Changewave Research: B2B Software Industry Trends

ChangeWave Research: B2B Software Industry Trends

ChangeWave Research Report:

B2B Software Industry – 2004 Trends

Slow But Steady Growth; Strength in Portal & E-Business Development, CRM, Supply Chain and Security Software; MANH Has Momentum

Overview

Back in July 2003, an Alliance B2B software survey found a modest industry rebound underway – along with several tempering factors (such as price pressures and longer upgrade cycles) that were diminishing the probability of a robust rebound.

The current report summarizes three recent ChangeWave Alliance surveys on the outlook for the B2B industry for 2004:

1. Our recently completed 2Q Corporate IT Spending survey (Feb 23-Mar 2, 2004; n=611) showed moderate to flat IT spending for most B2B sub-sectors in the 2nd Quarter. Portal and E-Business Development garnered the biggest gain. On the down side, Middleware, XML and Microsoft.NET showed the least strength.

2. We also surveyed Alliance B2B industry members between February 3-9, 2004 (n=79) to check on current prospects for the industry – including which companies stand to win and which stand to lose. The results showed a stabilized B2B industry with moderate growth projected for 2004. Notably, CRM, Business Intelligence & Reporting, Supply Chain Management and Security Software showed the most strength. Companies expected to do well include Manhattan Associates, BroadVision and Agile. On the other hand, Microsoft is expected to be pressured on several fronts, leading to a slowing of its market share growth.

3. Finally, the results of our 1Q/2Q Corporate Sales survey (Mar 9-16, 2004; n=1,061) showed a slowly but steadily improving B2B software industry, which has now experienced growth in each of the last 4 quarters.

Bottom Line: The B2B software industry should continue to experience moderate growth in 2004 – led by Portal & E-Business Development, CRM, Supply Chain Management and Security Software. Manhattan Associates will be a top performer – BroadVision and Agile should also do well. Microsoft finds itself pressured on several fronts, which should result in a slowing of its market share growth.

The ChangeWave Alliance is a group of 4,500 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

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www.ChangeWaveResearch.com

Table of Contents

Summary of Key Findings 3

The Findings 4

2Q IT Spending Survey 4

B2B Industry Members Survey 6

1Q/2Q Corporate Sales survey 14

ChangeWave Research Methodology 16

About ChangeWave Research 17

I. Summary of Key Findings

Introduction

The current report summarizes three recent ChangeWave Alliance surveys on the outlook for the B2B industry for 2004:

1. Our recently completed 2Q Corporate IT Spending (Feb 23-Mar 2, 2004; n=611)

2. A survey of Alliance B2B industry members (Feb 3-9, 2004; n=79) including

· Business Revenues and Pricing Pressures

· B2B Software Sub-Segments

· B2B Software Winners

· The Health of Microsoft and the Linux Threat

· Mergers and Acquisitions Activity

3. Our 1Q/2Q Corporate Sales survey (Mar 9-16 2004; n=1,061)

II. The Findings

(1) B2B Software Sub-Categories – 2Q IT Spending Survey (Feb 23-Mar 2, 2004)

Our recently completed 2Q Corporate IT Spending survey (n=611) showed moderate to flat IT spending for most B2B sub-sectors in the 2nd Quarter. Portal and E-Business Development garnered the biggest gains, while Middleware, XML and Microsoft.NET showed the least strength.

(A) Percent
Upgrading/
Buying
for 1st Time / (B) Percent
Downgrading/
Phasing Out / (C) Net %
Change Score
(A-B) / (D) Percentage
Point Change
From Previous Survey
I. Software: Platforms
(a) Portal and E-Business Development
Nov 2003 / 7% / 2% / 5% / --
Feb 2004 / 9% / 2% / 7% / 2%
(b) Legacy Platforms
Nov 2003 / 2% / 9% / -7% / --
Feb 2004 / 3% / 9% / -6% / 1%
(c) Document and Content Management
Nov 2003 / 7% / 1% / 6% / --
Feb 2004 / 7% / 1% / 6% / --
(d) Network Management
Nov 2003 / 8% / 1% / 7% / --
Feb 2004 / 8% / 1% / 7% / --
(e) Data Storage and Management
Nov 2003 / 14% / 0% / 14% / 4%
Feb 2004 / 15% / 1% / 14% / --
(f) Application Server Software
Nov 2003 / 9% / 1% / 8% / -7%
Feb 2004 / 8% / 1% / 7% / -1%
(g) Database Management
Nov 2003 / 13% / 1% / 12% / -2%
Feb 2004 / 13% / 2% / 11% / -1%
II. Software: Enterprise Applications:
(a) Enterprise Resource Planning (ERP)
Nov 2003 / 7% / 2% / 5% / 1%
Feb 2004 / 8% / 2% / 6% / 1%
(b) Customer Resource Management
Nov 2003 / 10% / 1% / 9% / 4%
Feb 2004 / 11% / 2% / 9% / --
(c) Business Intelligence and Reporting
Nov 2003 / 9% / 1% / 8% / --
Feb 2004 / 10% / 2% / 8% / --
(d) Supply Chain Management/Procurement
Nov 2003 / 8% / 3% / 5% / 1%
Feb 2004 / 7% / 2% / 5% / --
III. Software: Application Development
(a) CASE/Application Management
Nov 2003 / 2% / 3% / -1% / --
Feb 2004 / 2% / 1% / 1% / 2%
(b) Java
Nov 2003 / 8% / 2% / 6% / 2%
Feb 2004 / 7% / 2% / 5% / -1%
(c) Middleware
Nov 2003 / 4% / 1% / 3% / --
Feb 2004 / 2% / 1% / 1% / -2%
(d) XML
Nov 2003 / 7% / 1% / 6% / -1%
Feb 2004 / 5% / 1% / 4% / -2%
(e) Windows .NET
Nov 2003 / 12% / 2% / 10% / --
Feb 2004 / 8% / 2% / 6% / -4%

