Why doesn't Vertical ERP work?

Published on 01 Jul 2020

Topics: Enterprise Resource Planning (ERP)

How economics undermine the future of vertical ERP providers

Within the UK, the local market in each vertical isn’t big enough to support the development spend that Enterprise Resource Planning (ERP) software requires – and enable the developer to make a profit. Let’s take one as an example. Companies that grow fresh produce.

Software companies that target a vertical typically adopt 3 strategies:

1) Denial

Some ERP software companies choose to defy gravity, and as a result they stay very small and are unable to deliver the benefits of new technology to their customers. Some quick web research yields the following:

D****** – have 28 people to develop, support, market and sell their own code.

A******** – 24 people

R****** – 22 people

2) Go global

This strategy involves the ERP partner attempting to serve every local market with a single product - it solves the market size problem but exponentially increases go to market costs.

P****** – based in the US, UK and SA, and have 94 people generating £7.5m revenue.

3) Be an ISV

By deeply customising a third party platform, software companies seek to eliminate some of the development costs associated with building an ERP system. However – the provider of the third party platform will always seek a royalty for the use of their IP, at levels which typically undermine the economics of this option.

L********* – have 33 people generating £7.5m in the UK and US

We don’t believe that strategy 1, 2 or 3 is sustainable, and believe that the performance of these companies would support our argument. Whichever strategy a software company chooses to pursue, their success relies on locking the customer in giving them nowhere else to go for support or upgrades. They do this explicitly – in their contracts – or implicitly (by virtue of the fact that nobody else knows their product). Vertical ERP is not good for any individual customer – or the performance of the vertical as a whole.

What makes TNP's ERP solution different?

We deliver solutions – based on an industry standard ERP system – with the minimum amount of customisation. The customisation we do is abstracted from the core code, easy to update and available to you. In the unlikely event that we let you down, be able to take it to one of 40 other Dynamics NAV & Dynamics 365 Business Central Partners in the UK, or employ one of a large number of independent contractors.

Dynamics 365 Business Central (previously Dynamics NAV) has been installed in over 100,000 sites, generates revenues of £500m* and has the equivalent of 300* full time engineers applied to the task of constantly enhancing the product.

We serve over 500 customers, generate revenues of £23m and have 40 people applied to the task of constantly supporting the solutions we deliver.

* = Educated, informed guesses

Opinions are those of the Author

Written by
Paul White
Paul White

Paul started in the ERP industry working at the likes of Systems Union, Sun Accounts and Pegasus, before joining Touchstone (where he first encountered Ian). He then moved on to spend over 12 years at Microsoft. There he ran the UK Dynamics business and then Product Management for Dynamics NAV. Both roles gave him lots of opportunities to stay in touch with Ian and Matt and watch TNP grow. Paul has a wife, two daughters, and a dog and for fun he chooses to spend time on the water.