Posted by admin on October 29, 2009 under SaaS | 
For the last several years we have seen the adoption of Software as a Service (SaaS) as a viable, and sometimes preferred, delivery and acquisition model for enterprise software. Examples like salesforce.com, Google Apps, Taleo, and Workday show how SaaS can be an advantageous model for some software categories while other categories such as ERP have seen a slower adoption rate.
ERP software delivered as a service is still a very small percentage of the overall market. Why is that? Regardless of the reasons one thing is clear: most customers are thinking about ERP as a service, but delaying the purchase decision.
There are pros and cons for acquiring your ERP on-premise or as a service. In the end the decision needs to be based on specific needs. Given how frequently business needs change, the need for a flexible model that allows customers to shift between SaaS and on-premise models becomes extremely relevant –Software at Your Service.
Here we examine the benefits and challenges of both SaaS and on-premise delivery models for ERP applications and demystify the alleged tension between them.
Posted by manchester on March 9, 2010 under Accounting & ERP Software |
Interprise Suite announced that a group of private investors from Taylor Corporation (which acquired Interprise in 2008) will acquire the company. Along with the acquisition comes a reduction in force, relocation and reshuffling of resources, and modification of support which could cause delays in technical support during the transition week. Interprise was attempting to build a low-end ERP solution for price conscious customers.
Is this a new beginning, or the beginning of the end?
ERP Software Competitors
Currently Interprise competes against the QuickBooks for the low-end market. Interprise has many modules, but the functionality is very basic. For example, there is an inventory module, but companies that want to manage inventory by serial numbers and track lots need to upgrade to mid-market systems. Competing with QuickBooks for the low end is going to be difficult, if not impossible.
Client-Server ERP Technology
Interprise relies upon client-server technology which takes advantage of web services. They have built a smart client that is installed on all user machines. The smart client essentially acts as a web-browser with access to all computer resources. According to the Interprise web site, the smart client improves scalability because it has access to all of the resources of the client machine. Although this might be good for 1 and 2 user systems, most mid-market companies want centralized control of their ERP data which makes it difficult for the company to go up market.
Many players are trying to move away from client-server technology to facilitate faster installation and lower maintenance costs. Vendors benefit from thin-client/browser because it reduces the number of resources required to develop and test multiple client environments. A pure web-based solution can handle Windows clients, Mac clients, iPhones, and anything else with a browser without significant efforts.
Partner Efforts
Interprise is 100% channel driven. VARs provide customization, support, installation, and configuration of systems. However, the channel needs customers that can afford consulting fees, not customers looking for discounts on out of the box products.
There are sales partners which can help distribute solutions and install software, but these partners require a large volume of deals since the average cost of sale is so small. Mid-market partners are likely going to stay with mid-market vendors.
Posted by djohnson on March 3, 2010 under Reselling ERP, SaaS |
NetSuite recently announced that resellers will receive 100% commission in the first year and 10% thereafter as part of the SP 100 program. This is reportedly in an effort to win over value added resellers (VARs) who are currently aligned with Microsoft or Sage. See article in PC World. This program addresses the problem that resellers have getting up-front revenue to pay for sales cycles, commissions, and costs that are incurred during the initial deployment.
Channel Move or Publicity Stunt?
The program attempts to reward VARs (strapped for cash) in the short term, while helping NetSuite (channel problems) in the future. The question to consider is how much is the reward compared with giving up future revenue.
Customer example
Let’s assume that a customer has budgeted $100,000 to spend over 7 years for an ERP system. This money can be spent on license fees, maintenance, hardware, and ongoing customizations. The table below shows a typical schedule of payments.
SaaS versus traditional payment schedule
The net present value (NPV at 2% discount rate) of these payments favors SaaS by $3,500, but we will ignore that for now.
Focused Spending
With the traditional model, the spending is upfront and is focused on hardware, software, migration, training, customization, and integration. This is critical to mid-size businesses which require these services to match existing infrastructure and business process requirements. Many times this cost can be 3-4 times the cost of the license.
With SaaS, the majority of the $100k is spent in later years with a focus on eliminating the cost of maintaining software and paying IT personnel. Customization, implementation, and training may only be 1 time the cost of an annual payment. This model is best suited for companies which can utilize off the shelf solutions that require little integration with existing systems.
VAR Payment Schedule
Assuming that VARs earn a 30% margin on training, implementation, and integration tasks, the payment schedule for VARs under the various plans is listed below.
VAR payment for SaaS and traditional licenses
So VARs earn about the same amount of money across the different plans over a 7-year period when the customer pays $100,000.