(2) B2B Industry Members Survey (Feb 3-9, 2004) – Key Results

A. Overall B2B Business Revenues and Pricing Pressures

(1) Question Asked: With regard to the B2B Software and Services sector, do you think you'll see an increase in overall business revenues, a decrease, or will overall business revenues remain the same for the 1st Quarter (Jan-Mar) 2004 vs. the previous quarter?

Current
Survey
Feb 2004 / Previous
Survey
Jul 2003 / Previous
Survey
May 2003
Increase in Overall B2B Software Revenue for Q1 / 53% / 51% / 24%
Decrease in Overall B2B Software Revenue for Q1 / 3% / 8% / 12%
Remain the Same / 41% / 38% / 59%
Don't Know / 4% / 3% / 5%

B2B Revenue Continues to Uptick in 1Q. By a 53% to 3% margin, industry respondents see an increase in overall business revenues for the 1st Quarter. These are better results than we found in our July 2003 B2B survey. The Net Difference Score (percentage of respondents seeing an increase vs. a decrease in revenues) has jumped from +43 to +50 over the last 6 months.

(2) Question Asked: What about B2B vendor pricing over the next 12 months? Do you believe that B2B software prices will rise, fall, or stay the same over the next 12 months?

Current
Survey
Feb 2004 / Previous
Survey
Jul 2003
Prices will Rise / 9% / 9%
Prices will Fall / 35% / 32%
Prices will Stay the Same / 48% / 52%
Don't Know / 8% / 6%

Pricing Pressures. Roughly one-third (35%) of respondents expect B2B software prices to fall over the next 12 months, while only 9% see prices rising.
B. B2B Software Sub-Segments

(1) Question Asked: Which one or two of the following B2B sub-segments do you think will perform best in 2004? (Choose No More Than Two)

Current B2B Industry Survey (February 2004)

Security Software / 48%
Business Intelligence and Reporting / 29%
Customer Resource Management (CRM) / 22%
Supply Chain Management/Procurement / 19%
Portal and E-Business Development / 18%
Network Management / 11%
Database Management / 10%
Data Storage and Management / 6%
Enterprise Resource Planning (ERP) / 6%
Document and Content Management / 5%
Application Server Software / 5%
Legacy Platforms / 0%
Other / 1%

Security Software Maintains Top Spot. Respondents chose Security Software (48%) as the best performing B2B sub-segment for 2004, with Business Intelligence and Reporting (29%) in the runner-up spot.

Best Performers: Comparison With Previous B2B Industry Surveys (July 2003 and May 2003)*

*Note that of the 12 B2B segments tracked in the current survey, only four of them were tracked in the previous two surveys (July 2003 and May 2003). This is because as the B2B industry evolves, we at times find it necessary to change the nomenclature we use for our B2B sub-segments.

Current
Survey
Feb 2004 / Previous
Survey
Jul 2003 / Previous
Survey
May 2003
Security Software / 48% / 45% / 37%
CRM / 22% / 15% / 15%
Supply Chain Management / 19% / 15% / 8%
Database Management / 10% / 14% / 17%

CRM has the Momentum. Comparing the current results with those of our July 2003 survey, CRM (22% vs. 15%) and Supply Chain Management (19% vs. 15%) show the most notable gains.
(2) Question Asked: On the down side, which one or two of the following B2B sub-segments do you think will perform the worst in 2004? (Choose No More Than Two)

Current B2B Industry Survey (February 2004)

Legacy Platforms / 54%
Enterprise Resource Planning (ERP) / 24%
Customer Resource Management (CRM) / 14%
Database Management / 11%
Portal and E-Business Development / 11%
Application Server Software / 9%
Data Storage and Management / 8%
Supply Chain Management/Procurement / 8%
Document and Content Management / 8%
Network Management / 4%
Business Intelligence and Reporting / 4%
Security Software / 0%
Other / 3%

Legacy Platforms – the Big Loser. More than half (54%) of the respondents chose Legacy Platforms as the worst performing B2B sub-segment for 2004.

