As business application vendors have embarked on a massive acquisition frenzy, sparking market consolidation, it could have escaped their notice that the very customers they are competing so intensely for have been making game-changing moves of their own. Instead of buying software to help automate their business processes, many companies have now handed the wholesale management of those processes to third parties.

IT advisory group Garner estimates that the market for business process outsourcing deals in 2006 will be $134.7 billion; it is growing at 8.5% a year.

This activity is drastically affecting the market into which business applications vendors are selling, blurring the definition about who is really the end user.

To date, most companies continue to buy business applications themselves and let the outsourcing partner run it, notes Christian Baader, vice president of strategy for software maker SAP’s BPO division. This ensures that the software is optimised for the user’s organisation.

Nevertheless, that situation is beginning to change and application vendors are now actively engaging with the BPO providers. According to Baader, SAP’s pursuit of the “partner engagement model” follows a maturation of customers’ attitudes towards BPO.

In engaging more with BPO providers, SAP gains by extending its distribution channel. And there is a certain cold logic to this move: as businesses outsource more of their non-core functions, it begins to matter less which applications support the outsourced processes.

So will this herald more standardised versions of business applications, as outsourcers require standard functionality?

SAP’s Baader thinks not; customers need not fear losing influence over future software developments, because irrespective of the extent of BPO, some capability always remains in house. And there will always be vendors competing for that part of the business.