Our Take
NetSuite is beginning to focus on the VAR channel to help get higher end customers. This is good for the VAR industry. However, the 100% year one commission program awards smaller VARs that sign up customers without adding a significant amount of value. NetSuite will end up with many low end VARs that have little incentive to maintain a relationship with their clients. More importantly, VAR programs suffer when the vendor’s main strategy is direct sales.
We doubt that this program will tempt VARs that are currently aligned with a channel focused vendor and drive value from customization and integration work.
Posted by manchester on March 1, 2010 under Accounting & ERP Software |
InfoWorld’s Pete Babb in his article “Is ERP as we know it dying?” explains that the battle on the ERP front has changed from fighting over new implementations (where relatively few opportunities exist) to fighting over add-on applications. He quotes Paul Hammerman, VP of enterprise applications at Forrester Research,
“I think the battleground is in the hundred-million-dollar to billion-dollar space. SaaS does need to evolve to have more extensibility in order to be able to serve large companies with ERP, but SaaS solutions will continue to grow in the middle section.”
Naturally, the statement from Hammerman leads to a discussion of how SAP and Oracle will adapt to compete against SaaS solutions. In the short term, Babb claims that the battlefield will be in the area of add-on solutions such as CRM. SAP and Oracle will try to convince customers that they should purchase customizations and vendor add-ons instead of integrating a third-party SaaS solution.
The Inevitable Cloud
The worst outcome for traditional ERP vendors is to win some of the initial battles against the SaaS providers. Initial wins will validate the legacy model and cause more resources to be deployed defending that turf instead of developing cloud and SaaS-ready architectures that are being demanded by the market. As the new technology vendors push forward, the old will fall further behind.
The sooner the legacy battle is lost, the sooner the industry will begin working towards SaaS and cloud interoperability which will benefit all users. See our previous article on the benefits of rewriting ERP.
Posted by djohnson on February 23, 2010 under Cloud, SaaS |
Julia King in Computerworld Article, Beyond CRM: SaaS slips into the mainstream, presents macro statistics as well as individual stories about the burgeoning SaaS industry.
Statistics we pulled from the article:
- IDC projected a 36% worldwide growth in 2009. The number was revised upward to 40.5% as a result of the recession.
- Gartner expects SaaS revenue to total $7.5B in 2009, nearly 18% higher than 2008. By 2013, SaaS spending will hit $14B.
- Computerworld study reported that 42% of survey respondents reported using SaaS in their organizations.
Impressive growth forecasts, but we need to be clear what is being forecast. The definition of SaaS means different things to different people. For example, the article describes several SaaS applications, then adds “even Schumcher’s PeopleSoft applications, including all financial software, run as a managed set of services.”
Is (PeopleSoft running in a managed environment) = (SaaS application)? In our opinion, no.
What is a Hosted Application versus a SaaS application?
The table below describes some of the characteristics which differentiate a SaaS offering from a hosted offerings.
| |
Hosted Applications
(license plus hosting) |
SaaS
(software as a service) |
Software license
|
Purchased and owned |
Rented from SaaS provider |
Software location
|
Customer selected hosting center |
Determined by SaaS provider |
Software upgrades
|
Installed by customer |
Installed by SaaS provider |
Backup services
|
Managed by customer |
Managed by SaaS provider |
Financial model
|
Capital expense |
Operational expense |
Deployment model
|
Usually single tenant |
Usually multi-tenant |
Cloud model
|
Internal or external cloud |
External cloud |
Many other characteristics are the same. Both require Internet access. Both can be web-based or require client software. Many SaaS applications can now be customized to nearly the same extent as licensed applications.
Posted by manchester on February 12, 2010 under Reselling ERP |
A recent article by Rick Whiting on CRN ChannelWeb covered a warning that NetSuite CEO Zach Nelson issued to traditional ERP channel partners. Nelson said “If traditional midmarket VARs don’t change to meet the demand for cloud computing solutions, they will go out of business.” This comment prompted a response by a traditional vendor as well as a rebuttal from a NetSuite customer.
Don’t get stuck in the past
We agree with Nelson that cloud computing is the future of ERP (disclosure: ERP Cloud News is the URL of this blog). There are many mid-sized business customers without IT expertise that need to access an ERP solution from different offices and geographies. These customers will be well served by a cloud solution.
Don’t bet too heavily on the future
The Sage reseller also makes many valid points. First, a company with only 20% channel sales does not have a great channel program. This is because NetSuite aims to replace the training and support services that VARs provide with it’s own. In addition he makes the point that many SaaS solutions do not offer the customization capabilities which are critical to the VAR business model.
Just like there are customers that will benefit from SaaS, there are customers who will benefit from a highly-customized on-premise solution.
Focus on the “Value Add” in VAR
As the Sage reseller pointed out, “VARs must add their own special sauce to the mix”. If this special sauce is a add-on module, then find a cloud solution that allows you to use your existing development skills to port your application to the cloud. If the special sauce is customizing the application, then find a cloud solution which supports robust customizations. If your special sauce is customer support and training, then find a cloud solution with a business model that provides customer ownership.