Net Difference Score – Current B2B Industry Survey (February 2004)

Perform
Best
in 2004 / Perform
Worst
in 2004 / Net
Difference
Score
Security Software / 48% / 0% / +48
Business Intelligence and Reporting / 29% / 4% / +25
Supply Chain Management/Procurement / 19% / 8% / +11
Customer Resource Management (CRM) / 22% / 14% / +8
Portal and E-Business Development / 18% / 11% / +7
Network Management / 11% / 4% / +7
Database Management / 10% / 11% / -1
Data Storage and Management / 6% / 8% / -2
Document and Content Management / 5% / 8% / -3
Application Server Software / 5% / 9% / -4
Enterprise Resource Planning (ERP) / 6% / 24% / -18
Legacy Platforms / 0% / 54% / -54

Top Sub-Segments. Security Software (net +48) and Business Intelligence & Reporting (net +25) were seen as the best performing sub-segments for 2004.

Net Difference Score Comparison – Current B2B Industry Survey (February 2004) vs. Previous Survey (July 2003) vs. Previous Survey (May 2003)

Current
Survey
Feb 2004 / Previous Survey Jul 2003 / Previous Survey May 2003
Security Software / +48 / +43 / +35
Supply Chain Management / +11 / -11 / -6
CRM / +8 / -17 / -17
Database Management / -1 / -9 / -7

CRM and Supply Chain Management Show Biggest Improvements. While Security Software experienced only a +5 point Change in its Net Difference Score (from +43 in July to +48 currently), CRM has jumped +25 points (from -17 to +8) and Supply Chain Management software +22 points (from -11 to +11) since July.

C. B2B Software Winners

(1) Question Asked: Let's focus on the 2nd and 3rd tier. Based on your own knowledge and what you are seeing in the industry, which of the following B2B vendors are most likely to pick up market share over the next six months? (Choose All That Apply)

Current
Survey
Feb 2004 / Previous
Survey
Jul 2003
BEA Systems (BEAS) / 38% / 49%
Agile Software (AGIL) / 15% / 11%
Ariba (ARBA) / 13% / 15%
TIBCO Software (TIBX) / 13% / 14%
Manhattan Associates (MANH) / 11% / 8%
Hyperion Solutions (HYSL) / 9% / 12%
Broadvision (BVSN) / 8% / 6%
Commerce One (CMRC) / 5% / 6%
Progress Software (PRGS) / 5% / 3%
Vignette (VIGN) / 5% / 8%
Manugistics Group (MANU) / 4% / 9%
Freemarkets (FMKT) / 3% / 5%
JDA Software (JDAS) / 3% / 9%
Other / 5% / 0%

(2) Question Asked: And which of the following B2B vendors are most likely to lose market share over the next six months? (Choose All That Apply)

Current
Survey
Feb 2004 / Previous
Survey
Jul 2003
Commerce One (CMRC) / 19% / 29%
Ariba (ARBA) / 15% / 20%
JDA Software (JDAS) / 14% / 6%
Manugistics Group (MANU) / 14% / 14%
Freemarkets (FMKT) / 13% / 9%
Vignette (VIGN) / 13% / 12%
Progress Software (PRGS) / 9% / 9%
Broadvision (BVSN) / 8% / 17%
BEA Systems (BEAS) / 6% / 6%
TIBCO Software (TIBX) / 6% / 3%
Hyperion Solutions (HYSL) / 4% / 5%
Agile Software (AGIL) / 3% / 3%
Manhattan Associates (MANH) / 3% / 11%
Other / 4% / 0%

Net Difference Score – Current B2B Industry Survey (February 2004)

Pick Up Market Share / Lose
Market
Share / Net Difference Score
BEA Systems (BEAS) / 38% / 6% / +32
Agile Software (AGIL) / 15% / 3% / +12
Manhattan Associates (MANH) / 11% / 3% / +8
TIBCO Software (TIBX) / 13% / 6% / +7
Hyperion Solutions (HYSL) / 9% / 4% / +5
Broadvision (BVSN) / 8% / 8% / 0
Ariba (ARBA) / 13% / 15% / -2
Progress Software (PRGS) / 5% / 9% / -4
Vignette (VIGN) / 5% / 13% / -8
Manugistics Group (MANU) / 4% / 14% / -10
Freemarkets (FMKT) / 3% / 13% / -10
JDA Software (JDAS) / 3% / 14% / -11
Commerce One (CMRC) / 5% / 19% / -14

Change in Net Difference Scores: A Comparison of