Although last year witnessed continued growth in a troubled climate, 2009 is another matter, warns Eagle Investment Systems president John Lehner. Increased pressure on growth in the US will put US-based vendors under pressure to expand client reach even further and consolidation may be on the cards in the long term, he speculates. The vendor has also witnessed an interesting trend: the rise of the application service provider (ASP) model.
“I think that consolidation scenario is likely but it may happen in 2010 or 2011. Given the drop in assets and the resizing of the markets as they are, it seems unlikely that there will be enough new business across the globe to support all of the vendors that are out there,” he continues.
Lehner reckons that in addition to looking at the functionalities and capabilities around data management, clients are going to assess more than ever before the financial stability, profitability and sustainability of the vendors they work with. “By default, if you are a smaller venture-based software firm with relatively low levels of revenue, then that will have an impact on your new business,” he says.
He also notes a shift for more RFPs from outside of the US for Eagle’s software and attributes it to the fact that US firms may have reacted the quickest to taking a breather in terms of market activity. But this does not mean that investment from these US firms will stop altogether, he adds: “We think that a lot of the projects around data management will continue to focus on risk exposure and reporting. People are still concerned about the level of detail needed in their data.”
Lehner also points to a growing sense in the market that there’s going to be some amount of reform and regulation at the end of this market debacle. “But what will actually be legislated that will drive additional need for additional functionality? It seems that in the US, there’s going to be a move towards globalisation and standardisation of international accounting. This will bring along with it new data requirements for institutions,” he says.
Eagle’s experience of previous market downturns will stand it in good stead, claims Lehner. “We were fortunate enough to go through the dramatic slowdown of 2002, when many firms had to cut back on their R&D. We learned that the firms that make it through these times are the firms that are continually investing and developing functionality to meet new requirements and building out service capabilities such as ASP,” he elaborates.
The driver for investment decisions is therefore an immediate cost reduction or an ability to save money now. If a data management solution shows that it can have an immediate impact and return on investment, then firms will be quick to move on it because they are under increased pressure to reduce costs, he explains. “But if the benefit of what you are doing is stretched over a longer time horizon, then the decision process will take longer,” he adds.
“The way people are looking to cut costs is opting for ASP solutions. If someone can come to the table with a shrink-wrap solution that has the necessary functionality delivered in either an ASP or an outsourced fashion, firms are more likely to opt for it. It may become the de facto standard or requirement over the next few years,” he says.
This assumption is supported by the client requests from the market, according to Lehner. “A third of our new business is being done via our hosted ASP offerings. That is a dramatic increase, as two years ago it was less than 10%. I expect that to increase and I don’t think it’s unrealistic to say that a year from now, half of our new business could be ASP, purely because of cost pressure,” he contends.
Eagle had a successful 2008 overall, adds Lehner, with the vendor achieving a number of its data management goals and increased its client base outside of the US.
The vendor added a few international organisations to its client list over the year, including Nomura Asset Management in Tokyo and AMP Funds in Australia. “We set a target for the year for 20% of our new business to come in from overseas and that number looks like it’s going to be closer to 35%. Given the conditions, we are very pleased with these results,” he says.