Workday, NetSuite, Among Fastest-Growing ERP Software Vendors

According to Gartner, Workday and NetSuite are among the fastest-growing ERP vendors. More companies are preferring to work with SaaS companies instead of traditional software companies, as they are typically more innovative and often provide a faster product turnaround time.

Jun 4, 2014 at 7:30PM

ERP, or enterprise resource planning, software is one of the more mature enterprise sectors. As such, top ERP vendors such as Oracle (NYSE:ORCL) and SAP (NYSE:SAP) are already showing worrying signs of stagnation, and even declines in revenue from this important sector. However, this does not mean that ERP software is dead -- far from it. Upcoming SaaS ERP vendors such as Workday (NYSE:WDAY), Cornerstone OnDemand, and NetSuite (NYSE:N) are proving that the sector is still very much alive.

According to a May 2014 Gartner report, the ERP software market is now worth $25.4 billion.

According to the report, the top four fastest-growing ERP vendors are all SaaS companies.

ERP Software Vendor


Year-over-Year growth in 2013 (%)




Workforce Software



Cornerstone OnDemand









Source: Gartner, May 2014

Complacency to blame for slow growth
ERP vendors rely, to a large extent, on maintenance revenue streams to survive.The 3.8% growth of the industry is, unfortunately, not nearly enough to sustain the large and complex cost structures of the existing market leaders.

Gartner says that the market leaders have become too complacent when it comes to true innovation, and have instead been riding the wave of their earlier software hits. Many monolithic legacy ERP vendors are, as a result, struggling to meet the needs of modern business models. This is what is causing the slow growth.

Ironically, young ERP vendors are growing fast, precisely for the same reason. These companies do not typically have heaps of legacy software from which they can reap fat maintenance fees. Thus, they simply have to innovate, or die.

Thinking like a customer
What sets SaaS ERP software vendors such as Workday, NetSuite, and Cornerstone OnDemand apart from traditional software vendors such as SAP and Oracle is that these cloud-based vendors have a rapid development approach and produce major releases and new feature enhancements at a faster cadence.

Each of these companies is capable of scaling quickly to adapt to the rapidly changing business model shifts by their customers. They are also more elastic in their pricing structures and resource allocation models, which enables them to keep subscription revenue models growing.

Unique expense problem
However, peeling back the hype about cloud ERP, it becomes evident that SaaS companies face unique problems that are quite alien to their more traditional brethren. SaaS companies must spend heavily to not only grow their customer bases, but also to minimize customer churn.

Traditional software companies such as Oracle and SAP sell perpetual licenses for their software, and upgrades later. Customers typically pay for licenses up front, along with smaller, recurring fees for maintenance (usually 15%-20% of the license fee).

SaaS companies, however, are not so lucky. Instead of selling a license fee and receiving a huge up-front payment, customers use their own software on an ongoing basis and pay gradually as use increases. These companies must spend large amounts of money on customer acquisition costs, yet revenue comes in gradually over long periods of time. This leads to a misalignment of revenue and expenses.

To keep afloat, young SaaS companies, therefore, must constantly innovate, and also sign up as many customers as possible, or risk going under. Once customers are acquired, companies must also spend heavily on marketing to reduce customer churn.

This trend pervades the entire SaaS industry and is responsible for losses incurred by most young SaaS companies.


Source: YCharts

The good news, however, is that as these businesses mature, they will eventually reach a point where revenue from ongoing operations exceeds both new customer acquisition costs and marketing expenses. Once there, these companies can harvest incoming cash flow as profit.

The stocks of most SaaS companies trade at stratospheric valuations. Workday is, undoubtedly, the fastest-growing SaaS company, and its valuation reflects this.


Source: YCharts

NetSuite, however, has its own unique attractions. Several Microsoft Dynamics partners, such as Descartes Systems Group, are shifting resources to NetSuite. Microsoft does not currently deliver seamless financial/commerce/CRM solutions in the cloud, which NetSuite does.

NetSuite's goal is to break the $1-billion-revenue-per-year mark within three years. Its shares are also much cheaper than Workday's, on a price-to-sales basis.

Foolish takeaway
ERP customers are increasingly becoming impatient and are turning to companies that can deliver faster product turnarounds, such as Workday and NetSuite.

The rapid growth in some ERP segments is being driven by companies that view these cloud-based ERP systems as more agile and responsive to their needs. That's why these SaaS movers are growing much faster than their traditional counterparts.

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure-play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 TRILLION industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.

Joseph Gacinga has no position in any stocks mentioned. The Motley Fool recommends NetSuite. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information