Best of Breed Strengthens Its Hold

Stand-alone applications are richer in functionality than ever before, and the trend toward vertical solutions keeps gaining ground.

if you had to describe in just one word the type of user most likely to favor products offered by best-of-breed (BOB) software vendors, that word would have to be "sophisticated." They're the kinds of users who are looking for higher quality and deeper functionality, and they know that a stand-alone solution is where they're going to find it. That's been the case historically, and now the quality of offerings appears stronger than ever. More and more vendors are enhancing their product features, offering a richer set of user benefits and greater end-to-end functionality. An expanding number of new best-of-breed vendors are appearing as well. In addition, the trend toward mergers and acquisitions continues as larger vendors gobble up smaller ones to fill gaps in their product lineup.

"For example, SAS bought a company several months ago that focused on retail merchandising, giving SAS a merchandising analysis capability they wanted," says Dan Vesset, research director at market intelligence and advisory firm IDC in Framingham, Mass. "Siebel made a deal with Fast Search, which does analysis of text with applicability in call centers. There's also been consolidation within the budgeting applications and the recruitment applications areas, where BOB [providers] have good offerings. But perhaps there were too many of them to all survive. In the human capital management space, there's been consolidation of complementary vendors. For instance, Workscape bought Performaworks, and Authoria bought AIM."

As best-of-breed players are gearing up to focus more earnestly on industry-specific expertise, the move toward verticalization is taking center stage, with more vendors touting their industry-specific capabilities. "Health care in particular is an area ripe for BOB specialization, and more players are developing expertise in that industry," points out Paul Hamerman, Midlothian, Va.-based vice president of enterprise applications at Forrester Research. "In addition, perhaps the hottest new BOB category is compliance, which has been ramping up not only due to Sarbanes-Oxley, but to meet broader compliance issues beyond SOX."

Sellers of stand-alone applications tend to develop products that supplement what enterprise resource planning (ERP) vendors provide, according to Hamerman. "Now BOB [companies] are moving toward Web services, which is the path toward integration and flexibility," Hamerman says. "The use of open integration standards is good for BOB [vendors] because it makes them easier to integrate with the ERP [suites], although they're not quite all the way there yet technologically. While BOB and ERP [companies] compete, they also partner. It's a complex relationship." He adds that by becoming application service providers (ASP vendors) -- companies that offer customers access through the Web to applications and services -- a growing number of vendors are tapping into a more reliable income stream that helps them thrive.

Functionality that helps customers meet global business challenges, such as handling currency and exchange rates and setting up operations in diverse locations, is also receiving greater emphasis in stand-alone applications. All of these improvements translate into an ever-expanding array of choices for users and a heightened need to perform due diligence before they buy to make certain that the application they're planning to implement will be an appropriate fit for their corporate culture.