SaaS ERP Continues to Gain Traction in 2011
If you’ve followed our blogs and thought leadership over the last several years, you probably know that I’m skeptical of marketing hype and academic theories from industry analysts that don’t necessarily reflect reality. Software as a Service, or SaaS ERP, is one of those trends that I’ve been openly skeptical of. Granted, I’ve never doubted that SaaS has its place and niche in the industry, but I have yet to buy into the idea that traditional on-premise ERP is dead and that SaaS options will soon take over the world.
According to new data we’re about to officially publish in February, I may need to begin softening my stance. In our extensive study of ERP implementations across the globe, we found that just 6% of organizations implementing ERP were deploying SaaS options in 2009. However, this number nearly tripled to 17% in 2010. In addition to the 17% that deployed SaaS solutions, another 24% implemented ERP systems that are hosted off-site or in the cloud. In other words, nearly half of companies implementing new enterprise software are doing so in the cloud. Clearly, the trend toward SaaS and hosted ERP solutions is continuing in the new year and the new decade.
However, I’m still not convinced that every CIO reading this article should scrap their on-premise ERP system and switch to SaaS. If I had to choose between the SaaS and cloud trends, I would absolutely pick cloud computing as the direction the majority will head in the next five years. Most companies are thinking long and hard about outsourcing their IT functions, but there are always going to be a large number that benefit from the flexibility and control of on-premise solutions. Even in those cases where CIOs are looking to the cloud, the data shows that they are much more likely to deploy traditional ERP options in the cloud rather than leveraging pure SaaS solutions.
Granted, SaaS ERP still makes sense for a number of companies. For example, small and some mid-size companies often find SaaS to be simpler and more cost effective. In addition, vanilla and less complex organizations may find that SaaS options handle their business requirements just fine. Finally, ERP vendors such as Plex Systems are developing manufacturing ERP software systems that are more robust and flexible than SaaS options of years past.
Clearly, SaaS and cloud adoption are still on the rise. However, it is important to carefully consider the options that make the most sense for your organization. Learn more about our forthcoming ERP report by registering for upcoming ERP webinar or by attending our ERP Boot Camp training session in Denver.
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About Eric Kimberling
After 15 years of ERP consulting at large firms including PricewaterhouseCoopers and SchlumbergerSema, Eric realized the need for an independent consulting firm that really understands ERP. He began his career as an ERP organizational change management consultant and eventually broadened his background to include implementation project management and software selection. Eric’s background includes extensive ERP software selection, ERP organizational change, and ERP implementation project management experience. Throughout his career, Eric has helped dozens of high-profile and global companies with their ERP initiatives, including Kodak, Samsonite, Coors, Duke Energy, and Lucent Technologies to name a few. In addition to extensive ERP experience, Eric has also helped clients with business process re-engineering, merger and acquisition integration, strategic planning, and six sigma. Eric holds an MBA from Daniels College of Business at the University of Denver.
Another way to illustrate this movement toward SaaS is to ask what pre-packaged on-premise software you’ve purchased over the past year.
I’ve not bought one. And I don’t really consider anything that can’t be hosted and accessed from any web browser.
There’s probably a segment of ERP which will lag this movement to SaaS. Particularly manufacturing and wholesale distribution. But those two industries also lagged the DOS to Windows movement as well.
SaaS is the way of the future. As it stands now it’s primary barrier is that it’s much more expensive than on-premise on an annual recurring basis and most company owners aren’t buying any type of hypothetical ROI that predicts the IT person will be able to do more valuable tasks and therefore the increased SaaS fee is justified.
However pricing problems can be resolve very quickly and once SaaS pricing starts to reach the same level that on-premise software is charging — watch out.
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Interesting take. Eric, I’ve been pretty much identical to you on the thoughts that cloud/saas is being over hyped. I suffer from a classic issue in that I find it hard to sell something I don’t believe in myself. I mean, who would have thought a pet rock would sell?? Whenever I’ve looked at solutions like Netsuite and run the 10 year numbers vs. equivalent functionality in house solutions, it always seems much more expensive as I don’t buy into their ROI spreadsheets due to some ridiculous cost assumptions.
However, I can’t argue with reality and put my head in the sand. I see alot more prospects seriously considering cloud/saas and many don’t move forward in the end, but as a VAR we need to have a viable option.
I decided to voice my opinion on based on your blog post here. Link back included.
http://www.clientsfirst-us.com/blog/microsoft-dynamics/saas-vs-cloud-erp-will-2011-be-the-big-breakout-year/
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I appreciate Eric’s honesty in admitting an earlier stance needs “softening” and his fact-based conclusions. I think the ERP SaaS “pricing dilemma” alluded to by Mark is real and driven by three factors:
1) Many of the on-demand or SaaS ERP vendors including the big-ERP players like SAP with BusinessByDesign are setting prices too high for small businesses. These vendors think that just because the customer is not making an upfront investment in hardware and installation they can charge whatever they like per user per month. They can’t
2) For larger enterprises, who have procurement professionals highly skilled in trading multiple outsourcing, software license and support bidders off against each other, they can’t beat their own negotiated licensing terms for thousands of users as compared to a published SaaS price-list
3) Everyone got used to comparing capital and expense cost vs. so-called benefits for on-premise and customers are not as good at doing this for on-demand models, which is ironic because it is ten times easier. For example, over what ERP ownership life-cycle should SaaS vs. on-premise vs. cloud costs be compared?
It is only a matter of time before the ERP vendors come up with truly multi-tenant SaaS offerings where the incremental cost to set-up and support a new client is low enough to offer pricing on competitive terms to negotiated on-premise deals. And if they don’t, then new upstarts like my own company will do it instead
And when that happens the advantages of SaaS or cloud, as aptly described by Wayne (no need to install, upgrade, patch, implement, enhance, bug fix etc., basically no need for an internal ERP IT dept., really) will shine through and we won’t be talking about a trend from 6% to 17%, but from 17% to 70%. The main factor which could deflate the % going to the cloud or SaaS is if someone builds an on-premise ERP system which can self-update rather like the iPhone operating system code does.
If anyone wants to check-out my blog saying much the same thing click over to http://blog.ibe-erp.com/?p=1
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