The market for industrial enterprise resource planning (ERP) solutions topped $9 billion in 2001, according to a recent study headed by Steve Clouther, vice president, ARC Advisory Group (www.arcweb.com).

That's a far cry from the nearly $15 billion in software and services revenues recorded by ERP vendors on the eve of Y2K in 1999. Looking ahead, Clouther predicts further declines in 2002, followed by a slow recovery to $9.51 billion in sales by 2006.

What happened? "Large multinational users spent billions to re-engineer their business processes in the '90s," says Clouther.

With those very large systems in place, "the Tier 1 space is basically saturated," he says. "They will not be upgrading their ERP implementations for years."

In the meantime, three areas are expected to lead to a recovery.

First, service fees, which already account for up to 65 percent of ERP revenues, will continue to grow as licensing fees decline.

Second, Tier 1 users will add additional functionality to integrate sales, manufacturing and distribution.

Finally, there's the smaller Tier 2 and 3 manufacturers, which now need the same functionality as their larger competitors.