Dedham, Massachusetts -- The Transportation Management Systems (TMS) market grew by only 1.5 percent in 2003, a much lower rate than forecasted. The slow growth, however, was not due to lack of demand; it was caused primarily by the financial struggles of three leading vendors.
If you subtract these vendors from the equation, the rest of the market grew by 10.6 percent, a higher rate than previously forecasted. But the recipe for success in the TMS market is changing nonetheless, creating challenges for established leaders and newcomers alike.
According to Adrian Gonzalez, Director of ARC's Logistics Executive Council and author of the new study Transportation Management Systems Worldwide Outlook, "There are several factors that are forcing TMS vendors to revisit their strategies and product development plans. These include the growing acceptance of subscription-based pricing and 'on demand' deployments; the obsolescence of traditional, batch-oriented optimization; and stronger competition from ERP vendors like SAP and Oracle."
ARC is forecasting a Cumulative Annual Growth Rate (CAGR) of 7.1 percent over the next five years, from $873 million in 2003 to over $1,228 million in 2008.
Recurring Revenues Displace License and Maintenance Fees
The growing adoption of recurring revenue pricing models such as subscription fees is also impacting the market's growth rate. Recurring revenues grew by 9 percent in 2003 and have increased by 27 percent since 2001, while both license fees and maintenance fees declined last year.
"The shift in pricing model is effectively spreading out revenue across multiple years, thereby making it difficult to make year-over-year comparisons using the existing methodology," explains Gonzalez. "Assuming recurring revenues continue to displace license and maintenance fees, a more useful measure for evaluating the market will be tracking the change in revenue backlog or deferred revenue."
The Network Effect
Externally hosted solutions accounted for almost 32 percent of TMS revenues last year, up from 28 percent in 2002.
"Companies are taking a net value perspective when considering IT investments, and in many cases a hosted solution coupled with a recurring pricing model is the best option," explains Gonzalez. "But not all hosted solutions are created equal. Those that truly create a many-to-many network arguably offer the greatest value proposition by enabling new business processes and facilitating collaboration amongst shippers, carriers, and other network participants."
Rise of the Titans
Although ERP vendors have historically lagged the best-of-breed players in terms of functionality, the gap is beginning to close.
"ERP vendors have certainly moved beyond the PowerPoint stage," says Gonzalez. "Some companies are already planning to replace their best-of-breed TMS with an ERP offering. If this practice becomes widespread, how can best-of-breed vendors continue to compete?" The study addresses these topics in greater detail and includes market shares by solution type, geographic region, customer tier, and vertical industry, plus forecasts and supplier profiles. Additional information can be found at: www.arcweb.com/res/tms