Most importantly, realize that your customers may want to switch to SaaS and back to on-premise depending on their changing business needs. A VAR which understands how to help customers through this transition will be the most valuable of all.
Posted by djohnson on February 9, 2010 under Accounting & ERP Software, SaaS |
Panorama Consulting recently published a study called the 2010 ERP Report which provides 5 key conclusions gathered from a survey of approximately 1,600 respondents who implemented various mid-range ERP solutions.
We encourage you to read the paper to see statistics on ERP implementation expeditures, timeframes, and expectations. In this post we would like to add our insights with regard to point number four, SaaS implementations take less time than on-premise, but deliver less tangible business benefits.
Observation 1: SaaS Implementations Take Less Time
Panorama Consulting: SaaS versus On-Premise Implementation Times
Observation 2: SaaS Implementations Deliver Less Tangible Benefits
Panorama Consulting: SaaS versus On-Premise Results
ERP Cloud News Analysis
Hypothesis 1: The conclusion that SaaS implementations take less time than on-premise, and deliver less value can be explained by the fact that SaaS implementations are not are being customized to the same extent as on-premise solutions.
Proof point 1: When implementation times are reported in months, it means that significant customization and integration is being done. The physical implementation of ERP software can take lnoger (maybe weeks) in a client-server implementation, but for a 18 month deployment, significant analysis, integration, and customization is required. Other things equal, SaaS will save money on physical implementation and deployment (a day or two instead of a week or two), but the amount of analysis, integration, and customization will be similar unless working with a very antiquated on-premise solution. Thus, we can conclude that the SaaS time savings in this report are being derived from the lack of customization, not from physical deployment.
Proof point 2: Given that the SaaS deployments are not customized to the extent that the on-premise solutions are, it’s not surprising that more business goals are not being met in the case of SaaS. Customizations are done to meet business goals, so forgoing them will result in the lower realization of tangible business benefits.
Hypothesis 2: A study which compared fully customized SaaS deployments with fully customized on-premise deployments would yield very similar results depending on the customer.
Observation 3: Not many SaaS solutions are fully customizable because they are written on proprietary platforms inside a controlled operating environment. The advent of cloud platforms that allow full customization are now available. These platforms will give clients more options when it comes to ERP deployments, but may result in longer implementation timeframes.
Final Opinion
Modern cloud systems are advantageous because they can be run more efficiently under some circumstances and give customers choices when it comes to implementation, customization, and integration. My selecting a flexible SaaS solution that also has an on-premise option, customers can minimize costs according to their particular business needs.
Posted by manchester on February 5, 2010 under Cloud, Reselling ERP |
Dennis Howell in his ZDnet post NetSuite to crack the cloud channel? described some positive things that both NetSuite and Intacct were doing to build a sales channel. In the process, he made the point that:
Most [SaaS companies] are going it alone rather than investing in traditional channel activities. However, it seems to me that if they are to safeguard their future, then capturing the hearts and minds of the many thousands of channel VARs is going to be critical.
Many value added resellers (VARs) read our blog, so we wanted to publically thank Dennis for the insight.
Varying VAR roles in different market sizes
- Enterprise customers: Nearly 100% of all enterprise sales are accomplished through VARs or with the help of a VAR. Software complexities, legal requirements, unique process flows, tax requirements, and much more require expertise.
- Upper-mid market and mid-market customers: VARs are particularly important for clients who need customized workflows, customized reports, and integration with other systems. VARs with a detailed knowledge of accounting and business processes can provide ERP setup and configuration advice which saves clients a lot of money down the road.
- Lower-mid market customers: Generic workflows and non-integrated SaaS solutions might work for companies which do not require extensive automation. But, we would caution that even smaller companies need the accounting and reporting advice that VARs provide and that we chronicled in an earlier post describing an implementation.
- Low end markets: Clients with sub-$1,000 budgets for software and implementation will not be able to afford a VAR, even though they may benefit from a VAR’s services.
Direct sales versus channel focused
Vendors select different channel strategies depending on the customers they target. Customers who use QuickBooks can purchase directly from Intuit, while high end customers rely on consulting services and reseller advice when buying an Oracle or SAP solution.
Few vendors are able to create a VAR program which can co-exist with direct sales. Most attempts to do so result in channel conflict and non-strategic channel programs. It will be interesting to see if NetSuite can overcome a statement that is highlighted in their financial reports: “we generate sales directly through our sales team and, to a lesser extent, indirectly through channel partners”.
In our opinion, the partner models proposed by Microsoft, Acumatica, and Sage seems to be more in line with upper tier markets.
