Different Types of Cloud ERP

May 26, 2010
By djohnson
In a previous post, we described the differences between SaaS and hosted applications. In this article, we explain how cloud technology can be used to improve hosting options and deliver a strong SaaS environment.

Cloud Infrastructure and it’s impact on Hosting and SaaS

Cloud technology enables SaaS and powerful new forms of hosting that can reduce the cost of service delivery. Note that cloud does not equal SaaS and cloud is not mutually exclusive from hosting.

How much cloud do you need?

Customers can purchase services with different amounts of “cloud” in the service delivery stack. Assume that we have four distinct layers of delivery: cloud infrastructure (hardware resources for the cloud), cloud platform (operating system resources for the cloud), cloud applications (application resources built for the cloud), and client resources (user interface to the cloud). This distinction helps us illustrate the way cloud services are offered in the diagram below.

The Cloud Stack

Cloud Delivery Options

In this simplified diagram, we show three types of cloud services:

  • Cloud Infrastructure (for example: Amazon, GoGrid) delivers an cloud infrastructure where you install and maintain a platform and an application.
  • Cloud Platform (for example: Windows Azure) delivers a cloud platform where you install and maintain your applications without worrying about the operating environment.
  • Cloud Application (for example: Salesforce.com) delivers a complete application, all you maintain is your client access program which is frequently a browser.

SaaS ERP and Cloud Models

Even legacy ERP vendors are moving to cloud technologies to offer software as a service to their customers. When vendors offer SaaS, the customer is only responsible for maintaining their client device (usually just a browser).

Vendors can offer SaaS utilizing all three cloud infrastructures above. Some vendors such as Acumatica offer all three types of services.

  • Offering SaaS using a cloud application is straightforward. In this case the vendor builds an application which is tightly integrated with infrastructure and hardware so that the three components cannot be separated.
  • Offering SaaS using a cloud platform means that the vendor must manage the application layer separately from the platform layer. This architecture gives the vendor the flexibility to move the application to a separate cloud platform provider.
  • Offering SaaS using a cloud infrastructure is similar to a managed hosting scenario. In this case the vendor installs and manages both an operating system and their application on top of a multi-tenant hardware infrastructure. This technique provides maximum flexibility, but may increase overhead slightly.

Comparing SaaS Offering Options

Offering Advantages Challenges
SaaS using a Cloud Application
Maximizes efficiencies for “cookie cutter” applications Vendor lock-in, customer does not have option to move application to a different provider
SaaS using a Cloud Platform
Mix of flexibility and savings Coordination challenges – vendor manages the application while a service provider manages infrastructure
SaaS using a Cloud Infrastructure
Maximizes flexibility to switch providers or move on-premise Some would argue this is nothing more than a hosted service with a slightly lower pricing structure

Multi-tenant applications

Multi-tenant applications can be deployed in any scenario to reduce overhead associated with upgrading multiple customers and maintaining different versions of software. This implies that multi-tenancy reduces the flexibility to run an old version of software and limits customization and integration potential. Multi-tenant options should be priced lower to offset the loss of flexibility.

** Recommendation **

For a complex application such as enterprise resource planning (ERP), we advise selecting a vendor that can provide flexibility. ERP systems are not like CRM, email, or other cookie-cutter applications. Your ERP application needs to grow and change as your business changes.

Key questions that you need to ask:
1. Do you need significant customizations and interfaces with on-premise systems?
2. Will you need to move your ERP architecture on-premise in the future?
3. Do you need to own your operating environment and the location of your data?
4. Do you prefer to own software instead of renting it?

If you answered “yes” or “maybe” to any of these questions, you should consider the Cloud Platform or Cloud Infrastructure options. These options provide maximum flexibility as well as the option to own your software.

If you answered “no” to these questions, then a cloud application may provide price benefits that offset the vendor lock-in issues. Be careful that the price that the vendor quotes in year 1 is not going to change significantly in the future when it may be difficult to leave the platform.

