Best-of-Breed Software

While ERP vendors move toward one-stop shopping, adding a wide variety of applications to their suites, best-of-breed providers gain strength through consolidation and by focusing on meeting specialized client needs.

As Kermit the Frog has said, it's not easy being green. It's a sentiment that best-of-breed (BOB) software providers can relate to. Life can be tough for small, highly distinctive creatures inhabiting narrow ecological niches. Over the past year, these specialized application vendors have needed all their agility and willingness to explore new territory in order to survive in this frog-eat-frog world. Stronger members of the species have added new functionality to their growing product suites by gobbling up other stand-alone software vendors. John Van Decker, vice president, technology research services, with the Meta Group Inc. in Stewartsville, N.J., reels off a handful of examples: Cognos' purchase of Adaytum, Hyperion Solutions' acquisition of Brio Software and Business Objects' purchase of Crystal Decisions.

At the same time, most best-of-breed software providers have struggled to defend their market share against the incursions of enterprise resource planning (ERP) software vendors. ERP suites continue to expand into the functionality categories in which BOB vendors are most successful. Some are doing so through acquisitions. Van Decker points to Lawson Software's purchase of Closedloop Solutions and Geac's swallowing of Extensity as examples.

Still, the traditional best-of-breed application is in no danger of extinction, experts agree. Stand-alone software providers that are willing to explore new avenues to serve their clients' needs will always find a market. "They can develop new products and bring those products to market faster than ERPs," says Van Decker. "They don't have to deal with their own global infrastructure like ERPs do or spend as much time training their sales force. BOBs are more nimble in terms of product development because they don't have all the baggage of an ERP."

That agility is a crucial edge for best-of-breed software providers. "Suppose your ERP vendor has 10 applications planned for rollout, but they won't be available for two years. Do you wait for them, or do you get what you need now from a BOB vendor?" asks Mark Smith, senior vice president of research at Ventana Research in Belmont, Calif. "What will the impact be on your business if you decide to wait?"

Van Decker echoes that point. "Why wait? If it helps you right now, why not go outside now and get it, and get to your goal sooner? Then perhaps later, when your ERP vendor does have that product, you can go back to them and start using their version of it. You need to look at these purchases on a case-by-case basis. What's the likely ROI going to be?"