Despite the current economic slump, the EAM market is expected to rebound after 2010

Like other software segments, the enterprise asset management (EAM) market has declined along with the rest of the global economy. However, the market is expected to rebound strongly with a compounded annual growth rate of 3.2% over the next five years, according to a new study ("Enterprise Asset Management Solutions Worldwide Outlook") by ARC Advisory Group. The EAM market will grow from $1.856 billion in 2009 to more than $2.178 billion in 2013.

This is a significant adjustment, however, from ARC's 2008 forecast, which predicted a 6.5% CAGR from 2007 to 2012.

Macro-economic conditions are a major driver for this market during the forecast period. Some regions will recover more quickly based on government response and economic trends. Asia (with the exception of Japan) should lead the recovery, followed by the Middle East. North America (the largest regional market) is expected to recover in late 2010 or early 2011. Western Europe and Japan are forecasted to lag.

"Current business conditions are causing firms to reduce operating costs and capital expenditures," says Ralph Rio, research director and principal author of the report. "Maintenance is among those being told to lower their operating costs. But, they cannot allow higher failure rates despite the aging equipment. Enlightened managers are finding opportunities to acquire EAM solutions with quick payback."

Before the market rebounds, though, ARC expects a retraction. This year, the EAM market will drop by 6.6% compared to 2008. A small increase of 1.7% is expected in 2010 compared to 2009. In 2011, though, the market is expected to be 2% higher than it was in 2008.

"I'm expecting North America to see noticeable improvements in 2010," Rio says. "Europe will lag significantly. The continued softness in 2010 is driven primarily by Europe and Japan."

The EAM market will primarily benefit from the expected improvement in the global economy, but Rio says that the maintenance management space is underserved -- another factor driving future growth. "There are still an awful lot of manual systems out there, and I strongly believe that the EAM market has a lot of opportunities for growth and new applications and upgrades. There is some pent-up demand."

One particular area that Rio believes has a lot of potential is field service management of assets that are not at a company's physical location. "Meter reading for utilities is a good example, but here are a lot of other businesses that do field service on remote assets," Rio says. "There are so many opportunities for automation and efficiency improvements that I'm kind of surprised that the market for mobile technology in that space is not growing nearly as rapidly as you'd think."

A few factors could stymie the growth in revenue, however, such as the adoption of cloud computing architectures. With cloud computing, end users don't purchase and install software, but utilize virtual resources as in a software as a service (SaaS) system.

"We still don't know how cloud computing will affect the pricing structure," Rio says. "With the normal pricing structure, there is a large upfront license fee and smaller support fees. With cloud computing, the move away from traditional software licensing would depress the market a bit in terms of revenue."

The type of competitors in the EAM market has continued to shift from independent best-of-breed (BOB) suppliers to traditional enterprise resource planning (ERP) suppliers and systems integrators like IBM.

In 1997, when ARC released its first EAM study, five of the top eight suppliers were BOB companies. Between 2005 and 2008, the number of best-of-breed suppliers in the top seven shrank from three to just one.

The current leading companies in the EAM space include SAP, Lawson, Oracle and QAD. The only remaining BOB, Ventyx happens to be the smallest of the seven. This shift has occurred through acquisition of the BOB suppliers by others who are expanding their footprint to increase top-line revenue.

"I'm actually a little surprised to see this strong trend to go with ERP providers," Rio says. "The EAM and maintenance functions are more closely related to plant management rather than materials management."

In its 2007 report, ARC noted that eight of the 12 leading suppliers from 2005 had undergone extensive organizational changes through mergers and acquisitions in 2006, and five had received new corporate identities.

Despite this consolidation at the top, the EAM market is still very fragmented. Only two of the top seven companies have better than 10% of the market, and although Rio says the market in general is less fragmented than is was several years ago, "no one has more than 15% of the market right now."