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5 Responses to “ Different Types of Cloud ERP ”

  1. Joubert on May 28, 2010 at 3:39 pm

    Your article is good insofar as it goes, but it doesn’t go far enough. There is a huge distinction between single-tenant and multi-tenant hosting, and you make the distinction sound like a footnote.

    Your assertion that “Multi-tenant options should be priced lower to offset the lost of flexibility” is specious. Which flexibility are you losing, the flexibility of paying for shelfware? for doing costly and disruptive upgrades? for deferring maintenance and falling behind the technology curve? for customizing the code until you own it forever? for maintaining expensive IT staff? for maintaining a global network of servers and support staff?

    You attempt to justify a cloud platoform by asserting that such flexibility is desirable. Then, you ask leading questions to justify your recommendation. Customizations are a major contributor to lock-in and costly upgrades, so why not try and do them with a SaaS solution where they are forwardly compatible? Why would I need to move my ERP architecture on-premise when it is far safer and more reliable being administered by professionals in the cloud? For the same reasons, why would I need to own my operating environment and the location of my data? How many security breaches of SaaS hosting companies have we heard of? Why would I want to hand over bags of cash now for licenses I may not use in the future instead of renting them and adapting subscription rates to my business. Do you know how many licenses you’re going to need in 3 or 5 years?

    Multi-tenant SaaS is the wave of the future. While decoupling the application and OS from the infrastructure is laudable, I don’t think it is a realistic choice at this time.

  2. Manchester on June 1, 2010 at 1:08 pm

    re: Joubert Comment
    Thank you for your comments. I think a posting dedicated to multi-tenancy is in order. As you mentioned, its too much to cover in one paragraph.

    Key items to cover include flexibility, cost, control, expertise.

  3. David Chou on June 6, 2010 at 9:33 pm

    Great post! Just want to take the opportunity and point out that there’s more to cloud computing than the popular notion of hosting in the cloud. With cloud platforms, the aspect of “without worrying about the operating environment” can significantly simplify the implementation of horizontally scalable applications (Facebook, Twitter, or Mafia Wars and Farmville), which is a different class of applications architected differently than today’s vertically scaling business applications (or like ERP applications). When leveraged effectively, these applications can operate in an environment that assumes a near-infinite amount of infrastructure, and can result in new business models and initiatives than trying to lift-and-shift traditional applications into a utility computing model.

    We think cloud computing, when leveraged correctly, can improve IT agility (in being able to deliver services quicker and cheaper) which in turn can yield many business benefits, and is probably what CIO’s should focus on, rather than simply cost reduction.

    Of course, this is also more related to the multi-tenant SaaS context as discussed earlier, as that type of applications will typically be architected using similar principles. :)

    Best regards, -David Chou (Microsoft)

  4. Thiva on June 23, 2010 at 1:09 pm

    Your post is good..

    In the recommendation part, you mentioned about “Key questions”
    3. Do you need to own your operating environment and the location of your data?
    4. Do you prefer to own software instead of renting it?

    If we move to cloud platform, how could we own the operating environment and the location of our data? cuz the data will be stored somewhere in the data centre. We completely lose control over our data. There is no more operating environment. We just have to work with the browser to access the application.
    Cloud idea is basically for “Renting” and not “owning” something..

    So if we answer “Yes” or “Maybe” to these questions, then we should prefer only On Premise Solution.

    Correct me if I’m wrong.

    For small business solutions cloud may provide some good space but for ERP I feel it’s too early to migrate to cloud. Since cloud computing doesn’t have any data governance and it has got to mature in terms of standardization.


  5. Andrew Hayward on July 21, 2010 at 11:43 am

    Given that a major reason for organisations looking to the cloud for ERP deployment is cost savings, there still remains the barrier of expensive implementation service delivery. As we all know, the licence costs of any ERP implementation is only an element and an ever decreasing one in some vendors strategy! A SaaS model of pricing for both software AND implementation services (including on-going support) thus removing any initial expenditure would be true SaaS. It changes the way service delivery companies will operate but it has to be the way to go!

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