Is Cloud Ringing the Death Toll for ERP?

Cloud computing is here to stay, but what does that mean for those who sell and implement ERP solutions today?

First, it means that there is a new way in which business software solutions are being purchased and consumed, and that means resellers need to pay close attention to the way they run their business. Secondly, it means that if ERP companies wish to remain in the game, they need to make some significant changes.

Cloud on its own doesn’t affect the validity of ERP. Businesses still require management software to help them run their organization effectively. What Cloud does do however, is level the playing field and make ERP solutions more accessible to the consumer. That means publishers and resellers need to pay attention.

New Cloud companies are popping up every day, and while laggards scramble to bring their on-premise solutions to the Cloud, these born in the Cloud players are discovering faster, easier, and less expensive ways to deliver ERP. Complex, highly customized and bulky solutions which come with a hefty price tag and a collection of features and functionality not required by the end-user are quickly being replaced by pay as you go solutions. Customer expectations are also changing; soon no one will be willing to accept that ERP requires a huge capital expenditure and lifelong commitment without first researching alternatives in the cloud.

 

Cloud ERP Product Cycle
Product Lifecycle for Cloud ERP Offering

 

While Cloud ERP is still an emerging market, it is fair to say that we’re moving beyond the early adopter stage. We’ve crossed the chasm, and are quickly headed towards the early majority market. Within the next 2 years we can expect to see a majority of ERP purchases made in the cloud.  In our opinion, Cloud ERP will not be an initial threat to a vendor’s existing up-market ERP customer base.  This market is highly saturated (+90%) and today we do not see a compelling value proposition for large customers to move completely to the Cloud.  We do see opportunities where Fortune 500 ERP customers may be interested in implementing edge software products in the cloud (ex. travel & expense, self-service, tax calculation and compliance, etc) as part of a hybrid deployment model.  Where we do see a threat/challenge to on-premise ERP is in the SMB arena – especially for new customers.  This market continues to be a strategic growth area for ERP and customers have a greater flexibility to leverage a SaaS or Cloud model.

The Fate of ERP

While it doesn’t appear that the fate of on-premise ERP solutions is entirely bleak, there will certainly be a marked shift towards Cloud based ones. In fact, the resellers can already feel this happening.  There are fewer people out there looking for business management systems in general, and in a time of economic uncertainty and tight budgets, the appeal of an operating expense and a per-seat price is more than appealing. Customers are becoming more likely to change their processes to align with the functions of a less expensive Cloud based solution, than to go through the process of building one which is fully customized. What’s more, people are less likely to pay the large price tag most often associated with ERP services, instead preferring a solution in which they can turn off functions (thus reducing costs) at their leisure. 

So no, Cloud isn’t exactly ringing the death toll for ERP solutions, but it is changing them. ERP will always be required by many types of organizations, but on-premise ERP may in fact not survive this shift long-term. If traditional ERP companies hope to survive the transition they need to be proactive about developing their Cloud solutions, and that means more than throwing up a landing page and calling yourself a Cloud player.

So what do you do?

If you’re an on-premise ERP reseller with no Cloud transition plan, you better get started. That means developing a team to strategize taking your solution to the cloud, putting the necessary resources behind it, and understanding why some customers have an inherent fear of the Cloud. If you’re already developing your Cloud solution, then keep at it and make sure you’re not just focusing on the solution, but on the marketing and sales as well. And if you’re already well entrenched with an ERP solution in the Cloud, then you should get ready to defend your competitive position because you won’t be alone for long.

ERP Deployment Types
ERP Deployment Types

 

Additionally, if you’re a company seeking out a new ERP system, you should carefully consider the benefits of using a Cloud solution. While we’re only entering the early majority market, Cloud computing is the wave of the future. As consumption models go, Cloud works for a majority of businesses today, and the list continues to grow. If you’re looking to move some of your capital expenses into operating expenses, and looking for a better way to manage your business, ERP in the Cloud might just be for you.

Guest blog by Jason Carroll with contributions from Brett Beaubouef

Jason is an industry analyst for Software ThinkTank.  Software ThinkTank is an online resource that helps businesses keep up-to-date with the latest trends, technology innovations and business solutions through a range of articles, case studies, guides and tools. Visit SoftwareThinkTank.com for more information.

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