), the US Air Force Expeditionary Combat Support System will implement applications from Oracle to overhaul its logistics and supply chain functions with the help of systems integrator CSC, replacing more than 250 disparate legacy systems with a single logistics solution and global access point.
The same applies to Microsoft, which reported stellar results in the fourth quarter of 2010, because of the massive upgrades of Microsoft Office 2010 among its existing base of corporate customers gearing up in their PC refresh cycle.
Then there was the move toward Cloud-based applications that resulted in explosive growth in subscription revenues for enterprise applications vendors either through acquisitions or shifts in their delivery model. Allscripts in the healthcare vertical, Aspen Tech in energy, Deltek in professional services and JDA in retail and consumer packaged goods have all made such moves. In the fourth quarter of 2010, these four vendors saw their combined subscription revenues shooting up 173% from $29 million to $80 million.
Other Cloud-based applications vendors such as Concur, NetSuite, Ultimate Software, and RightNow handily beat expectations in the four quarter of 2010, riding on double-digit growth of their subscription revenues as many of their customers started extending their Cloud-based solutions to users around the world, while small and mid-sized business customers became enamored with the ease and flexibility of accessing these applications over the Web.
That has allowed many of these Cloud-based applications vendors to exploit their first-mover advantage to the hilt. Salesforce.com, the granddaddy of on-demand software sales, posted a 31% increase in subscription sales to $429 million in the latest quarter ended January 31, 2011. Now Salesforce.com is positioning itself as the first Cloud-based applications provider to achieve $2 billion in sales in its current fiscal year, which ends January 31, 2012.
Since the launch of www.appsrun.com in August 2010, we have been measuring the quarterly results of hundreds of publicly-traded enterprise applications vendors along with more than 1,000 private vendors using rigorous research methodology to assess the market performance, while segmenting their financial results by vertical, geography, revenue type and size of customers. Feel free to contact us if you want granular details of individual vendor performance or other custom views by SIC code, country, product brand, recurring revenue stream and other metrics based on historical records dating back to 2005.
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The above blog post has been revised on March 10, 2011 with the inclusion of updated results from seven additional vendors: American Software, Constellation, Intershop, Qliktech, Retalix, S1, and Unit4.