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In the accounting software business, about the only thing that's constant is change. The products get more powerful each year -- taking on more financial chores and doing them better and faster with each upgrade. But if you think the changes so far have been dramatic, brace yourself. The developments programmed for the next few years are going to be even more significant. Initially, the changes are coming from the high-end (so-called tier 1) products -- those used by Fortune 500 companies. Some of those changes are so compelling -- from both a marketing and a technical point of view -- that the developers of midlevel accounting software (the so-called tier 2 vendors) are seeking ways to adapt them, too. The upcoming changes fall into four categories: * High-end vendors are enlarging their market focus by packaging slimmed-down versions for smaller customers. * Applications software will be delivered not on disks or CD-ROMs, but through the Internet from central facilities. * Increasingly, customers will be able to mix and match modules from different vendors -- and the software will be fully compatible. * New products will add more focus on business analysis, the Internet and group use. Let's look at each trend. DOWNSIZING SOFTWARE If you think your company is too small to benefit from -- or even afford -- a high-end accounting software package, wait a while. In time, you may be able to afford such an application, but not necessarily because your company has grown. Many high-end vendors are marketing scaled-down packages with lower price tags specifically designed to penetrate the vastly larger middle market -- not only organizations smaller than the Fortune 500 but even smaller than the Fortune 1000. What's behind this radical move.7 It's a strategy designed to expand the market for high-end software. These vendors (companies such as SAP, PeopleSoft, Lawson) have competed in a limited market: generally, those on the Fortune 500 list. Not only are their software products designed to handle the complex finance needs of giant businesses but only those big businesses can afford the premium prices. Although revenue from sales of such products (a single module often starts at about $250,000) is significant, for years these vendors have been eyeing the vastly larger tier 2 market, which roughly comprises organizations smaller than those on the Fortune 500 list but larger than mom-and-pop shops or those that are comfortable using Peachtree and QuickBooks -- products that see in the under-$250 range. The move to scaled-down versions of the expensive software is also linked to the realization that the elite members of the Fortune 500 list come and go. In the last 15 years, for example, more than half of those companies have changed -- they have gone out of business, been acquired or just shrunk and been dropped from the business titans club. By packaging scaled-down versions of their software, the purveyors of these high-end products figure they can penetrate a larger potential market: tomorrow's Fortune 500 members -- businesses that can't yet afford (but soon will be able to) the six- and seven-figure prices of tier 1 products. The high-end vendors further reason that these up-and-coming customers would be wise to buy starter versions of the pricey products to give them the advantage of being able to step up easily to complete versions of the applications when they do graduate to Fortune 500 size. In repackaging these lower-priced applications, the vendors are being careful not to dramatically cut muscle from the software's functionality. What is being trimmed are the expensive extras, such as customization, extensive hands-on support and maintenance. Vendors claim the stripped-down products are nearly as powerful as the full versions, which is why stepping up at a later date would be so easy. While the software behemoths seek to move into this lucrative middle market to attract customers from tier 2 vendors such as MAS 90, Great Plains and Solomon, you can bet the tier 2 vendors aren't waiting idly. …
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