Cloud Market Trends

Talking recently to suppliers in the mid-market for ERP software (of which the core is accounting), it is interesting to find:

  1. On-premise software is increasingly available as a “managed service”, so a wide range of software is available on a hosted basis
  2. Where suppliers have both a made-for-the-internet SaaS offering and an on-premise offering, I have been steered strongly towards the on-premise offering, despite expressing an interest principally in SaaS.

What is other people’s experience in the ERP and other markets?

Comments

Why is this a surprise ...

JC | | Permalink

Surely this is obvious

After all, those whose main focus has historically been on-premise have realised the direction of progress and tried to shortcut (jump start) the process by enabling their products with Terminal Server etc. type solutions rather than the costly approach of starting again from scratch

As a consequence great swathes of on-premise suppliers are trying to jump on the 'Cloud' bandwagon but actually realise that their primary business in on-premise which is why they advise this course rather than their 'quick fix' Cloud solutions

As @garyturner said in:
http://www.accountingweb.co.uk/group/cloud-computing-accountants-discussion-group/how-does-cloud-computing-work

'.. An interesting metaphor that might explain some of the conceptual difference could be in public transport where hybrid or virtualized cloud applications are like running a city bus service by lashing together ten taxis. You can still carry the same number of people, but you have ten engines instead of one big one, 40 tyres instead of 4, more things to go wrong and so on ..'

and this is the crux of the matter - yes a lot of the on-premise suppliers have a hosted solution but is '.. lashing together ten taxis ..' really where the customer needs to be?
 

david_terrar's picture

I'm with JC

david_terrar | | Permalink

If you talk to the incumbent mid-market ERP players you're bound to get that kind of answer.  If I type cloud ERP in to google there isn't nearly as much choice as for cloud accounting or cloud CRM.  From this point on I'm sure (or is it hope?) you'll see the market begin to mature so there is more choice.  However, today you'll find your way to looking at NetSuite, Business ByDesign, Workday, Aqilla, Compiere hosted on Amazon, Newbase (shameless plug) or maybe something connected together from the Salesforce app store.  However, the lack of real cloud providers leaves the door open for the likes of Epicor or Infor or others to offer you their stuff hosted.    

David Terrar

www.d2c.org.uk  and www.twinfield.co.uk  

challisc's picture

I’m with JC and DT

challisc | | Permalink

Thanks for the insights. What I’m also finding is that there are both functional and commercial factors behind my observations. The best systems solution will depend on the circumstances.

Those on-premise authors who have produced made-for-the-internet SaaS offerings have tended to do so with a cut-down functionality set. For example SAP Business ByDesign is not as functional as on-premise SAP All-in-One, which is available on a managed service basis. The best independent SaaS offerings may also not fit functional needs as well as the best on-premise, depending on those needs. When the extent of functionality makes a difference, an on-premise solution may still be preferable.

At least a managed service then allows the on-premise software to be hosted so the end-user is able to access it from the internet, and outsource management of the server and comms. The end-user experience will be similar to remote access to an in-house system, but will apply to all users. Whether that and other aspects of system management are acceptable requires consideration of the specific situation.

Where both SaaS and managed on-premise systems both fulfil functional needs, then there’s pros and cons. The “buses and taxis” analogy is a good one – bus rides are cheaper but would you pay more for a personal taxi?  Could be yes or no - there’s considerations such as accessibility, upgrades and customisation - as well as the cost differential.

On the commercial front, the SaaS business model not only affects authors but also the resellers on which the mid-market relies. In the corporate and small business markets, implementation partners make their living from services rather than software. Mid-market resellers have relied more on software profits, but these are later with SaaS. Some charge annually rather than monthly to bring in more funds up-front, not least to cover sales costs. For resellers that sell both SaaS and on-premise solutions, there can be a natural commercial tendency to promote on-premise. It’s worth bearing this in mind when looking for SaaS.

garyturner's picture

Cloud apps disintermediate...

garyturner | | Permalink

...which is why conventional software distribution networks and revenue models instinctively repel them. That's why most on-premise vendors are forced to ship cloud products with one hand - because that's where the market is trending - while using the other hand to hold their noses. 

Mid-market vendors and resellers make more money from maintenance and services than they do software, typically as little as a third of all revenues are derived from software licenses. Centralising complexity in the cloud knocks a chunk out of their services and maintenance revenue which is why they promote hybrid solutions as a half-way house - as well as the fact that they will not invest the vast amount of cash to re-develop new products, or cant'. The problem is this also delivers half the benefit.

Conceptually speaking, in the mid-market the relative context of the software component as a proportion of the whole project cost is also pertinent, because when displacing an on-premise app with a cloud app, you're conceptually only reconstituting 33% of the overall project cost make-up and reducing some of the maintenance and service overhead. In that contextual equation it's easy to get muddled about whether there's likely to be a return on investment if you switch to cloud apps but retain circa 2/3rds of the project cost in other charges.

Those costs dynamics are very different in small businesses which is why we're seeing such a rapid adoption of the cloud in small businesses. Analysts don't get paid to talk about small businesses (because they don't spend money on expensive consulting and therefore small business software vendors have no relationship with analysts) and are thus generally ignorant about this space and therefore refer to the business cloud to mean all businesses when in fact they mean mid-market and up.

There's a distinct two-speed adoption of the cloud between micro/small busineses and everyone else, but commentators and analysts don't respect the that fact when they refer to the cloud in a business context they are blind to needs and behaviours of 97% of all businesses. 

Gary Turner,
UK Managing Director, Xero
@garyturner

mkcdavies's picture

Clicks & mortar

mkcdavies | | Permalink

Online vendors often use online banking as proof of the reliability of cloud-based solutions, which is OK but let's not forget that there are a lot of people who are only prepared to use online banking with the reassurance of being able to see their bank on their local high street.

New entrepreneurs, the iPad generation and others who seek to take advantage of new opportunities are not only willing to trust cloud-based solutions, they prefer them because of two things:  1. The reduction in administration.  2. The competitive edge it brings to their business.

They may start by asking thinking:  "Why would I want to bother buying, installing and maintaining software, and then have to back up my data and deal with upgrades to hardware and software, when I can rely on someone else to manage all of that for a reasonable monthly fee?"

But what really makes them love cloud solutions is the ability to use the systems that drive their businesses at any time and from wherever they are, using laptop/smartphone/tablet.  To people with such a mindset it's a no-brainer.  They may be in the minority for now, but it's a rapidly changing demographic.

Add comment
Log in or register to post comments