BPM: How Market Trends Shape Buying Decisions

The recent slew of acquisitions among providers of business performance management applications has made some software buyers jittery. But the opportunities for performance improvement outweigh the risks.

This is an exciting time to be in the business performance management (BPM) software market. Companies of all sizes are achieving real value by implementing budgeting and planning, consolidation and reporting, and financial analytics applications. In doing so, they're driving double-digit revenue growth for their vendors. Market research firm IDC estimates that organizations spent $1.42 billion on BPM analytic applications last year. That number represents a growth rate for the market of 15.5 percent, and IDC expects sales to continue to increase by more than 10 percent a year through the end of this decade.

Not surprisingly, vendors are jockeying for position in this dynamic environment. The largest sellers in the space are approaching the $1 billion annual revenue mark. Software vendors from other domains continue to expand into the performance management space, and merger-and-acquisition (M&A) activity among established BPM providers is heavy. Among the major transactions last year, Cartesis purchased financial-services-focused Inea, Golden Gate Capital acquired Geac and Business Objects swallowed up SRC Software.

Many vendors have also experienced major shifts in management over the past year. Business Objects, Longview Solutions and OutlookSoft all appointed new CEOs in 2005, while Cartesis and Systems Union Group both hired new presidents for their North America division. "It's a very competitive space, and everyone is trying to put the best team on the field," explains Craig Schiff, president and CEO of consulting firm BPM Partners in Stamford, Conn. "In some cases that means changing the team."

Two distinct forces seem to be driving the market. Customers are increasingly pressuring vendors to offer full suites of products. "Companies today, as they look at their BI [business intelligence] tools as well as the BPM applications themselves, are looking to consolidate the number of vendors they deal with," says Schiff. "It just makes it easier, lowers the ongoing maintenance costs, both from a product and personnel perspective. The vendors are matching that by providing more complete solutions."

At the same time, investors in publicly-traded BPM vendors are pushing them toward aggressive growth, points out John Colbert, vice president of service development for BPM Partners. In addition, "some of the smaller companies are venture-funded. After a period of three or four years, investors are looking for, 'What's the next step for this company?' And that's either to be acquired or to acquire somebody else."