Oracle (ORCL) , Microsoft (MSFT) , and SAP (SAP) are likely to face tougher challenges from smaller players in the $300 billion enterprise software market as an increasing number of clients prioritize user-friendliness and innovation over the size of the suppliers, according to a research by GP Bullhound.

"The days when the largest vendors were assumed to provide the best solutions are gone," the M&A advisor said in a report published Friday. "Today, forward-thinking corporate users are on a never-ending search for better, more agile and innovative solutions that would meet their demands."

GP Bullhound, a London-based M&A advisor for the technology sector, published the report including findings from its survey with over 150 tech professionals, 61% of which were users and the remainder vendors.

The rise of smaller software players is driven partly by a shift in the decision-makers of a user organization to regional offices and end-users from top level executives. And the focus by these decision makers on user-friendliness, localization, and specialization are turning them towards emerging players who can better meet those needs compared with the likes of Dell EMC, Microsoft, SAP, and Oracle.

"In an environment of fierce competition, where being great at one thing is better than being just good at a lot, companies are being forced to focus on their core strengths in order to survive and succeed," the report said. "Vendors of Enterprise Software that help their users concentrate on what they do best while bridging efficiency gaps in their operations will add true value, and therefore prevail."

New delivery models, which are likely to increase further, are also allowing the challengers to meet the legacy players "on a level playing field," GP Bullhound said.

Cloud-based applications, which involve hosting platforms remotely rather than on premise, has not only lifted the software players' burden on installation, but also created a model that involve recurring fees for the services rather than just one-off payments. These factors have created ample room for smaller players to squeeze in and compete head-on with the large players.

The research found that an increasing number of clients are turning to cloud services, which include software as a service (SaaS) and infrastructure as a service (Iaas), given their ease of use and their ability to tackle Big Data, among other factors.

"The shift had a tremendous impact on the industry," the report said. "Even the most established incumbents were forced to gradually adjust the way they were conducting business as the growing share and extreme success story of SaaS, as well as more favourable valuations of SaaS companies, could no longer be ignored."

Evidently, the giants are not letting these opportunities pass them by.

Between the second half of 2014 and the first half of 2016, more than 3,300 M&A deals were announced in the software sector. A major part of the story is the need to acquire cloud-based applications-- more than 75% of the targets were SaaS companies, the research found.

This includes SAP's acquisition of cloud-based travel-and-expense management vendor Concur in 2014, and Microsoft and Salesforce.com's purchase of cloud integration provider Informatica.

Europe's largest player SAP last month raised its full-year earnings forecast, after its cloud business gained transaction. In the third quarter, SAP reported a 9% jump in cloud and software revenue, partly supported by its S4/Hana, which includes a cloud platform.

The enterprise software market, which is comprised of six sub segments, including enterprise resource planning (ERP) and customer relationship management (CRM), is estimated to expand at a compound annual growth rate of 6% to $409 billion by 2020 from a likely $321 billion in 2016, according to Statista.

The ERP market, which is the largest, and long dominated by Oracle, SAP, and Microsoft Dynamics, is estimated to be worth $31.8 billion in 2016. Meanwhile, the CRM market is expected to reach $31.7 billion, largely driven by high adoption of SaaS.

GP Bullhound, founded in 1999, has completed more than 230 deals. It is involved in 25 to 30 deals per year.

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